Investments and operating costs

In 2015 and 2016, investments in the Norwegian petroleum industry dropped after many years of strong growth. There are several explanations for this: many major development projects have been completed or are nearing completion, some new projects have been postponed, steps are being taken to improve operating efficiency and costs are being cut. Trends of declining investment levels are expected to level off in the coming years. However, the activity level is expected to remain high in historical terms.
In 2015 and 2016, investments in the Norwegian petroleum industry dropped after many years of strong growth. There are several explanations for this: many major development projects have been completed or are nearing completion, some new projects have been postponed, steps are being taken to improve operating efficiency and costs are being cut. Trends of declining investment levels are expected to level off in the coming years. However, the activity level is expected to remain high in historical terms.
Overall costs Exploration costs Investments Operating costs

Major investments have been made in exploration, field development, transport infrastructure and onshore facilities since petroleum activities started on the Norwegian continental shelf. Fields that are on stream also continue to require a substantial level of investment. Much of the Norwegian shelf is now served by an extensive network of installations, pipelines and onshore facilities. New discoveries can be tied in to this infrastructure. This will encourage a high level of activity and effective exploitation of resources on the shelf in the years ahead.

As the most easily accessible petroleum resources are developed first, the remaining resources are more difficult to extract or are further from existing infrastructure and markets, generally resulting in rising production and transport costs. The costs per unit of oil or gas produced therefore tend to rise over time.

Moreover, the extraordinarily high activity level on the Norwegian continental shelf in recent years has resulted in steep growth in investment and operating costs. There has been a similar general trend internationally. High demand and higher oil and gas prices have made investments in the petroleum sector very attractive. At the same time, development and operating costs have risen a good deal as a result of the high demand for a limited supply of input factors needed by the sector. This trend has now reversed, and both costs and the activity level are dropping to more sustainable levels.

The trend has reversed, and both costs and the activity level are dropping to more sustainable levels

Many of the large development projects on the Norwegian shelf are now nearing completion or have been completed and the fields are now in production. This means that the surge in development activity has passed its peak, and a downward trend in investments is expected in the time ahead. Moreover, there has been a steep fall in oil prices since the second half of 2014. Together with the high cost level, this is reducing profitability in the petroleum sector.

The oil companies and the supply industry are working hard to improve profitability by operating more efficiently and reducing costs. This will make new projects profitable even if oil prices are low. In addition, the level of activity is expected to remain high, partly because the very large Johan Sverdrup project is under way.

The cost forecasts below are based on a number of assumptions about oil price developments, cost trends and investment decisions by oil companies. The estimated figures are therefore very uncertain, and the uncertainty increases over time.

Johan Sverdrup field (Fase 1)
Concept drawing of the Johan Sverdrup field (Phase 1). Photo: Statoil ASA

Overall costs

The high level of investments and exploration activity in recent years, combined with rising operating costs as new fields start to produce, resulted in record overall costs on the Norwegian continental shelf in 2014. The lower activity level and cost reductions in 2015/2016 resulted in a considerable reduction in overall costs, but the cost level remains historically high.

The figure below shows historical figures and cost forecasts for the Norwegian shelf for investments, field operation, concept studies and decommissioning and disposal after cessation of production. In 2016, the overall costs were about NOK 233 billion. Investments made up about 58% of this, operating costs 24%, and exploration costs just over 9%.

Overall costs by category

Updated: 12.01.2017

Historical figures for 2011-2016 and forecast for 2017-2021

Source: Norwegian Petroleum Directorate

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Overall costs by category – Historical figures for 2011-2016 and forecast for 2017-2021

Exploration costs

Exploration costs include costs related to seismic data acquisition to map potential petroleum deposits under the seabed and to drilling exploration wells. Exploration wells are divided into two types, wildcat wells and appraisal wells. Wildcat wells are drilled to find out whether there are hydrocarbons below the seabed. When a discovery has been made, appraisal wells may be drilled to obtain more data about the size and extent of the discovery.

In 2016, exploration costs on the Norwegian shelf totalled about NOK 22 billion. In all, 36 exploration wells were spudded, 28 of which were wildcat wells and the remaining eight appraisal wells. In 2015, 56 wells were spudded, and on average, 40 exploration wells have been drilled every year since 2000.

In 2016, exploration resulted in 18 discoveries, most of them small and near existing fields. Since exploration activity is closely related to oil prices, the level of activity is expected to be lower in the years ahead than it has been in recent years.

Exploration costs and number of exploration wells

Updated: 12.01.2017

Historical figures for 2011-2016 and forecast for 2017-2021

Source: Norwegian Petroleum Directorate

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Exploration costs and number of exploration wells – Historical figures for 2011-2016 and forecast for 2017-2021

Investments

Major investments have been made in field development, transport infrastructure and onshore facilities in Norway. Substantial investments are also continuing in producing fields in order to improve recovery and extend the lifetime of the fields. This requires new wells, modification of existing facilities and new infrastructure.

In 2016, investments excluding exploration totalled around NOK 135 billion. Investments in the petroleum sector account for about ¼ of total investments in productive capital in Norway. This is far more than for any other industry in Norway. Even the smaller offshore projects are comparable to the largest industrial investments in mainland Norway.

Investments in the petroleum sector account for about ¼ of total investments in productive capital in Norway

Development activity on the Norwegian shelf has reached record levels in recent years. However, many projects have now been completed or are nearing completion, and as a result, the investment level in 2016 and the forecasts for the next few years are lower than in the previous years.

Two new fields, Goliat and Ivar Aasen, started production in 2016. A further seven fields were under development at the end of the year. Five plans for new developments (PDOs) were submitted to the authorities during 2016. One PDO was approved by the authorities in 2016, for the development of Oseberg West Flank.

Investments distributed on field status

Updated: 12.01.2017

Historical figures for 2011-2016 and forecast for 2017-2021

Source: Norwegian Petroleum Directorate

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Investments distributed on field status – Historical figures for 2011-2016 and forecast for 2017-2021

Investments by main category

Updated: 12.01.2017

Historical figures for 2011-2016 and forecast for 2017-2021

Source: Norwegian Petroleum Directorate

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Investments by main category – Historical figures for 2011-2016 and forecast for 2017-2021

Operating costs

The main types of operating costs on the Norwegian shelf are those related to the maintenance of platforms and wells and the costs of day-to-day operation of the facilities. These include labour costs for all personnel who are involved in running modifications and maintenance of machinery and other equipment. This work is essential if costly stoppages are to be avoided.

At the end of 2016, 80 fields on the Norwegian continental shelf were producing oil and gas, and the total operating costs for the year were about NOK 60 billion. The operating companies are engaged in efforts to reduce operating costs, but since more and more fields are coming on stream, the level of operating costs will remain stable and high in the years ahead.

Operating costs distributed on field status

Updated: 12.01.2017

Historical figures for 2011-2016 and forecast for 2017-2021

Source: Norwegian Petroleum Directorate

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Operating costs distributed on field status – Historical figures for 2011-2016 and forecast for 2017-2021

Operating costs by main category

Updated: 12.01.2017

Historical figures for 2011-2016 and forecast for 2017-2021

Source: Norwegian Petroleum Directorate

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Operating costs by main category – Historical figures for 2011-2016 and forecast for 2017-2021
Updated: 16.01.2017