FRACTIONAL FLOW

Fractional flow, the flow that shapes our future.

Norwegian Crude Oil Extraction, Fall 2014 Status

This post is a status update on crude oil extracted from the Norwegian Continental Shelf (NCS) and presents the developments of some selected discoveries long in the tooth and some more recent developments.

I presented my 2014 crude oil forecast towards 2040 in Norwegian Crude Oil Reserves and Production per 2013 in April 2014.

Norwegian crude oil extraction, now shows a small uptick. Looking further into the Norwegian Petroleum Directorate’s (NPD) data it turns out this temporary growth in extraction originates from discoveries that started to flow prior to 2002, refer also figures 2, 4, 5, 6, 7 and 8.

Some of the discoveries brought to flow since 2002 have performed below expectations since these were sanctioned, some of which were described in A closer Look at some recent Developments Offshore Norway.

Figure 01: The columns show NCS crude oil extraction by month for 2012 (grey), 2013 (red)  and for 2014 (blue) as of August (preliminary NPD figures).

Figure 01: The columns show NCS crude oil extraction by month for 2012 (grey), 2013 (red) and for 2014 (blue) as of August (preliminary NPD figures).

As of August 2014 NCS crude oil extraction is around 20 kb/d (1%) above all of 2013.

(kb; kilo barrels, 1,000 barrels)

A closer look into the NPD estimates of reserves (EUR) and monthly actual extraction numbers shows that some of the recent developments have or had a high depletion rate, which raises expectations for a near future steep decline in their crude oil extraction rate.

There has been a small and expected temporary growth in crude oil extraction so far in 2014 relative to all of 2013. Two sources were found to contribute to this:

  • Higher depletion (extraction) rates from some of the recent developments than what could be expected from NPD’s estimates on ultimate recovery (EUR) as of end 2013.
  • Some of the developments long in the tooth has temporary reversed their decline and demonstrated some growth, which is believed to be due to the deployment of various drainage/technological strategies made possible by the high oil price.

Some typical characteristics for discoveries in the extraction phase;

  • As the reservoirs becomes 50 – 60% depleted, the extraction rate (flow) starts to decline.
  • A high depletion rate (higher extraction [production]) depletes the reservoir faster, which normally results in steeper declines.

Developments in NCS Crude Oil Extraction since 2002

Figure 02: The stacked area shows crude oil extraction from discoveries starting to flow prior to 2002 (green) and flows from discoveries by start- up year (right hand scale) since 2002 together with  the oil price (Brent spot, black line and left hand scale).

Figure 02: The stacked area shows crude oil extraction from discoveries starting to flow prior to 2002 (green) and flows from discoveries by start- up year (right hand scale) since 2002 together with the oil price (Brent spot, black line and left hand scale).

For the discoveries in extraction prior to 2002 the declining trend was reversed during the summer of 2013, had a temporary high during the spring of 2014, before entering a renewed decline.

There is likely a combination of contributors for the reversal of the decline, like; development of extensions, infill drilling, lower separator inlet pressure, additional water and/or gas injection, debottlenecking within the process facilities, improved regularity, etc.

Looking at the discoveries (fields) with gains, it now appears these have been of a temporary nature and now are petering out, refer also figures 05, 06, 07 and 08.

Some of the oil companies have been/is struggling with their organic net cash flows and have through concerted efforts for its improvement been implementing policies to cut spending on modifications, maintenance, CAPital EXpenditures and also resorted to asset sales.

This likely affects plans for marginally profitable, increased recoveries which could have provided for some additional flows. The companies with a high leverage (gearing) are facing a financial reality limited by net cash flows and have to adjust their investment activities accordingly.

Figure 03: The stacked area shows crude oil extraction from discoveries by start- up year as from 2002 (refer to the legend for color code for vintage, right hand scale) together with  the oil price [Brent spot, dark blue line and left hand scale].

Figure 03: The stacked area shows crude oil extraction from discoveries by start- up year as from 2002 (refer to the legend for color code for vintage, right hand scale) together with the oil price [Brent spot, dark blue line and left hand scale].

