Norway sitting on 'resource gold mine'

Stallled: Johan Castberg is facing technical and commercial obstacles to development

Norway is sitting on a gold mine of 10 billion barrels of oil equivalent in untapped discovered hydrocarbon resources worth an estimated $106 billion but significant technical and commercial obstacles are barring the way to the glittering prize, according to Wood Mackenzie.

The potential resource haul is hidden in 206 discoveries, including the giant Johan Sverdrup find with estimated volumes of 2.4 billion boe, with about half of the volumes in the North Sea and the remainder divided roughly equally between the Norwegian and Barents seas, the UK-based research firm stated in a new analysis.

WoodMac estimates that more than 60% of the estimated resource tally could be commercialised to generate significant returns in the form of oil and gas revenue.

"We consider 4.8 billion boe likely to be economic, 1.6 billion boe potentially economic and the remaining 3.6 billion boe not commercial and therefore will remain undeveloped,” said North-West Europe upstream analyst James Webb.

“From this we estimate the volumes in the likely and potentially economic discoveries represent $22 billion of potential value for companies in the sector and $84 billion in tax revenue alone for the Norwegian government - excluding the profits of Statoil and the State’s Direct Financial Interest (SDFI).”

However, exploitation of the resources remains challenged by a range of technical obstacles – such as low reserves, lack of infrastructure and complex geoglogy - while stricter capital discipline and project prioritisation by oil companies such as Statoil are also putting the brakes on development and Webb said “not all undeveloped discoveries will reach commerciality”.

"Commercially, the global upstream industry faces an extremely difficult economic environment. Investors are increasingly demanding bigger dividends and a better rate of return,” he explained.

“As a result, many companies have committed to stricter capital discipline and are intensely screening projects based on financial criteria. Capital-intensive projects are particularly being scrutinised. This means more difficult projects could be delayed, and in some circumstances will simply remain undeveloped.”

Statoil has already postponed development of the $15 billion Johan Castberg discovery in the Barents Sea where a lack of resources in the remote Arctic region lacking existing infrastructure, as well as a punitive tax hike and higher costs, have undermined the commerciality of the project.

Webb said recent exploration success off Norway has also hindered the pace of development of discoveries.

"Over the last five years the average size of new discoveries has been greater than the average undeveloped field and therefore new fields have been prioritised,” he said.

As a result, more complex developments – such as high-pressure and high-temperature fields – have been delayed in favour of simpler projects, according to the analyst.

 However, the Edinburgh-based consultancy still believes the pipeline of future developments off Norway remains strong, with the undeveloped resources accounting for much of the value creation for companies such as Lundin Petroleum and Det Norske Oljeselskap.

“This creates an incentive to quickly commercialise the finds and bring them on stream,” Webb said, adding that increased co-operation between oil companies, the SDFI and government was “vital” to realising development of these resources.

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