The Arctic May Save Norway's Oil IndustryMarianne Stigset and Stanley Reed
In April the Polar Pioneer, a Transocean drilling rig working for Statoil (STO), the Norwegian state energy company, and its partner, ENI (E), struck oil in about 1,000 feet of water some 120 miles north of the Norwegian mainland and the same distance south of Bear Island in the Barents Sea, inside the Arctic Circle.
Statoil thinks the find—now called Skrugard—as well as surrounding areas might eventually yield 500 million barrels of oil. That is not a huge discovery, but it has sent a frisson of excitement through the industry. "It is phenomenal; it confirms that the Barents Sea after so many disappointments is worthwhile," says A. Bjarne Moe, the lanky, bearded director general of the Norwegian Ministry of Petroleum and Energy.
Skrugard comes as a huge relief, since Norway's status as one of the world's great oil producers is under threat. Oil production has fallen by 48 percent from its 2000 peak as old fields found decades ago are depleted—bad news for an industry that accounts for about one-quarter of Norway's economy.
The last great find was a gas field called Ormen Lange in deepwater off the craggy west coast in 1997. With shallow waters unlikely to produce major finds, explorers have been moving out into deeper waters and harsher territory in the Barents and the western part of the Norwegian Sea. Highest hopes have been for the Barents, a vast vaguely defined body of water shared by Norway and Russia and named for the 16th century Dutch navigator Willem Barents. The government forecasts that 5.9 billion barrels of oil and gas will be found there.
Until now, the search for those billions has been disappointing. Malcolm Dickson, a research analyst at Wood Mackenzie in Edinburgh, figures that 74 wells drilled in the Barents prior to Skrugard have produced only two commercial developments: Snohvit, a Statoil-operated liquefied natural gas project, and Goliat, an oil and gas field being developed by Italy's ENI.
One problem, according to Royal Dutch Shell (RDS.A) Norway Chairman David Loughman, is that the central Barents Sea, where much of the drilling has taken place, has experienced a recent uplift in the earth's crust below the sea bottom. That may have removed the cap that trapped oil and gas.
ENI and Statoil, responsible for all the success in the Barents so far, are confident they have finally cracked the geologic code. In late April, they grabbed more drilling licenses to add to their existing stakes in the same area, which is farther offshore than other drilling. Claudio Descalzi, head of exploration and production at ENI, says the oil there at Skrugard flows readily out of the rocks and will be easy and quick to produce. "We really think it is a breakthrough," he says.
Jerry Kepes, a partner at consultants PFC Energy in Washington, says it would take several major finds to turn Norway's industry around. Yet the discovery undoubtedly will encourage exploration, and the Norwegians are trying to lure more oil companies. The government, long known for its tight hold on the industry, now covers most of the cost of even unsuccessful exploration. It has also allowed foreign companies bigger stakes in projects. Shell, for instance, has only a 17 percent stake in Ormen Lange. By contrast, ENI has 65 percent of Goliat, a much more recent venture.
The bottom line: The Norwegians may be able to save their oil industry from extinction after a find in the Barents Sea, inside the Arctic Circle.