Upstream activity offshore Norway and the U.K. has seen a steady increase in the last couple of weeks, coinciding with a general rise in global crude prices.

This hike has manifested in the shape of numerous multimillion-dollar contract awards, new exploration plans and a Norwegian project getting the green light. This all comes on the backdrop of declining development costs, with an exception, and a new player gearing up to enter the arena.

The sector will be further boosted by the Norwegian government forecasting that oil industry investments will rise by 2.2% in 2018 after having dropped for the last three years, the Oslo government said in its budget. However, one consultant was quick to avoid any overreactions following the surge of action.

Yet, developments are getting green lights.

The latest to receive approval from the Norwegian Ministry of Petroleum and Energy is the Statoil-operated Snefrid Nord gas discovery in the Norwegian Sea.

Snefrid Nord was discovered in 2015 and lies about 12 km (7 miles) north of the Aasta Hansteen Field. Recoverable reserves are estimated at about 5 Bcm (176.5 Bcf) of gas.

The development concept includes one well in a single-slot subsea template. This will be tied back to the Aasta Hansteen platform through the Luva template 6 km (4 miles) away. Snefrid Nord will produce 4 MMcm/d (141.2 MMcf/d to 176.5 MMcf/d) of gas in the plateau phase. The project has a planned production life of five to six years.

The field is located about 300 km (186 miles) from the mainland and has a water depth of more than 1,300 m (4,265 ft).

The total capex for the Snefrid Nord development is about $151 million. Snefrid Nord is scheduled to start producing in fourth-quarter 2019, about one year after Aasta Hansteen.

Contract Awards

In terms of new awards, the pick of the crop saw Statoil hand out renegotiated framework agreements to Bilfinger Industrier and Kaefer Energy for insulation, scaffolding and surface treatment (ISO) services worth a total of more than $876.5 million. The contracts will run until the end of 2030.

The framework agreements cover ISO services for the Norwegian Continental Shelf (NCS), with flexibility for use across all facilities on the NCS and onshore Norway.

The agreements facilitate increased innovation and technology development within the ISO services performed at Statoil facilities. This also includes stimulating further upgrading of specialist skills and increased percentage of apprenticeship certificates, Statoil noted.

Weatherford International has been awarded a contract for plug and abandonment services by Repsol Norge in the U.K. North Sea.

The work will start in October and is estimated to take three years to complete. The work scope includes multiple services, including fishing, cutting and milling; casing pulling; and drilling and pinning multiple strings of casing. Weatherford will provide these services on up to 50 wells, which will be plugged and abandoned.

Falling Costs

Costs for Statoil’s Johan Sverdrup Phase 1 project declined by $873.5 million to $13.0 billion, while costs for Wintershall’s Maria oilfield project were down by $367.2 million at $1.66 billion, according to the Oslo government’s 2018 budget.

The decreases mean that Johan Sverdrup’s costs are down 18% from original 2015 estimate, while Maria’s costs have dipped 19% from its 2015 estimate.

Partners in Johan Sverdrup Phase 2 are expected to make a final investment decision in third-quarter 2018. Statoil is also expected to present plans for the Arctic Johan Castberg oil field development project and the expansion of the Snorre Field by year-end 2017.

However, costs for Total’s Martin Linge oil and gas field offshore Norway increased by $177.2 million in the last year to $5.23 billion. The cost estimate has risen by a total of 42% since the original plan was submitted to the authorities in 2012.

Overall costs for 12 new offshore projects, including the Polarled pipeline, were down by $1.33 billion from last year, or about 5% down from the original estimates, the government said.

The Oslo administration forecast oil industry investment will rise by 2.2% in 2018 after having dropped for the last three years.

New Player

The new operator to be formed by a joint venture between Bayerngas Norge and Centrica’s E&P business will be called Spirit Energy.

Once launched, Spirit Energy will be 69% owned by Centrica, with Bayerngas Norge’s existing shareholders led by Stadtwerke München and Bayerngas owning the remaining 31%.

Production in 2017 will be in the range of 50 MMboe to 55 MMboe from 27 producing fields and 2P reserves and 2C resources of 625 MMboe.

The deal is expected to complete with Spirit Energy being launched before the end of the year.

Cautionary Note

However, this activity rise came with a hefty note of caution from consultancy Wood Mackenzie, which this week said, “The oil industry is no stranger to decline. But next time it could be permanent. The oil industry has gritted its teeth and suffered through the past few years, emerging with heads held high and looking to the future.”

The analyst pointed to the rise of renewable energy and how technological advances in fuel efficiency and the move to hybrid and electric vehicles could disrupt demand.

“While transport demand will flatline around 2030, we forecast continued growth in overall global oil demand, supported by the petrochemical sector,” WoodMackenzie said. Nonetheless, the prospect of peak oil demand is very real. The industry needs to start planning now if it is to be prepared for what lies ahead.”

—Steve Hamlen