Norway needs to halve well costs

May 9, 2014

Norway’s state oil firm Petoro has said it wants to double the number of wells on the Norwegian Continental Shelf and halve their cost in order to realize the great potential of discoveries and existing fields in the Norwegian State’s Direct Financial Interest (SDFI) portfolio.

Petoro's chief executive Grethe K. Moen also warned about rising costs, said the delay to subsea compression on Ormen Lange was a disappointment, and that a decision on the Johan Castberg project (pictured) could affect future development in the Barents Sea. 

“The way we tackle Johan Castberg will greatly influence how we can continue to develop large parts of the Barents Sea,” says Moen. “We’re a licensee in a number of Barents Sea licenses, and are engaged in establishing an infrastructure which can contribute to the profitability of such developments.

Moen's comments were made as part of Petoro's annual report. She said half the discoveries under consideration for development on the NCS are smaller than about 27MM boe.

“Developing these discoveries presents major profitability challenges,” she says. “Since drilling production wells accounts for about half the cost of a development, this represents a particularly important area for making a commitment. Corresponding challenges apply for profitable recovery of the ever-decreasing volumes in mature oil fields. To meet these challenges, we need to set ambitious targets and adopt radical measures."

Moen (pictured below) said she wants operators and partnerships to get to grips with two principal drilling issues: capacity, measured by wells per year, and drilling cost. She emphasizes that time equals money in drilling, and it is accordingly disturbing that standard jobs can now take twice as long as they did 20 years ago.

“Good intentions have created creeping inefficiencies over time,” she points out. “On the other hand, the industry managed to execute standard tasks in drilling operations twice as fast before. I’m confident that, through simplification, technology which increases cost effectiveness and a cultural shift away from seeking fault-free operation to pursuing efficiency, we can achieve radical efficiency gains compared with the present position.”

While a high level of production regularity had been achieved in the basin, and some recent large field decisions agreed, such as the development plan for the giant Johan Sverdrup, she said the current level of investment reflects not only a high level of activity but also a cost increase which threatens the profitability of projects. 

The postponement of the offshore compression project on Ormen Lange was a disappointment also. Read more: Ormen Lange compression dropped

“We agreed that the current project couldn’t continue and that room existed for postponing compression on the field,” says Moen. “But we chose not to vote for the decision which was made, because we found that the plan put forward did not represent a sufficiently strong commitment and the resources allocated were not enough. Compression is needed to realize the value in the field. We’ll accordingly seek to influence the license to put greater efforts into the work ahead.”

She says it is important to safeguard investment in other major projects which are exposed to increased costs and reduced profitability, pointing to constructive efforts by the operator and partners in the Snorre 2040 project as an example. However, Moen also makes the point that postponement in itself is not going to meet the cost challenge facing projects.

In the Barents Sea, a decision is due to be taken on continued work with the Johan Castberg field. The choice of development solution is affected by uncertainty because of disappointing results from the drilling campaign, which was to strengthen the resource base for a project. Read more: Johan Castberg still in doubt

However, results were positive from the final well of this campaign, drilled on the Drivis prospect. Petoro believes it is very important that the partnership matures both the relevant development solutions – one which lays the basis for a broader area development and for pipeline transport of oil to shore, and another solution involving a smaller floating production unit with offshore loading. 

 


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