Norway's oil and gas production growth and record cash flows in 2022 will strengthen balance sheets while there’s a record number of final investment decisions for projects in the nation on the table, according to UK-headquartered consultants Wood Mackenzie.
The high activity level is driven by the temporary tax package that the parliament introduced in summer 2020 to secure activity during the pandemic.
Neivan Boroujerdi, WoodMac's principal analyst, European upstream, expects companies to book record profits next year.
“Cost cutting carried out during previous downturns will combine with strong prices to generate cash flow generation levels never seen before on the Norwegian Continental Shelf,” he said.
Total Norway production will uptick slightly to just over 4 million barrels of oil equivalent per day, thanks to recent and upcoming start-ups including Equinor’s Martin Linge, Johan Sverdrup Phase 2 and Njord Future plus Wintershall DEA’s Dvalin.
Norway’s response to the European gas crunch will also help boost output.
“Increased gas permits at Troll and Oseberg will take effect at current spot prices. It is possible that in 2022 Norway will see new record gas production, beating the 125 billion cubic metres it posted in 2017," WoodMac’s analysis states.
Investment will dip slightly in 2022, to US$17 billion, its lowest since 2003. But the fall will be short-lived with a record number of final investment decisions on the table.
The consultant said as many as 25 projects across the NCS could get the green light, equating to more than $30 billion of future investment.
Norway’s temporary terms – which expire in 12 months – are driving the activity making it a global hotspot for offshore investment.
“The giant NOAKA and Wisting projects are ones to watch, making up over a third of the more than 2.5 billion barrels of oil equivalent in the hopper," according to Boroujerdi.
“The economics look good, too,” he said.
Average project break-evens are, according to Woodmac, below $30 per barrel (net present value with 10% forward discount rate) making these projects some of the most competitive globally.
“But the spike in activity will stretch the Norwegian supply chain, which means longer lead times and higher rig rates are possible."
Norway already has the lowest emissions intensity of all major producers and decarbonisation continues to gain momentum.
Next year will see five electrification projects, totalling $3 billion in investment, sanctioned in Norway across a mix of existing and new developments.