NOK 56 billion from the state’s own oil and gas portfolio in the first half:

Oil prices and gas output up – gas prices down

The government received NOK 56 billion from the State’s Direct Financial Interest (SDFI) on the Norwegian continental shelf (NCS) in the first half of 2010, on a par with the same period of 2009.
But the composition of these revenues has changed from last year because of a sharp rise in oil prices and a significantly lower price for gas.
The main explanation for the decline in gas prices from the first half of last year is that they are tied to oil prices, but with a time lag of up to six months. The spot price of gas moreover strengthened towards the end of the first half.
Gas production from the NCS was clearly higher in the first half of 2010 than in the same period of last year, reflecting a larger offtake under long-term gas contracts.

Income after financial items was NOK 53.4 billion for the first half and came to NOK 25 billion for the second quarter – roughly on a par with the same three months of 2009.Net cash flow for the quarter was NOK 25.9 billion, up by NOK 2.1 billion from the corresponding period of last year.

Total oil and gas production for the second quarter averaged 1 060 thousand barrels of oil equivalent per day (kboe/d), compared with 1 004 for the same period of 2009. The corresponding figures for the first half were 1 169 and 1 149 kboe/d.Gas production was 25 per cent higher than in the second quarter of last year because of increased offtake under long-term sales contracts.
Output of oil and natural gas liquids (NGL) fell by 12 per cent, primarily reflecting the general decline in production from mature fields.

First half has been positive in terms of results within health, safety and the environment, mainly due to reduced number of serious incidents.

Kjell Pedersen, chief executive of SDFI manager Petoro, relates aspects of the half-year results with the new strategy for the company adopted by the board during the second quarter.

“The most effective way of slowing the decline in oil production from the NCS is to improve recovery from big fields which are already on stream,” he notes.
“The 10 largest fields in our portfolio currently account for 80 per cent of its oil and gas output, and are likely to be doing the same in 2025.
“In order to recover as high a proportion of the resources in place as we believe to be possible, however, we must drill two-three times as many production wells every year as we do today.“We must also take timely decisions about investment in extending production life and efficient field drainage. For some fields, this will almost be like developing them anew.
“The most important element in our new strategy relates precisely to realising the potential in and close to the large mature fields.”

Mr Pedersen notes that Petoro’s new strategy also includes a response to the changes and uncertainties in the gas market reflected in the SDFI’s half-yearly results. This calls for integrated and timely development of the gas value chain.

He points out that demand for gas in Europe has been negatively affected by the international economic recession in the wake of the financial crisis.
At the same time, large volumes of shale gas and other unconventional sources of supply are challenging conventional deliveries in the market.

“Our strategy includes facilitating greater flexibility in the gas value chain in order to handle opportunities, changes and uncertainties,” says Mr Pedersen.

The third element in Petoro’s new strategy involves seeking commercial opportunities in the Vøring area of the Norwegian Sea and in Barents Sea South.“Exploration in such immature areas is still important for long-term reserve growth on the NCS, but expectations of big finds have not so far been realised,” Mr Pedersen observes. “Profitable development of small discoveries could be a major challenge. Moreover, priorities set by the various companies can impede the adoption of integrated area solutions. “We want to contribute to profitable development by viewing such areas in an overall context with regard to exploration activity and maturing of resources.”

He is particularly concerned in Barents Sea South with ensuring profitable development of a second Snøhvit process train at Melkøya outside Hammerfest. This project could call for access to gas from a number of small discoveries which are located at a relatively large distance from the actual Snøhvit field. Petoro envisages that area solutions could also prove to be a requirement for securing profitability in other parts of the Barents Sea.

For more information about the interim results and a description of Petoro’s new strategy, see the board’s report for the first half-year.


Further information from:
Sveinung Sletten, vice president external affairs
E-mail: sveinung.sletten@petoro.no
Mobile: +47 95 07 55 54
Publishing date: 30-07-2010