Investments and operating costs

The operators and the service and supply industry have managed to reduce costs and increase efficiency over the last few years, resulting in profitable projects even at low oil prices. The authorities have received a total of five plans for development and operations (PDO) during 2020, which is positive for the level of activity going forward. Uncertainty related to future oil and gas prices as well as consequences of the pandemic makes for considerable uncertainty related to the level of activity in the next few years.
The operators and the service and supply industry have managed to reduce costs and increase efficiency over the last few years, resulting in profitable projects even at low oil prices. The authorities have received a total of five plans for development and operations (PDO) during 2020, which is positive for the level of activity going forward. Uncertainty related to future oil and gas prices as well as consequences of the pandemic makes for considerable uncertainty related to the level of activity in the next few years.
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 and pipelines tied into onshore facilities. New discoveries can be tied back to this infrastructure. This will encourage a high level of activity and effective exploitation of resources on the shelf in the years ahead.

An extraordinarily high activity level on the Norwegian continental shelf over several 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 it very attractive to invest in the petroleum sector. 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 at more sustainable levels.

Costs are at more sustainable levels, which makes new projects profitable at lower price 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 has resulted in significant cost reductions.

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

Johan Sverdrup field (phase 1)
Concept drawing of the Johan Sverdrup field (phase 1). Illustration: Equinor

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. Developments after 2014 have led to a considerable reduction in total costs, but the activity level today is historically high.

The figure below shows historical figures and estimates for the Norwegian shelf for investments, costs for field operation, exploration, decommissioning and disposal, as well as other costs. In 2020, the overall costs were slightly above NOK 250 billion. Investments made up about 60 per cent of this, operating costs 25 per cent, and exploration costs about 10 per cent. Total costs are expected to decrease slightly in the next few years.

Overall costs by category

Updated: 14.01.2021

Historical figures for 2008-2019 and forecast for 2020-2025

Source: Norwegian Petroleum Directorate

Print illustration Download data Overall costs by category Download PDF Download as image (PNG)

Overall costs by category – Historical figures for 2008-2019 and forecast for 2020-2025

Høykontrast Modus

Exploration costs

Exploration costs include costs related to seismic data acquisition to map potential petroleum deposits under the seabed and related 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 2020, exploration costs on the Norwegian shelf totaled about NOK 23 billion. In total, 31 exploration wells were spudded, 26 were wildcat wells and 5 were appraisal wells. Exploration drilling resulted in 14 discoveries in 2020.

Exploration costs and number of exploration wells

Updated: 14.01.2021

Historical figures for 2008-2019 and forecast for 2020-2025

Source: Norwegian Petroleum Directorate

Print illustration Download data Exploration costs and number of exploration wells Download PDF Download as image (PNG)

Exploration costs and number of exploration wells – Historical figures for 2008-2019 and forecast for 2020-2025

Høykontrast Modus

Investments

Major investments have been made in field development, infrastructure and onshore facilities in Norway. At the same time, substantial investments are being made 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 2020, investments, excluding exploration, were around NOK 155 billion. Total investments are expected to fall about NOK 10 billion in 2021. This means that investments in the petroleum sector account for about 20 per cent of total investments in production 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 on mainland Norway.

Uncertainty related to future oil and gas prices and the effects of the pandemic means that there is considerable uncertainty related to the level of activity in the next few years. In order to improve the liquidity of the companies, and to provide increased opportunities to execute planned investments, the Storting adopted temporary amendments to the Petroleum Tax Act in June 2020.

Investments in the petroleum sector account for about 20 per cent of total investments in production capital in Norway

Three new fields started production in 2020: Skogul, Ærfugl and Dvalin. Tor also started production again after a redevelopment of the field. In addition, a large improved-recovery project, Snorre Expansion, was put into production. Nine fields were under development at the end of 2020.

In 2020, five plans for development and operation (PDO) have been submitted to the authorities. This number includes PDO amendments and exemptions. The largest ones are the PDO for Hod Redevelopment and the PDO forBreidablikk, both in North Sea.

Several larger projects on fields in operation, as well as new field developments, contribute to a relatively stable activity level for the next few years.

Investments distributed on field status

Updated: 14.01.2021

Historical figures for 2008-2019 and forecast for 2020-2025

Source: Norwegian Petroleum Directorate

Print illustration Download data Investments distributed on field status Download PDF Download as image (PNG)

Investments distributed on field status – Historical figures for 2008-2019 and forecast for 2020-2025

Høykontrast Modus

Investments by main category

Updated: 14.01.2021

Historical figures for 2008-2019 and forecast for 2020-2025

Source: Norwegian Petroleum Directorate

Print illustration Download data Investments by main category Download PDF Download as image (PNG)

Investments by main category – Historical figures for 2008-2019 and forecast for 2020-2025

Høykontrast Modus

Operating costs

The main operating costs on the Norwegian shelf are those related to the maintenance of platforms and wells, as well as costs for daily operation of the facilities. These include labour costs for all personnel who perform modifications and maintenance of machinery and other equipment. This work is essential if costly production downtime is to be avoided.

At the end of 2020, 90 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 with more and more fields are coming on stream, total operating costs will remain at a stable level in the years ahead. Operating costs were somewhat reduced in 2020 due to lower activity on the fields as a result of covid-19.

Operating costs distributed on field status

Updated: 14.01.2021

Historical figures for 2008-2019 and forecast for 2020-2025

Source: Norwegian Petroleum Directorate

Print illustration Download data Operating costs distributed on field status Download PDF Download as image (PNG)

Operating costs distributed on field status – Historical figures for 2008-2019 and forecast for 2020-2025

Høykontrast Modus

Operating costs by main category

Updated: 14.01.2021

Historical figures for 2008-2019 and forecast for 2020-2025

Source: Norwegian Petroleum Directorate

Print illustration Download data Operating costs by main category Download PDF Download as image (PNG)

Operating costs by main category – Historical figures for 2008-2019 and forecast for 2020-2025

Høykontrast Modus

Updated: 14.01.2021