Norwegian Drilling Must Improve: Report

Exploration performance in Norway has dropped significantly in the last five years, reflecting a deterioration of quality of the prospect portfolio, according to a report by Westwood released June 6. The results of a sharp rise in high-impact drilling this year will test Norway's ability to sustain exploration into the future, it said.

The 2014 – 2018 period saw a significant deterioration of exploration activity levels and performance in Norway compared with the previous five years. While the number of exploration wells completed was down by around a quarter, discovered commercial volumes reduced by more than half, even when volumes from Johan Sverdrup are discounted in order to show the underlying trends.

Unlike its neighbour the UK, the Norwegian government incentivises exploration drilling, as the costs are recoverable. Only once commercial deliveries start do demands for tax payment begin to mount.

Commercial success rates (CSR) declined from 30% to 20%, but technical success rates (TSR) changed only slightly from 52% to 49%, which appears to reflect a degradation in quality of the pool of prospects being drilled as the proven plays continue to mature. Technical successes are finds where the oil and gas in place are insufficient to merit the cost of production.

Across Norway there is some correlation between the number of wells that companies participated in and discovered hydrocarbons, but a high activity level is no guarantee of success, especially in the Barents Sea – the great unknown.

Companies with exposure to the basin’s few discoveries ranked high in terms of exploration efficiency. In contrast, L1 Energy – now Wintershall DEA – was one of the most active companies in the Barents Sea, but failed to make a commercial discovery and has the lowest performance ranking in Norway for the period.

Merger and acquisition activity has been high over the last five years: 16 of the 33 most active companies on the NCS in the last five years are no longer active. DEA is a case in point.

Into 2019, 15 high impact wells are planned, representing a dramatic increase in high impact drilling, up 67% from 2018. Results so far have been disappointing, with gross CSRs and TSRs falling to 11% and 28% respectively. Several significant wells are yet to spud however, and 2H 2019 results will be a key barometer of Norway’s ability to sustain current exploration activity levels into the future.