Norway cuts 4.4 bln barrels from oil/gas reserves

Norway slashed its undiscovered oil and gas resource estimate by 4.4 billion barrels and forecast a 5.8 percent drop in oil output in 2011 as exploration results disappoint and North Sea oilfields mature.

The downgrade, expected after exploration wells spudded in prospective gas areas in the Norwegian Sea missed industry expectations, comes at a time when crude prices are climbing towards $100 per barrel for the first time since 2008.

It highlights the challenges facing the world’s No. 5 oil exporter as it seeks to prolong a 40-year oil boom as well as wider concerns about meeting the world’s growing energy appetite after easy-to-exploit oil deposits run out.

In response to the resource cut, Norway’s top oil and gas producer Statoil reaffirmed its target to maintain current production levels off Norway through 2020.

Norwegian oil officials called for more debate about allowing oil and gas activity in the prospective Lofoten region in the Arctic, which remains closed due to environmental concerns and fishing interests.

A deputy oil minister told Reuters the government may in March decide whether to carry out a study on Lofoten drilling, which environmentalists see as a big step towards opening up the region for exploration.

On the upside, natural gas production hit a record in 2010 and is expected to continue growing in upcoming years, while the current high oil price makes smaller discoveries more viable to exploit, the Norwegian Petroleum Directorate (NPD) said.

“Production is declining in spite of vigorous activity. Not enough new reserves are found to offset current oil and gas production,” the NPD said in its annual production review.

The NPD cut undiscovered resources off Norway to 2.6 billion cubic metres of oil equivalent (16.4 billion barrels) from 3.3 billion cubic metres. It said discoveries since 2006 accounted for cuts totalling 400 million cubic metres.

The NPD said it cut estimates “following disappointing exploration results” and less encouraging seismic surveys for Lofoten along with the nearby Vesteraalen and Senja regions.

“This is a clear indication that we need to strengthen our efforts regarding new areas and regarding exploration in areas that are already opened, to find more,” Deputy Oil and Energy Minister Per Rune Henriksen told Reuters.

NPD chief Bente Nyland told Reuters opening new areas for development “might be a solution” to help offset declining output and urged politicians to quickly make decisions regarding new exploration opportunities.

The NPD said oil production in 2010 fell by 9.6 percent to about 104.4 million cubic metres per day, or to 1.8 million barrels per day, and was set to drop a further 5.8 percent to 98.3 million cubic metres in 2011 and 88.9 million by 2015.

“Oil production in 2010 will most likely come in 4 percent lower than the estimates prepared by the NPD in the autumn of 2009,” the agency said, reflecting numerous unplanned outages at oil and gas fields off Norway in the past year.

Last November, Statoil cut its 2010 production guidance due to what it has called planned maintenance projects.

“This (resource cut) is in accordance with our assessments,” Statoil spokesman Ole Anders Skauby said. “This underlines the need for opening new areas for exploration.”

As tail-end production at fields drops quicker than planned, the NPD cut its oil output guidance for 2011 by a total of 17 percent since 2007, according to Reuters calculations. Its gas output view for this year has been cut by 7 percent in 4 years.

Gas sales nonetheless rose by 3 percent to 105.6 billion cubic metres in 2010 and were seen at 109.1 billion in 2011 and 112.2 billion in 2015, the NPD said. In 2009 Norway overtook Canada as the world’s No. 2 gas exporter behind Russia.

“It just tells that the shelf is in decline,” Trond Omdal of Arctic Securities said. “Ten years ago a typical field approved for development was in the 400 to 500 million barrel range with a break-even of $20 a barrel. Now a new field is typically 50-60 million barrels with break-even around $60.”

NPD’s Nyland said, however, that with oil around $90 per barrel, even smaller discoveries were becoming viable to exploit. The directorate is pushing oil companies to tie smaller finds into existing infrastructure to drive down costs.

Omdal said unexplored waters in the high Arctic could yet help Norway extend its petroleum age, and pointed to a Norwegian-Russian agreement last year ending four decades of dispute over how to divide Barents Sea resources.

“There is a big upside with the resolution of the disputed zone with Russia, if that area is opened (for exploration),” he said. “We could find some real giants again.”

Reuters