Investments and 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.

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.

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 2022, the overall costs were around NOK 270 billion. Investments made up about 55 per cent of this, operating costs 30 per cent, and exploration costs about eight per cent. Total costs are expected to increase in real terms by about five per cent in 2023, for then to stabilise towards 2025. The increase in total costs towards 2025 is largely related to increased investments due to investment decisions taken for several projects in the autumn of 2022. After 2025, a decrease in total costs is expected.

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 2022, exploration costs on the Norwegian shelf amounted to about NOK 23 billion. A total of 34 exploration wells were spudded, 30 of which were wildcat wells and four were appraisal wells. Exploration drilling resulted in 12 discoveries in 2022.

Investments

Major investments have been made in field development, infrastructure and onshore facilities in Norway, and the development plans submitted to the authorities in 2022 will contribute to a continued high level of activity in the coming years. At the same time, substantial investments are being made in producing fields to improve recovery and extend the lifetime of the fields. This requires new wells, modification of existing facilities and new infrastructure. In 2022, investments, excluding exploration, were around NOK 149 billion. Total investments are expected to increase to approximately NOK 170 billion in 2024-2025.

The overall investments in the petroleum sector (including exploration and decommissioning costs) account for about one-sixth 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.

One new field started production in 2022: Nova. In addition, Johan Sverdrup Phase 2 started production, and Njord was put on stream again after a major upgrading of the field facilities. Five fields were under development at the end of 2022.

In 2022, 13 plans for development and operation (PDO) were submitted to the authorities. In addition, investment decisions were made for a further development of five fields in production, increased recovery near existing fields or extended field life. The largest projects are the development of Yggdrasil (earlier NOAKA) and Fenris (earlier King Lear), and the Valhall PWP project.

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.

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 2022, 93 fields on the Norwegian continental shelf were producing oil and gas, and the total operating costs for the year were close to NOK 85 billion. The operating companies are engaged in efforts to reduce the operating costs; however, increased costs for power contribute to somewhat higher costs.