Although oil prices fell below USD 90 per barrel for a short period in the early summer, the first half of 2012 yielded the highest-ever net cash flow to the government from the State’s Direct Financial Interest (SDFI) on the Norwegian continental shelf (NCS). This totalled NOK 84.5 billion, compared with NOK 67.9 billion in the same period of last year. The second quarter gave a net cash flow of NOK 41.6 billion, up 22 per cent from the same period of 2011.
Income after financial items for the SDFI totalled NOK 81.5 billion for the first half, compared with NOK 65 billion in the same period of 2011. This 24 per cent improvement primarily reflects higher sales volumes and prices.
Total oil and gas production for the second quarter averaged just over a million barrels of oil equivalent per day (boe/d), compared with 845 000 for the same period of 2011. Gas production was up by 30 per cent from the second quarter of last year, when several fields were shut down for planned maintenance. Production of oil and natural gas liquids (NGL) increased by seven per cent, again mainly because of fewer planned maintenance turnarounds than in 2011.
Oil prices averaged NOK 672 (USD 116) per barrel in the first half and NOK 639 (USD 110) per barrel during the second quarter. The average gas price for the first six months was NOK 2.37 per cubic metre.
Kjell Pedersen, chief executive of Petoro, regards the production result as an indication that the steep decade-long decline in Norwegian oil output is now flattening out. “Looking further ahead, we see a substantial potential for improving recovery from mature fields. We will also have several small developments in the short and medium terms, and large oil discoveries such as Johan Sverdrup, Skrugard and Maria will be phased in over the next few years. That provides very good future prospects for the SDFI and the NCS as a whole.”
Realising the potential in mature reservoirs is largely a matter of drilling more production wells while these fields still provide the financial capacity to invest in mobile drilling rigs, wellhead platforms and other measures which really make a difference. Together with Statoil, Petoro has worked to secure new rigs for the NCS. The company has long advocated that licensees with long-term drilling needs, in addition to entering into conventional charters for mobile rigs, could obtain such units at a lower price by becoming involved as owners. The company is also working to secure profitable use of a separate wellhead platform as part of the development of the Snorre field up to 2040. These moves represent important contributions to boosting the drilling rate on mature fields.
Mr Pedersen otherwise warns against the simplistic reactions in the early summer to what he regards as normal price variations. “Oil and gas prices have historically fluctuated a great deal, and will continue to do so. Describing the June dip in prices to just under USD 90 per barrel as something close to a crisis displays a lack of historical understanding. And it did not take many weeks before we again saw prices above USD 100 per barrel – which remains a historically high level.”
He would not deny that prices are important in the short term for cash flow and dividends, but emphasises that the key consideration for investment decisions is long-term price expectations.
“It’s important in this context to be aware that price fluctuations can have a dramatic effect if we plan for long-term tail-end production from existing field installations which are steadily aging. That’s because we risk ending up with such low and expensive production that a quite normal drop in prices could lead to production ceasing long before we’ve recovered what could have been profitable reserves. We must take some courageous investment decisions now to achieve an economic producing life based on financial robustness, and thereby secure the substantial remaining value in these fields.”
For further details, see the interim directors’ report
Head of communications, Petoro AS
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