FRACTIONAL FLOW

Fractional flow, the flow that shapes our future.

NORWEGIAN CRUDE OIL RESERVES AND PRODUCTION PER 2013

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In this post I present actual Norwegian crude oil production and status on the development in discoveries and reserves and what this has now resulted in for expectations for future Norwegian crude oil production.

This post is also an update of an earlier post about Norwegian crude oil reserves and production per 2012 (in Norwegian).

Norwegian crude oil production peaked in 2001 at 3.12 Million barrels per day (Mb/d) and by 2013 it had declined by more than 50% to 1.46 Mb/d. This has been overshadowed by the fact that the price has increased 4 fold from the level from 2001, which thus and in financial terms more than compensated for the fall in physical extraction.

The Norwegian Petroleum Directorate’s (NPD) recent forecast expects crude oil production from  the Norwegian Continental Shelf (NCS) will become around 1.47 Mb/d in 2014.

Figure 1: The chart shows the historical production (or more precisely extraction) of crude oil (by discovery/field) for the Norwegian Continental Shelf (NCS) with data from the Norwegian Petroleum Directorate (NPD) for the years 1970 - 2013. The chart also includes a forecast for crude oil production from discoveries/fields towards 2040 based on reviews on individual fields, NPD’s estimates of remaining recoverable reserves, the development/forecast for the R/P ratio etc. as of end 2013. Further, the chart shows a forecast for total crude oil production from sanctioned discoveries/fields (green area, refer also Figure 2) and expected contribution from Johan Sverdrup (blue area) [at end 2013 estimated at 2.23 Gb; [Gb, Giga  barrels, refer also figure 3]  which is now scheduled to start flowing late 2019. "Sanctioned Developments" in Figure 1 represents the total contributions from 13 sanctioned developments of discoveries now scheduled to start to flow between 2014 and 2017.

Figure 1: The chart shows the historical production (or more precisely extraction) of crude oil (by discovery/field) for the Norwegian Continental Shelf (NCS) with data from the Norwegian Petroleum Directorate (NPD) for the years 1970 – 2013. The chart also includes a forecast for crude oil production from discoveries/fields towards 2040 based on reviews on individual fields, NPD’s estimates of remaining recoverable reserves, the development/forecast for the R/P ratio etc. as of end 2013.
Further, the chart shows a forecast for total crude oil production from sanctioned discoveries/fields (green area, refer also Figure 2) and expected contribution from Johan Sverdrup (blue area) [at end 2013 estimated at 2.23 Gb; [Gb, Giga barrels, refer also figure 3] which is now scheduled to start flowing late 2019.
“Sanctioned Developments” in Figure 1 represents the total contributions from 13 sanctioned developments of discoveries now scheduled to start to flow between 2014 and 2017.

My forecast for 2014 is for 1.44 Mb/d crude oil from the NCS.

My forecast assumes some reserve growth, but does not include the effects from fields/discoveries being plugged and abandoned as these reach the end of their economic life.

Discoveries sanctioned for development and Johan Sverdrup (with an expected start up late 2019) is expected to slow down the overall decline in Norwegian crude oil production.

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IN BAKKEN (ND) IT IS NOW MOSTLY ABOUT MCKENZIE COUNTY

In this post I present an update to my previous posts over at The Oil Drum (The Red Queen series) on developments in tight oil production from the Bakken formation in North Dakota with some additional estimates, mainly presented in charts. The expansion is much about the differences between wells capable of producing, actual producing wells and idle wells (here defined as the difference between the number of wells capable of producing and the number of actual producing wells).

Figure 01: The chart above shows monthly net additions of producing wells (green columns plotted against the rh scale) and development in oil production from Bakken (ND) (thick dark blue line, lh scale) as of January 2000 and as of October 2013. The 12 Month Moving Average (12 MMA) is also plotted (thick dotted dark red line, lh scale).

