WoodMac: Norway’s 10 billion bbl of undeveloped resources could net $106 billion

Norway holds 10 billion boe of discovered but undeveloped natural resources, of which 60% could be commercialized and potentially add $106 billion to the country’s revenues, Wood Mackenzie reported in its latest upstream estimates released Aug. 26 at the Offshore Northern Seas conference in Stavanger.

The undeveloped resources are held within 206 discoveries and spread across the Norwegian continental shelf, with half in the North Sea and the remainder divided equally between the Norwegian Sea and the frontier Barents Sea.

The discoveries range in size from less than 1 million boe to 2.4 billion boe at Johan Sverdrup, for which a concept for the first development phase was selected in February, and production is expected to start in late 2019, with a field production horizon reaching beyond 2050 (OGJ Online, Feb. 13, 2014).

Of the undeveloped resources, WoodMac considers 4.8 billion boe “likely economic,” 1.6 billion boe “potentially economic,” and the remaining 3.6 billion boe “not commercial” and will therefore remain undeveloped.

“From this we estimate the volumes in the likely and potentially economic discoveries represent $22 billion of potential value for companies in the sector and $84 billion in tax revenue alone for the Norwegian government, excluding the profits of Statoil and the state direct financial interest (DFI),” explained James Webb, WoodMac upstream analyst for northwest Europe.

However, Webb cautions that major technical and commercial challenges exist that will have to be overcome to maximize the value of the projects, including low reserves, lack of infrastructure, complex geology, and a “difficult economic environment” in the global upstream industry.

“Investors are increasingly demanding bigger dividends and a better rate of return,” Webb said. “As a result, many companies have committed to stricter capital discipline and are intensely screening projects based on financial criteria. Capital intensive projects are particularly being scrutinized. This means more difficult projects could be delayed, and in some circumstances will simply remain undeveloped.”

WoodMac also suggests recent exploration success has slowed Norway’s pace of development.

"Over the last 5 years the average size of new discoveries has been greater than the average undeveloped field and therefore new fields have been prioritized,” said Webb. “In keeping with the capital discipline theme, complex developments such as high pressure-high temperature are also being delayed in favor of more straightforward projects.

“These undeveloped resources account for much of the remaining value for several companies, including Lundin Petroleum AB, DNO ASA, and Faroe Petroleum Ltd. This creates an incentive to quickly commercialize the finds and bring them on stream,” Webb added. “However, we see increased cooperation between the companies, state DFI, and Norwegian government as vital in order to achieve the $106 billion prize.”

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