Investments and operating costs

The activity level on the Norwegian continental shelf is expected to be relatively stable in the years to come. 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 ten plans for development and operations (PDO) during 2019 and so far in 2020, which is positive for the level of activity going forward. Low oil and gas prices and covid-19 contribute to a demanding situation in the petroleum industry and there is considerable uncertainty related to the level of activity in the next few years.
The activity level on the Norwegian continental shelf is expected to be relatively stable in the years to come. 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 ten plans for development and operations (PDO) during 2019 and so far in 2020, which is positive for the level of activity going forward. Low oil and gas prices and covid-19 contribute to a demanding situation in the petroleum industry and there is 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 forecasts below are based on 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 (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. 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 forecasts for the Norwegian shelf for investments, costs for field operation, exploration, decommissioning and disposal, as well as other costs. In 2019, the overall costs were about 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: 07.10.2020

Historical figures for 2007-2018 and forecast for 2019-2024

Source: Norwegian Petroleum Directorate

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Overall costs by category – Historical figures for 2007-2018 and forecast for 2019-2024

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 2019, exploration costs on the Norwegian shelf totaled about NOK 30 billion. In total, 57 exploration wells were spudded, 43 were wildcat wells and 14 were appraisal wells. Exploration drilling resulted in 17 discoveries in 2019.

Exploration costs and number of exploration wells

Updated: 12.05.2020

Historical figures for 2007-2018 and forecast for 2019-2024

Source: Norwegian Petroleum Directorate

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Exploration costs and number of exploration wells – Historical figures for 2007-2018 and forecast for 2019-2024

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 2019, investments, excluding exploration, totaled around NOK 150 billion. Total investments are expected to remain at the same level as in 2020. 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.

The petroleum industry is in a demanding situation because of low oil and gas prices and covid-19,  and there is considerable uncertainty related to the level of activity in the next few years. In order to counteract a negative trend, the Storting approved temporary amendments to the Petroleum Tax Act in June 2020, which will contribute to the implementation of planned investments and a continued high level of activity.

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

Four new fields started production in 2019: Oda, Utgard, Trestakk and Johan Sverdrup. So far in 2020,  two fields have come on stream: Skogul in the North Sea and Ærfugl in the Norwegian Sea.  Thirteen fields were under development at the end of 2019.

In 2019 and so far in 2020, ten plans for development and operation (PDO) have been submitted to the authorities. This number includes PDOs for Hywind Tampen for Gullfaks and Hywind Tampen for Snorre. 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: 07.10.2020

Historical figures for 2007-2018 and forecast for 2019-2024

Source: Norwegian Petroleum Directorate

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Investments distributed on field status – Historical figures for 2007-2018 and forecast for 2019-2024

Investments by main category

Updated: 07.10.2020

Historical figures for 2007-2018 and forecast for 2019-2024

Source: Norwegian Petroleum Directorate

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Investments by main category – Historical figures for 2007-2018 and forecast for 2019-2024

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 2019, 87 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, operating costs will remain at a stable and high level in the years ahead. Due to covid-19, there have been periods with reduced staffing on the fields.

Operating costs distributed on field status

Updated: 07.10.2020

Historical figures for 2007-2018 and forecast for 2019-2024

Source: Norwegian Petroleum Directorate

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Operating costs distributed on field status – Historical figures for 2007-2018 and forecast for 2019-2024

Operating costs by main category

Updated: 07.10.2020

Historical figures for 2007-2018 and forecast for 2019-2024

Source: Norwegian Petroleum Directorate

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Operating costs by main category – Historical figures for 2007-2018 and forecast for 2019-2024
Updated: 07.10.2020