Figure 01: The chart above shows monthly net additions of producing wells (green columns plotted against the rh scale) and development in oil production from Bakken (ND) (thick dark blue line, lh scale) as of January 2000 and as of October 2013. The 12 Month Moving Average (12 MMA) is also plotted (thick dotted dark red line, lh scale).

There is still noticeable growth in tight oil production from an accelerated additions of producing wells.

  • For October 2013 North Dakota Industrial Commission (NDIC) reported a production of 877 kb/d from Bakken/Three Forks.
  • In October 2013YTD production from Bakken/Three Forks (ND) was 775 kb/d.
    (It is now expected that average daily production for all 2013 from Bakken (ND) will become around 800 kb/d.
  • The cash flow analysis now suggests less use of debt for manufacturing wells for 2013.
    Major funding for new wells now appears to come mainly from from net cash flows.

kb; kilo barrels = 1,000 barrels

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A CLOSER LOOK INTO THE DRIVERS OF THE NORWEGIAN ECONOMY’s RECENT GROWTH SUCCESS

In this post I present some hard data from the Norwegian economy, which in the recent decades show high correlations between total debt growth and the oil price. Presently the total debt growth from some sectors runs at an annual rate above 8% of GDP.

I also present my thoughts and observations about historical developments and what may lie ahead.

The economic undertows now suggest for a sharp downturn in the Norwegian economy. A deep look into the public data from Statistics Norway (SSB) reveals that it was the growth in debt, primarily acquired by the Norwegian households, that was and still continues to be a major and less acknowledged contributor to the recent growth success of the Norwegian economy.

The primer for the strong nominal growth in debt was likely the growth in the oil price starting back in 2004. The oil price has remained at a structurally higher level at around $100/bbl.

Developments in the Norwegian economy have been tightly linked to movements of the oil price and the value of petroleum exports.

  • It is widely recognized that the growth in the oil price spurred more investments for exploration and developments for petroleum from the North Sea.
  • With the increased Norwegian North Sea petroleum activities followed an acceleration in households, non financial and municipalities debt growth.

Figure 1: The stacked columns in the chart above show the development in the 12 Months Moving Totals (Annualized) for Norwegian exports split on petroleum (oil, condensates and natural gas [green columns]) and exports exclusive of petroleum [black columns]. The orange line shows the development in the 12 Months Moving Totals (Annualized) for total imports and the pink line the 12 Months Moving Totals (Annualized) for the trade balance. 6 NOK ~ 1 USD By clicking on the chart a bigger version opens in a new tab/window (goes for all the charts in this post).

Figure 1: The stacked columns in the chart above show the development in the 12 Months Moving Totals (Annualized) for Norwegian exports split on petroleum (oil, condensates and natural gas [green columns]) and exports exclusive of petroleum [black columns]. The orange line shows the development in the 12 Months Moving Totals (Annualized) for total imports and the pink line the 12 Months Moving Totals (Annualized) for the trade balance.
6 NOK ~ 1 USD
By clicking on the chart a bigger version opens in a new tab/window (goes for all the charts in this post).

Norway had a long history of running a balanced trade account and with increased incomes from petroleum exports during the recent decades, a big trade surplus.

As the data on imports are not broken down by sectors, there is good reason to believe that a major portion of the import growth originates from purchases of goods and services for the petroleum industry.

The value of Norwegian petroleum exports is now expected to decline in the near term with the decline in production, primarily of crude oil and by the end of this decade also natural gas.

Anyhow the data were whipped around for confessions, it turned out the Norwegian economy now appear to approach a major turn around.

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TIGHT OIL AND OIL SAND VERSUS SMALL DEEP WATER DEVELOPMENTS, SOME OBSERVATIONS

This post which is based on results from earlier research and analytic work posted on The Oil Drum, Fractional Flow and not least in recent (private) discussions with other international acknowledged experts present some facts and observations about developments of tight oil (which to some extent also applies to oil sands) versus small deep water discoveries*.

