FRACTIONAL FLOW

Fractional flow, the flow that shapes our future.

NORWEGIAN CRUDE OIL RESERVES AND PRODUCTION PER 2013

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.

The forecast in figure 1 shows that the Norwegian crude oil production will continue for several decades. Norwegian oil consumption is now around 0.2 Mb/d, and with what is known about Norwegian crude oil reserves, Norway will continue to be a net exporter of crude oil for another 20 to 25 years.

DISCOVERIES UNDER DEVELOPMENT AND SCHEDULED TO START FLOWING DURING 2014 – 2017

Figure 2: The figure above shows a forecast of crude oil production from NCS sanctioned fields which is scheduled to start to flow during the years 2014 to 2017. Any changes to the scheduled startups could affect the forecasts as shown in figures 1 and 2.

Figure 2: The figure above shows a forecast of crude oil production from NCS sanctioned fields which is scheduled to start to flow during the years 2014 to 2017. Any changes to the scheduled startups could affect the forecasts as shown in figures 1 and 2.

Presently it is expected that around 0.09 Mb/d (Mb; Million barrels) on an annual basis will be added during 2014 from sanctioned developments.

Norway extracted, sold and delivered around 530 million barrels of crude oil in 2013. Sanctioned developments are now expected to add around 930 million barrels of crude oil reserves for production for the years 2014 – 2017.

Some developments/discoveries are reported under other business areas and are included in these.

The characteristics of “small” deep water discoveries/fields (here defined as having less than 100 Mb of recoverable crude oil) are fast build up, followed by a short plateau (typically 2 years) succeeded by steep declines, typically at annual rates of 15 – 20%.

DEVELOPMENT FOR NORWEGIAN OIL RESERVES

Figure 3: The figure shows the history and the status of the total discoveries by year (stacked columns) since oil exploration started on the Norwegian Continental Shelf and as of 2013. The light green columns show what has been recovered, sold and delivered. The dark green portion of the columns is total remaining reserves. The yellow portion of the columns shows reserves in discoveries under evaluation. Furthermore, in the chart is also shown annual production (thick black line) of crude oil since production began in the 1970s. The chart also has a table that shows the year of discovery for fields estimated to hold more than 1 billion barrels (Gb) of recoverable crude oil. (Gb; Giga = Giga, Billion barrels)

Figure 3: The figure shows the history and the status of the total discoveries by year (stacked columns) since oil exploration started on the Norwegian Continental Shelf and as of 2013. The light green columns show what has been recovered, sold and delivered. The dark green portion of the columns is total remaining reserves. The yellow portion of the columns shows reserves in discoveries under evaluation. Furthermore, in the chart is also shown annual production (thick black line) of crude oil since production began in the 1970s. The chart also has a table that shows the year of discovery for fields estimated to hold more than 1 billion barrels (Gb) of recoverable crude oil.
(Gb; Giga = Giga, Billion barrels)

Figure 3 illustrates that the biggest NCS discoveries were made early and these discoveries continues to contribute a big portion of total NCS crude oil production.

Figure 3 also illustrates that the growth in the oil price above $50/bbl in 2005 and its structurally higher level allowed for increased exploration activities resulting in several successful discoveries with the most prominent being the Johan Sverdrup discovery in 2010 which is estimated to hold more than 2 Gb of recoverable reserves.

NOTE: In their resource report for 2014 NPD has estimated Johan Sverdrup to contain 2.35  Gb recoverable oil and there may be future revisions.

The chart above is based upon NPDs resource accounting at end 2013.

Figure 4: The chart above shows the development of total NCS crude oil discoveries since exploration began and as of end 2013 [data from NPD Resource Accounting at end 2013]. The chart is often referred to as a “creaming curve”. The light green portion of the columns shows the development in total recovered, sold and delivered. The dark green portion shows the development in estimated remaining recoverable reserves. The yellow portion shows the development in total estimated reserves in discoveries that has not been sanctioned at end 2013. Johan Sverdrup is presently included in the yellow portion of the columns.

Figure 4: The chart above shows the development of total NCS crude oil discoveries since exploration began and as of end 2013 [data from NPD Resource Accounting at end 2013]. The chart is often referred to as a “creaming curve”.
The light green portion of the columns shows the development in total recovered, sold and delivered. The dark green portion shows the development in estimated remaining recoverable reserves. The yellow portion shows the development in total estimated reserves in discoveries that has not been sanctioned at end 2013. Johan Sverdrup is presently included in the yellow portion of the columns.

