Investments and operating costs

After many years of high growth, investments fell after 2014. High cost levels and falling oil prices resulted in significant profitability challenges. New projects were postponed, and existing plans reviewed and altered. Great importance has been placed on efficiency and simplification. Because of a wide range of initiatives, cost levels are now significantly reduced. The trend of declining investment levels is now levelling off and investments are expected to rise again the next few years. The activity level in the coming years is expected to remain high in historical terms.
After many years of high growth, investments fell after 2014. High cost levels and falling oil prices resulted in significant profitability challenges. New projects were postponed, and existing plans reviewed and altered. Great importance has been placed on efficiency and simplification. Because of a wide range of initiatives, cost levels are now significantly reduced. The trend of declining investment levels is now levelling off and investments are expected to rise again the next few years. The activity level in the coming years 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.

An extraordinarily high activity level on the Norwegian continental shelf in recent years resulted in steep growth in investment and operating costs. There had been a similar general trend internationally. High demand and higher oil and gas prices made investments in the petroleum sector very attractive. At the same time, development and operating costs increased considerably as a result of the high demand for a limited supply of input factors needed by the sector. This trend reversed in 2014, and both activity and costs are now declining towards more sustainable levels.

Activity and costs are at more sustainable levels

The oil companies and the supply industry have worked hard to improve profitability by operating more efficiently and reducing costs. This makes new projects profitable even if oil prices are low. Various measures have additionally been implemented to reduce operating costs. The sum of these initiatives resulted in significant cost reductions.

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, combined with rising operating costs, resulted in record overall costs on the Norwegian continental shelf in 2014. The development after 2014 has led to a considerable reduction in total 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 2017, the overall costs were about NOK 210 billion. Investments made up about 60% of this, operating costs 25%, and exploration costs just over 10%. Total costs are expected to remain at about the same level in 2018 and rise moderately thereafter.

Overall costs by category

Updated: 11.01.2018

Historical figures for 2007-2016 and forecast for 2017-2022

Source: Norwegian Petroleum Directorate

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Overall costs by category – Historical figures for 2007-2016 and forecast for 2017-2022

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 2017, exploration costs on the Norwegian shelf totalled about NOK 19 billion. In total, 36 exploration wells were spudded, 24 of which were wildcat wells and 12 appraisal wells. The same number of exploration wells were spudded in 2016.

Exploration drilling resulted in 11 discoveries in 2017, most of them small and near existing fields. A moderate increase in number of exploration wells and exploration costs is expected in the next few years.

Exploration costs and number of exploration wells

Updated: 11.01.2018

Historical figures for 2007-2016 and forecast for 2017-2022

Source: Norwegian Petroleum Directorate

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Exploration costs and number of exploration wells – Historical figures for 2007-2016 and forecast for 2017-2022

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 2017, investments excluding exploration totalled around NOK 122 billion. Total investments are expected to increase slightly to about NOK 124 billion in 2018, which means that investments in the petroleum sector account for about 1/5 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 1/5 of total investments in productive capital in Norway

Several major projects on fields in operation as well as new field developments will contribute to increasing investments in the coming years.

Five new fields started production in 2017: Gina Krog, Maria, Flyndre, Sindre and Byrding. A further nine fields were under development at the end of the year. Ten plans for new developments (PDOs) were submitted to the authorities during 2017, and eight PDOs were approved.

Investments distributed on field status

Updated: 11.01.2018

Historical figures for 2006-2016 and forecast for 2017-2022

Source: Norwegian Petroleum Directorate

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Investments distributed on field status – Historical figures for 2006-2016 and forecast for 2017-2022

Investments by main category

Updated: 11.01.2018

Historical figures for 2006-2016 and forecast for 2017-2022

Source: Norwegian Petroleum Directorate

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Investments by main category – Historical figures for 2006-2016 and forecast for 2017-2022

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 2017, 85 fields on the Norwegian continental shelf were producing oil and gas, and the total operating costs for the year were about NOK 50 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: 11.01.2018

Historical figures for 2006-2016 and forecast for 2017-2022

Source: Norwegian Petroleum Directorate

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Operating costs distributed on field status – Historical figures for 2006-2016 and forecast for 2017-2022

Operating costs by main category

Updated: 11.01.2018

Historical figures for 2006-2016 and forecast for 2017-2022

Source: Norwegian Petroleum Directorate

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Operating costs by main category – Historical figures for 2006-2016 and forecast for 2017-2022
Updated: 12.01.2018