*Small deep water discoveries are here meant discoveries with Estimated Ultimate Recovery (EUR) below 100 Million Barrels of Oil Equivalents (MBOE).

Figure 1: Chart above shows relative developments in annualized yield curves (lh scale) of oil for so-called elephants (Norwegian deep water discoveries estimated to hold ultimate recoverable reserves (EUR) above 1,000 million barrels with crude oil [red lines]). Small discoveries (Norwegian deep water discoveries estimated to hold ultimate recoverable reserves (EUR) below 100 million barrels with crude oil, [green lines]). The reference tight oil well for Bakken [violet lines]. The cumulative versus time is plotted against the rh scale.  Note also the short high flow life cycles of small deep water developments and tight oil.

Figure 1: Chart above shows relative developments in annualized yield curves (lh scale) of oil for so-called elephants (Norwegian deep water discoveries estimated to hold ultimate recoverable reserves (EUR) above 1,000 million barrels with crude oil [red lines]).
Small discoveries (Norwegian deep water discoveries estimated to hold ultimate recoverable reserves (EUR) below 100 million barrels with crude oil, [green lines]).
The reference tight oil well for Bakken [violet lines].
The cumulative versus time is plotted against the rh scale.
Note also the short high flow life cycles of small deep water developments and tight oil.

One big takeaway from the chart above is that both developed small deep water discoveries and tight oil wells have steep decline rates and short high flow life cycles. These are now the major sources that offset declines from the bigger, heavily depleted legacy fields (with long productive life cycles) and provide any growth in global oil supplies.

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A CLOSER LOOK AT SOME RECENT DEVELOPMENTS OFFSHORE NORWAY

In this post I present a closer look at 4 developed discoveries (of a total of 10) that started to flow as from 2012 and their production as of September 2013 as these have been reported by the Norwegian Petroleum Directorate (NPD).

A common feature for several of the recent developments offshore Norway is that they have estimated recoverable reserves ranging from 10 – 100 Million Barrels of Oil Equivalents (MBOE) and are expensive to develop and generally developed with sub sea completed wells flowing back to an existing (host) installation for processing. The host installation normally provides for essential services for the operations of these sub sea installations. These discoveries typically annual flow are 15 – 25% of estimated recoverable reserves at some kind of plateau and enter into steep declines as they become 50 – 60% depleted. Normally these developments reach expected plateau a few months after they start to flow.

Several of the recent smaller developments* on the Norwegian Continental Shelf (NCS) have so far under-performed with regard to expected production. So far these have resulted that some companies have taken some write downs, and others will have to accept considerably lower returns on their investments.

The presented 4 developments were now expected to flow a total of 90 – 100,000 BOE/d. Actual data from NPD show that these 4 developments had an average total flow of 13,000 BOE/d for August and September 2013.

*) By smaller developments are here meant discoveries with estimated recoverable reserves  below 100 Million Barrels Oil Equivalents (MBOE).

This is worrisome for several reasons:

  • Write downs and lowered returns impact the companies’ financial abilities to develop future capacities and to carry through planned exploration activities.
  • Write downs destroy shareholder value.
  • If there is a general trend with weakened profitability and/or losses from smaller developed discoveries (which for some time has been dominant on NCS), this may lead to future revisions of the criteria the companies use for commercialization of these. In other words more experiences confirming the uncertainties surrounding smaller discoveries could push the commercial break even price lower, thus deferring developments of such discoveries that already are within the companies’ portfolios.
    This may fly under the radar coverage with the euphemism “targeting financial performance”.
  • To finance these developments, the companies took advantage of their debt carrying capacities and took on more debt. The companies thus bet their future on households and sovereigns (already overstretching their debt carrying capacities) being able to continue to take on more debt to pay for more expensive oil and natural gas so that the companies can retire their debts as these mature.
  • Apart from price, production flows have a considerable impact on companies cash flows and profitability. In the short to mid term it is more about the flows and less about the stocks.
  • The developments of these smaller discoveries have so far reduced the decline in total production from the legacy installations on the NCS as can be seen in figure 1. For some time these smaller developments also hid the “The Red Queen” effect from NCS discoveries brought to flow since 2002, refer also figure 2.
  • A more reserved attitude of the companies towards future developments of the discoveries made (and to be made) due to financial considerations, sets up the potential for a near term further acceleration of the decline in total NCS crude oil production.