The chart illustrates how the total flow from developments started up since 2002 are losing out in the race with the “Red Queen”.

Developments that started to flow after July 2014 or are scheduled to start flowing later in 2014 are Brynhild (delayed, expected start up Q4 2014), Fram H-Nord, Knarr (delayed, expected start up Q4 2014) and Valemon (expected start up Q4 2014).

Figure 04: The chart above shows developments in the annualized rate of change to total NCS crude oil extraction [blue line] and the rate of change for discoveries started to flow prior to 2002 [red line]  (right hand scale) together with  the oil price [(Brent spot) black line and left hand scale].

Figure 04: The chart above shows developments in the annualized rate of change to total NCS crude oil extraction [blue line] and the rate of change for discoveries started to flow prior to 2002 [red line] (right hand scale) together with the oil price [(Brent spot) black line and left hand scale].

The chart illustrates how discoveries started up since 2002 slowed the decline in the total crude oil extraction as the more mature discoveries (fields) depleted and declined. This has been temporarily reversed during 2013 as the 12% annual decline rate of the mature discoveries provided a 3% annualized growth (refer to the red line in figure 04).

This has more than offset the decline in flow from discoveries started since 2002 (refer also figure 03) and resulted in some minor temporarily growth.

Some Discoveries in late Extraction Phase

What follows is a closer look at developments for some NCS discoveries in late extraction (tail) phase. Common for the selected discoveries are that they have seen a temporarily renewed growth in crude oil extraction.

Figure 05: The chart above shows the developments in crude oil extraction from the Gullfaks South field (green area) together with the annualized extraction (black dotted line).

Figure 05: The chart above shows the developments in crude oil extraction from the Gullfaks South field (green area) together with the annualized extraction (black dotted line).

Figure 06: The chart above shows the developments in crude oil extraction from the Snorre field (green area) together with the annualized extraction (black dotted line).

Figure 06: The chart above shows the developments in crude oil extraction from the Snorre field (green area) together with the annualized extraction (black dotted line).

Figure 07: The chart above shows the developments in crude oil extraction from the Troll field (green area) together with the annualized extraction (black dotted line).

Figure 07: The chart above shows the developments in crude oil extraction from the Troll field (green area) together with the annualized extraction (black dotted line).

Figure 08: The chart above shows the developments in crude oil extraction from the Valhall discovery (green area) together with the annualized extraction (black dotted line). The Valhall field had new production facilities started up in early 2013.

Figure 08: The chart above shows the developments in crude oil extraction from the Valhall discovery (green area) together with the annualized extraction (black dotted line). The Valhall field had new production facilities started up in early 2013.

“Production from Valhall is expected to build up to around 65,000 barrels of oil equivalent per day in the second half of 2013. The redevelopment includes a new production, utilities and accommodation platform mounted on a fixed steel jacket, an external system of bridges and walkways linking the new platform to the existing Valhall complex, a power-from-shore system, and an integrated operating environment linking onshore and offshore personnel.”

Full press release from BP here.

Data from NPD shows that extraction entered a steep decline a few months after the new facilities became operational.

Despite the recent developments Valhall is expected to show some growth in 2014 relative to 2013.

Some Selected NCS Discoveries that started to flow since 2002

The presented discoveries are organized sequentially according to start of flow (oldest first). The baseline EUR for the discoveries are NPD’s estimates as of the end of 2013 and extraction data as of July 2014.

The ratio of remaining reserves to the annualized depletion rate is commonly referred to as the R/P ratio (Reserves divided by Production) which results in a theoretical  number of years the extraction rate can be maintained.

As a reservoir becomes depleted, the depletion morphs into decline which becomes some function of the depletion rate. The higher the depletion rate, the higher the decline rate should be expected to become.

Figure 09: The chart above shows the developments the depletion (black line and left hand scale), the annualized depletion rate (red line, right hand scale) and the annual moving average depletion rate (blue dotted line, right hand scale).