The chart illustrates that a major portion of the NCS reserves was discovered in an early phase and the effect from the recent years higher oil prices that encouraged increased exploration and  testing of new exploration models has proven new discoveries of which many are expected to be commercialized.

MAY THE R/P RATIO TELL SOMETHING ABOUT THE FUTURE NCS OIL PRODUCTION?

A simplistic description of the R/P ratio is the (theoretical) number of years the production level can be sustained at for the year used as reference and the estimate of remaining recoverable reserves for that same year. In the real world it works somewhat differently, as the reservoir depletes the production will normally decline. This may result that the R/P ratio remains fairly constant over the years as the reservoir depletes and the production declines.

Figure 5: The chart above shows cumulative NCS production versus the producing fields/discoveries R/P ratio at end 2013 plotted against the right hand scale [black dots connected by a black line]. The red line plotted against the left hand scale shows the cumulative portion of the production versus the R/P ratio.

Figure 5: The chart above shows cumulative NCS production versus the producing fields/discoveries R/P ratio at end 2013 plotted against the right hand scale [black dots connected by a black line]. The red line plotted against the left hand scale shows the cumulative portion of the production versus the R/P ratio.

The R/P ratio for NCS discoveries/fields in production was 8.3 at end 2013.

Figure 5 illustrates that just above 50% of the NCS crude oil production in 2013 came from 42 fields/discoveries with an R/P ratio of 6 or less. The weighted R/P ratio for these 42 fields was 5.4 at end 2013. This suggests that the total year over year decline may become around 20% or a total production decline from 2013 to 2014 of around 0.14 Mb/d due to depletion of these 42 fields.

Around 10% of the NCS crude oil production in 2013 came from discoveries/fields with an R/P ratio above 18.

Broadly speaking reservoirs with an R/P ratio of less than 6 should be expected to see declining production and year over year declines in the range of 15 – 20% has been observed. Reservoirs/fields with R/P above 6 has the potential to increase production if these are not reservoir and/or facilities constrained (processing, transport etc.).

To summarize the forecast/expectations for NCS crude oil production in 2014, I showed further up (refer figure 2) that additions from new sanctioned developments are forecast to add 0.09 Mb/d (in 2014) and fields with R/P ratios below 6 are forecast to decline around 0.14 Mb/d, which leaves the discoveries/fields with an R/P ratio above 6 to offset the balancing decline of 0.05 Mb/d and potentially allow for growth in production in 2014.

THE OIL PRICE

Figure 6: The figure shows the development in the nominal price of oil (Brent spot) for the period January 1995 to April 2014. In the chart is also suggested some macro trends that may have been in play for the formation of the oil price.

Figure 6: The figure shows the development in the nominal price of oil (Brent spot) for the period January 1990 to April 2014. In the chart is also suggested some macro trends that may have been in play for the formation of the oil price.

The price of oil has settled on a structurally higher level in recent years and contributed to slower economic growth for many oil importers.

Looking at the trend in the oil  price, it now appears it is being balanced by declining consumer affordability against (general) growth in the break even price that the oil companies’ require to meet returns and bring the incremental barrel to the market.

In general and with oil prices above $100/bbl the oil companies’ profits are, and have been hurting from going after and bringing the more expensive barrels to the market. It appears as oil companies’ was encouraged by the high oil price to assume more debt to go after the more expensive oil. This  in anticipation that consumers would continue to assume more debt and/or draw down their savings to afford the price that would ensure the oil companies’ return.

Seeing their returns decline, several oil companies’ have announced drastic cut backs to their near term capital expenditures (CAPEX) to pursue dividend payments to please their investors and focus on financial performance. The companies have stated that priority will be given for CAPEX allocations towards those prospects offering the highest return (another to put this is that CAPEX will go to the developments that offers the highest profits).

In general, new developments on NCS now require a higher breakeven price and the effects of the oil companies’ CAPEX reductions will have an effect on developments of discoveries under evaluation and thus both future NCS investment levels and production developments.

 

“I am suspicious of the way that all of us react to the world. The assumptions that we carry around in our heads aren’t very good. I’m pretty bad at making sense of the world and need a lot of help.”
– Malcolm Gladwell

One Response

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  1. Mostly over my head. but I appreciate your post. You were one of my favorite contributors during the oil drum days. Not much Norway can do about a gradual decline of extraction, except keep their sovereign wealth fund well served and do what they can to anticipate the future.

    Simon

    Wednesday, 23 April, 2014 at 03:49


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