This also illustrates that future developments now appear to be at the crossroads with what price the oil companies need for development of discoveries with what the consumers will continue to afford.

Figure 1: Development in crude oil production from the Norwegian Continental Shelf (NCS), split on fields flowing prior to January 1st 2002 (green) and discoveries developed to flow as from 2002.

Figure 1: Development in crude oil production from the Norwegian Continental Shelf (NCS), split on fields flowing prior to January 1st 2002 (green) and discoveries developed to flow as from 2002.

The new developments have now reduced the annualized total decline in crude oil production from NCS to just above 7%, refer also to figure 2. Discoveries/fields flowing prior to 2002 has seen a decline in their total crude oil production of more than 70% since 2002.

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UNITED KINGDOM, ENERGY AND TRADE BALANCE

United Kingdom (UK) is widely associated with the industrial revolution which was a fossil fuel revolution.

Coal fueled the industrial revolution and UK also exported coal. The next cycle in UK’s energy history came with the discoveries and production from the oil and natural gas discoveries in the North Sea in the 1960’s which happened while UK’s indigenous coal production had been in general decline since the late 1920’s.

The oil and natural gas discoveries in the North Sea made UK again a net energy exporter for some years during the 1980’s and from the middle of the 1990’s through 2004, refer also figures 2, 3 and 4.

Beginning in 2005 UK again became a net importer of energy and as of 2012 UK imported around 42% of its primary energy consumption (primarily fossil fuels). The portion of imported energy for 2013 is expected to grow to 50% and beyond in the near future. Few countries have so rapidly transitioned from being self-sufficient and an energy exporter to develop such a high and growing dependency on imported energy.

The imports of expensive energy increasingly weigh heavier in the UK trade balance, refer also figure 7.

Figure 1: Development of UK’s total energy consumption for the years 1965 - 2012 split on energy sources.

Figure 1: Development of UK’s total energy consumption for the years 1965 – 2012 split on energy sources.

The UK has in recent years experienced a strong growth in energy production from renewables (light green area in figure 1). The recent years general decline in total energy consumption is likely  primarily due to the ongoing financial crisis.

Coal’s portion within the UK energy mix declined as it was being replaced by a growing supply of oil and natural gas from the North Sea. The growing supplies from the North Sea may at the time have defined the UK government’s position during the coal miners strikes in 1984 – 1985.

The portion of fossil fuels in the UK’s energy mix has declined from 92% in 2008 to 87% in 2012, mainly due to lower oil and natural gas consumption following the financial crisis and persistent higher oil and natural gas prices.

In 2012 barely 5% of the UK’s energy consumption was from renewables which also includes hydroelectric.

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NOEN INNTRYKK FRA BP STATISTICAL REVIEW 2013

Her følger noen utvalgte inntrykk fra BP Statistical Review 2013. BP sine årlige Statistical Review regnes som en av de mest autorative kildene for energidata og brukes mye som referanse.

Figur 01: Verdens utvikling i totalt energiforbruk for 1965 - 2012 splittet på energikilder.

Figur 01: Verdens utvikling i totalt energiforbruk for 1965 – 2012 splittet på energikilder.

Det globale energiforbruket viser fortsatt vekst også drevet av vekst i gjeld og nå primært fra fortsatt vekst i offentlig gjeld.

Energimarkedene er svært dynamiske der prisforskjeller mellom energikildene nå driver frem en raskere global vekst for kull blant de fossile energikildene.

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