Figure 09: The chart above shows the developments the depletion (black line and left hand scale), the annualized depletion rate (red line, right hand scale) and the annual moving average depletion rate (blue dotted line, right hand scale).

As of end 2013 NPD estimated the EUR for Kvitebjørn at 175 Mb (Mb; Million  barrels).

Figure 10: The chart above shows the developments the depletion (black line and left hand scale), the annualized depletion rate (red line, right hand scale) and the annual moving average depletion rate (blue dotted line, right hand scale).

Figure 10: The chart above shows the developments the depletion (black line and left hand scale), the annualized depletion rate (red line, right hand scale) and the annual moving average depletion rate (blue dotted line, right hand scale).

As of end 2013 NPD estimated the EUR for Volve at 60 Mb.

Volve’s R/P ratio as of July 2014 was 1.0 from using the EUR at the end of 2013 as a baseline.

Such a low R/P ratio suggests either an abrupt end to Volve’s extraction or, more likely, an upward revision to its EUR.

Figure 11: The chart above shows the developments the depletion (black line and left hand scale), the annualized depletion rate (red line, right hand scale) and the annual moving average depletion rate (blue dotted line, right hand scale).

Figure 11: The chart above shows the developments the depletion (black line and left hand scale), the annualized depletion rate (red line, right hand scale) and the annual moving average depletion rate (blue dotted line, right hand scale).

As of end 2013 NPD estimated the EUR for Tyrihans at 208 Mb.

Figure 12: The chart above shows the developments the depletion (black line and left hand scale), the annualized depletion rate (red line, right hand scale) and the annual moving average depletion rate (blue dotted line, right hand scale).

Figure 12: The chart above shows the developments the depletion (black line and left hand scale), the annualized depletion rate (red line, right hand scale) and the annual moving average depletion rate (blue dotted line, right hand scale).

As of end 2013 NPD estimated the EUR for Volund at 62 Mb.

Figure 13: The chart above shows the developments the depletion (black line and left hand scale), the annualized depletion rate (red line, right hand scale) and the annual moving average depletion rate (blue dotted line, right hand scale).

Figure 13: The chart above shows the developments the depletion (black line and left hand scale), the annualized depletion rate (red line, right hand scale) and the annual moving average depletion rate (blue dotted line, right hand scale).

As of end 2013 NPD estimated the EUR for Skarv at 87 Mb.

With the present depletion rate it is expected that crude oil extraction from Skarv will enter a steep decline in about a year’s time provided no revisions to its EUR.

Summary

Last spring as I developed my forecast for crude oil extraction from NCS it came out with 1.43 Mb/d in 2015.

  • Bøyla, Edvard Grieg and Goliat (Goliat is pushed back from late 2014 to mid-2015) are developments that now are scheduled for startups in 2015 and now expected to contribute a total of 40 – 50 kb/d for all 2015.
  • My forecast includes crude oil flows from Gudrun (NPD’s EUR estimate for crude oil is at 91 Mb) which started to flow during the spring of 2014. As of July 2014 NPD has reported no crude oil extracted from Gudrun.
  • In addition, there will be an estimated 60 – 70 kb/d from developments started in 2014 as these build to their plateaus.
  • Total new crude oil capacities from developments started during 2014 and 2015 is now forecast to become 100 – 120 kb/d in 2015.
  • The total decline from 2014 to 2015 from discoveries in extraction phase is now forecast to become 120 – 150 kb/d.

My best scenario now is that total Norwegian crude oil extraction in 2015 remains at the levels of 2014.

Worst case, it comes in below 1.40 Mb/d.

My forecast expects a continued decline in NCS crude oil extraction which may be temporarily reversed early in the next decade as Johan Sverdrup (planned start up in late 2019) builds towards its plateau.

 ..

“Money amplifies our tendency to overreact, to swing from exuberance when things are going well to deep depression when they go wrong.”

– Economist and historian Niall Ferguson

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