Abstract:

The exploration activity on the Norwegian Continental Shelf (NCS) is too low according to a resource management's point of view, the Norwegian Petroleum Directorate's (NPD) view. The trend with a decreasing exploration activity is however not only a solely feature for Norway. We discuss possible reasons for the low exploration activity globally and the factors specifically related to the NCS.

One important factor behind the low exploration activity on the NCS is the industry structure with the dominance of the Norwegian companies Statoil, Hydro and Petoro. To increase the exploration activity on the NCS the Norwegian Government wants a more varied portfolio of companies on the NCS.

In this paper the oil and gas opportunities on the NCS is presented with special focus on the economic value of these opportunities. In spite of low exploration activity the economics of exploration on the NCS is still good. Large parts of the NCS are very little explored and there is still a huge resource potential in the region. About one third of total resources are yet to find.

Introduction The global level of exploration activity has been low since 1998. Also at the NCS the exploration activity has been low compared to the history, and low taken into account the high oil price. The low numbers of exploration wells is a challenge for the resource management at the NCS. Though now one can see signs of increase in the exploration activity.

We discuss why we have a low exploration activity both globally and nationally on the NCS. It's first of all the Super Majors and the Majors that has reduced their exploration activity while the Independents have been more aggressive. At the NCS there are few Independent companies present. One important goal for the government is therefore to increase the number of Independent companies active at the NCS.

In this paper we present the oil and gas opportunities on the NCS which should be of interest for potential newcomers. We also present the economics of exploration in Norway and explain the recent changes in the tax system which should give newcomers strong incentives to explore for oil or gas at the NCS.

Exploration activity - driven by the oil price

Commodity price is the overarching driver of the upstream petroleum industry. From a historical perspective, post-1973, price has divided the upstream petroleum industry into two principal phases. The oil price cycle is shown in figure 1.

The first price cycle includes the steep price rice through the 1970's and the subsequent decline during the mid 1980s.

The second phase, involved an extended period of low oil prices through the late 1980's and the 1990's which bottomed in 1998. (Figure in full paper) The phase of rising oil price during the late 1970's and early 1980's resulted in a rapid expansion of global exploration. The oil price drop in the mid-1980's caused an immediate and precipitous reduction in exploration activity.

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