Buoyant outlook for Norwegian Continental Shelf

August 21, 2000, 01:00 CEST

More than NOK 1 000 billion is due to be spent by the oil industry on the Norwegian continental shelf (NCS) over the coming decade. That corresponds to two years of central government spending in Norway.

Covering exploration, development and operation, this forecast spend is almost as high as the outlay by the industry over the past 10 years. Statoil as operator will account for almost half the amount, or roughly NOK 475 billion.

Costs associated with operation and maintenance are set to rise significantly in coming years, and account for a steadily growing proportion of total expenditure.

Calculations by Statoil show that investment in new projects on the NCS over the next decade will total more than NOK 350 billion, with the group itself accounting for more than NOK 60 billion.

Norwegian offshore suppliers are among the best in the world, as shown in part by the large proportion of contracts they secure on the NCS. The domestic share of deliveries to Statoil's Kvitebjørn development is 93 per cent, for instance.

And companies in Norway have accounted for 71 per cent of products and services supplied to Statoil's Åsgard development in the Norwegian Sea, says chief executive Olav Fjell.

The group's calculations show that Norway's gross revenues from oil and gas sales over the next decade will total NOK 2 000-3 000 billion, much of which will fall to the government through the tax system.

Oil production will continue to increase slightly, with gas output rising substantially on the basis of existing contracts. Opportunities exist for increasing gas production beyond this level, but a further rise will depend on market developments in Europe.

Important factors for enhancing value creation on the NCS include not only additional discoveries but also improved recovery and the adoption of innovative solutions for new projects and for continued development of producing fields.

Statoil intends to remain the leading industrial architect on the NCS. That calls for the ability to develop and adopt new technology, and the group has demonstrated this on Åsgard - Norway's most complex offshore project.

Active and successful efforts have also been pursued in developing a number of smaller fields to ensure good utilisation of Norwegian oil and gas resources, says Mr Fjell.

Effective and profitable operation are crucial for value creation on the NCS, and Statoil has now positioned itself in the top rank of NCS operators on this criterion through long-term and systematic improvement efforts. This has been documented by new benchmarkings.

As part of efforts to improve profitability even further, Statoil has organised its business to ensure maximum focus on the group's core areas of the NCS. Its own estimates show that better organisation and enhanced collaboration with other companies is yielding tens of billions of kroner in additional revenues.

Creating a better division of interests in Norwegian offshore fields with the aid of the state's direct financial interest (SDFI) could contribute to a substantial increase in value creation in addition to the potential provided by today's distribution of holdings.

"Active use of SDFI interests would ease the work of realising this potential," says Mr Fjell. "However, as a responsible operator - regardless of the outcome of current discussions about the future of Statoil and the SDFI - we will do what we can to achieve this additional value."