Directors’ report 2012
Considerable changes are taking place on the NCS, and the future of the SDFI portfolio depends on progress in the mature oil fields as well as developments in the gas market and in new exploration acreage. Production forecasts for the SDFI portfolio indicate a significant decline in output after 2020, despite major discoveries in 2011 and 2012.
The Johan Sverdrup and Skrugard/Havis discoveries have created optimism and new drive both in mature areas of the NCS and in the Barents Sea. All the discoveries involving Petoro in 2012 were oil finds. Interest in the award of Barents Sea acreage has been high. Petoro is concerned to see a clear area strategy established as the basis for future exploration and field development in this area and for the development of oil and gas infrastructure there. Realising the Polarled gas pipeline project could also yield increased incentives for exploring the Norwegian Sea.
Existing fields contain substantial remaining reserves. This underlines the significance of these producers, and it is accordingly important that the joint ventures for the big mature fields are able to realise this potential.
Increased reserves, effective application of innovative technology solutions and new work processes, combined with high oil prices, have contributed over a lengthy period to extending the producing life of several large mature fields. Oil output is falling significantly every year, and this trend is reinforced by a steady decline in the pace of drilling and fewer wells per year. The extension of producing life calls for increased investment on infrastructure to maintain functionality and technical integrity. Spending on wells is higher than anticipated because of substantial cost rise and a greater need for wells than expected. However, investment decisions are challenged by uncertainty over the remaining reserve base. These challenges are complex, and realising the reserve potential in the big fields is a substantial and demanding job. The board would emphasise the importance of Petoro strengthening its efforts to prioritise the mature fields on the NCS.
Statoil is the dominant player on the NCS and operates about 80 per cent of production from the SDFI portfolio. This means that the choices made by this company have great significance for the further development of the NCS and the SDFI.
Fast-track development of small oil fields is an approach which has breached the trend for lead times in new projects. On the other hand, the high level of activity on the NCS is pushing up costs. That could challenge the profitability of new developments.
Petoro will contribute to enhanced value creation and gives priority to work in the areas where the value potential and its ability to exert influence are greatest. The company achieves this through purposeful use of the funds allocated to it for independent studies and assessments, and to support and challenge the operators. Where commercial matters are concerned, Petoro safeguards the government’s interests in relation to other companies and their priorities. It fulfils this role within the appropriations provided over the central government budget through a purposeful build-up of its own expertise and capacity, and by setting good priorities.
The board expects oil prices to be relatively high but fluctuating during 2013. Prices are balanced between uncertainty on the supply side related to relatively low reserve capacity and persistent unrest in the Middle East, and uncertainty over demand related to world economic trends. Output from the SDFI’s portfolio is expected to remain above one million boe in coming years, with a further shift from oil to gas.
Structural market changes and increased availability of liquefied natural gas (LNG) have reduced price levels for gas relative to those for oil. The economic position in Europe is expected to yield persistently weak demand for gas in this market. Great uncertainty also prevails about the availability of LNG to Europe, because this depends on demand in Asia. Viewed overall, the outlook for the balance between supply and demand for gas in Europe is very uncertain. In addition, uncertainty prevails about the role of gas in the future European energy picture. That applies particularly in the electricity generation sector as a result of current processes within EU energy and climate policies.