Statoil Expands Exploration Plans for 2017

The Songa Enabler, the rig hired for Statoil's Barents projects (2014, courtesy Songa)

By MarEx 2017-01-05 11:26:24

Norwegian state-owned oil firm Statoil announced Wednesday that it will be expanding its offshore exploration program by one third in 2017, an adjustment that runs counter to its competitors' cost-reduction strategies. 

The firm's controversial Barents Sea drilling campaign is at the heart of the plan. The remote Barents Sea blocks are well above the Arctic Circle: most of the license areas are further north than Eni's Goliat platform, the highest-latitude offshore facility. Statoil's plan has drawn criticism from environmental groups and Norwegian politicians who oppose drilling in the Arctic, and in the past, activists with Greenpeace have attempted to interfere with its operations. In 2014, Greenpeace claimed that its opposition caused Statoil to end a Barents Sea drilling campaign near the Bear Island nature reserve. 

Even if litigation and direct action campaigns do not deter Statoil, and the oil firm succeeds in finding viable prospects in the Barents, the harshness of the Arctic environment may raise the difficulty and cost of development. As a measure of comparison, Goliat's cost eventually surpassed $6 billion, and estimates for its break-even oil price range as high as $100 per barrel. 

Including the Barents blocks, more than half of the 30 wells Statoil will drill this year will be on the Norwegian Continental Shelf (NCS), and most of this activity is intended to prove volumes near existing fields in order to extend their lifespan. Abroad, Statoil will invest in exploration in Brazil, the U.S. Gulf of Mexio, Indonesia, Suriname, and the UK Continental Shelf. In addition, the firm will partner in onshore exploration in Russia and Turkey. 

"The upcoming well program is balanced between proven, well known basins and new frontier opportunities,” said Tim Dodson, Statoil's executive vice president for exploration. 

Statoil said that the expanded drilling campaigns will be possible thanks to cost reductions. In 2016, the firm's total exploration activities came in well below budget through efficiency improvements and changes in market dynamics. “Taking advantage of our own improvements and changed market conditions, we have been able to get more wells, more acreage and more seismic data for our exploration investments in later years,” Dodson said. 

Statoil is among the few firms raising their offshore exploration activity this year: most oil majors intend to cut capital investment by an average of 15 percent in 2017, according to a recent report from rating agency Moody's. These planned reductions come on top of an average 20 percent cut in each of the past two years. 

Norway remains cost-competitive in a down market

A recent Norwegian government survey found that oil firms intend to spend $18 billion on capital investments in Norway in 2017, down by a third from 2014. The decline in E&P spending has led to the loss of over 40,000 Norwegian jobs in petroleum and related industries, but the challenging market has also driven the efficiency gains that make Statoil's extra exploration possible. Bloomberg reports that despite the declining dollar value of investments, Norway's petroleum output is set to rise for the third year in a row. 

In addition, Norway remains a relatively attractive destination for exploration investment. The total number of exploration wells drilled in Norway fell in 2015 and 2016, but not as sharply as it did in the UK North Sea, where the number of spudded wells plummeted with the decline in oil prices. Analysts say that the relatively high success rate of near-field exploration opportunities (plus a favorable tax structure) make the Norwegian Continental Shelf a competitive alternative to other European prospects.