Analyst Reports Another Big Year in Norwegian Production

Energy research consultancy Wood Mackenzie says Norway’s oil and gas industry is thriving: 2012 was a record year for capital investment, M&A activity, and licences awarded. However, this was tempered by an underwhelming year for exploration and concerns about the sector overheating, as the ramp-up in activity on the Norwegian Continental Shelf (NCS) led to delays and increased costs.

Wood Mackenzie’s review notes that Norway was a top destination for global upstream investment in 2012, with NKr 146 billion (€19.9bn) of development capital expenditure, or capex. Malcolm Dickson of Wood Mackenzie says: '"Most of this was spent on producing assets, in particular on increasing recovery from giant fields like Ekofisk and Troll. Seven developments were sanctioned in 2012, which was lower than anticipated at the start of the year, but still healthy."

2013 is set to be another year of major investment, with development spend set to increase again as key developments including Åsgard, Edvard Grieg, Martin Linge and Ivar Aasen get underway. However, it warns that there are signs the Norwegian industry is overheating, with the service sector at peak capacity and costs increasing year-on-year. In 2012 this led to several projects being delayed, and cost overruns on many projects. This will not change in 2013: 'Project delays and overspend will be a common feature on the Shelf, as companies struggle to access rigs and equipment on time or in budget,' Dickson added.

Another key conclusion is that exploration success and portfolio rationalisation have spurred mergers and acquisitions (M&A) in Norway. According to Wood Mackenzie, the value of assets transferred in M&A reached a new high of  NKr 22.5 billion in 2012, up 70% on last year’s record. This was underpinned by Statoil’s US$1.2 billion deal with Wintershall. Statoil continued with its strategy of portfolio rationalisation to focus on new, higher profile developments, while for Wintershall, the deal was transformational in Norway. Other companies sought to grow through M&A, most notably OMV through its acquisition of RWE’s interest in Edvard Grieg. Tullow Oil and Cairn Energy acquired Spring Energy and Agora to enter the country, demonstrating the attractiveness of the NCS.

"We expect M&A to continue to be buoyant in Norway in 2013 as the main catalysts will still be present: high activity levels, costs, and a tight rig market will push companies to evaluate and optimise their portfolios," says Dickson.

After word-class exploration success in recent years, Dickson concedes that 2012 was a disappointing year for discoveries: 'Exploration drilling was down and results were generally poor. Although 14 discoveries were made in 2012, yielding 709 million barrels of oil equivalent (mmboe), this was down 8% from last year, and was below the ten year average of 860 mmboe.' 

See earlier story: Statoil Presents Development Plans