Norway’s Oil Future Seen With Ice-Free Arctic’s BarrelsMikael Holter
In the wake of plummeting oil output, Norway, western Europe’s biggest petroleum producer, may have found its new money spigot: an ice-free expanse of the Arctic Ocean known as the Barents Sea.
Companies will drill a least 12 wells in the Norwegian Barents this year -- a record equal to the number drilled in the past two years combined -- as they increase the effort to unlock an estimated 6 billion barrels of oil equivalent the lightly explored area is thought to hold. If half of that were oil, it would be valued at $330 billion at Brent benchmark prices of $110 a barrel.
The move follows discoveries in 2011 and 2012 of the Skrugard and Havis fields in the Barents that between them may contain 600 million barrels of recoverable crude. After a decade of disappointing results the finds rekindled interest in the area by explorers including Statoil ASA of Norway, Italy’s Eni SpA and Sweden’s Lundin Petroleum AB.
This year’s record drilling spurt, which may include a 13th well, will require companies to spend as much as $1.8 billion, according to a Wood Mackenzie Ltd. estimate.
The Barents’ prospects are “enormously exciting,” Jarand Rystad, managing partner of Oslo-based consultant Rystad Energy, said in a March 1 interview. “There’s oil and gas everywhere. It’s just a matter of finding thick enough sands, good enough traps for the resources to be commercial.”
Norway is looking to compensate for falling production from aging fields in the North Sea, where crude output has declined by half since a peak in 2000. Daily output has dropped to about 1.5 million barrels a day from about 1.8 million barrels two years ago.
The push comes as explorers fail to make headway in other parts of the Arctic. Royal Dutch Shell Plc, based in The Hague, announced a pause in drilling off Alaska in February because of equipment problems. European independent Cairn Energy Plc came away empty-handed from a $1 billion campaign off Greenland in 2011. A venture by Irving, Texas-based Exxon Mobil Corp. and OAO Rosneft to explore Russia’s remote and icy Kara Sea won’t drill its first pilot well until at least next year.
The ice-free nature of the Barents means projects aren’t dogged by the operational problems faced elsewhere, Lundin Chief Executive Officer Ashley Heppenstall said in a March 21 interview.
“The southern Barents Sea is more akin to the North Sea than the Arctic,” said Heppenstall, who plans as many as two wells in the Barents this year and one to two wells in 2014. “Because of the Gulf Stream you’ve got 12-month operations; you’ve got reasonably shallow waters. It’s all about logistics.”
Statoil, which made the Skrugard and Havis finds, will drill four wells in a 30-kilometer (18-mile) radius of Skrugard as part of an unprecedented nine-well campaign in the Barents over a year starting in April or May.
“We’re absolutely certain we’ll strike,” Gro Haatvedt, Statoil senior vice president for exploration in Norway, said in a Feb. 20 interview at Fornebu near Oslo. “In the Skrugard area, little is needed to be commercial.”
Statoil, which operates about 80 percent of Norway’s oil and natural gas production, has said it will spend more than 80 billion kroner ($13.8 billion) with Petoro AS and Eni to develop Skrugard and Havis. Plans include a 280-kilometer pipeline and the region’s first oil terminal at Veidnes, which will be able to handle additional volumes.
The company is hoping for another “high-impact” find, one holding at least 250 million barrels of oil equivalent or 100 million barrels net for Statoil, at its Apollo well in the frontier Hoop area of the Barents, Haatvedt said. The well is on the company’s list of “wells to watch” for 2013 and is one of two exploration wells Statoil will drill in the northernmost license awarded by Norway.
Statoil fell 0.8 percent to 140.3 kroner by 11:29 a.m. in Oslo. Lundin dropped 0.8 percent to 141.5 kronor in Stockholm, while Eni rose 1.4 percent to 17.83 euros in Milan.
Norway plans to open an area in the southeastern Barents as soon as this year that may contain a further 1.9 billion barrels of oil equivalent, the Norwegian Petroleum Directorate said last month. The area had been off limits for four decades because of a dispute with Russia that was resolved in 2010.
In the Russian Barents, OAO Gazprom’s Shtokman project in stormy, iceberg-ridden waters 600 kilometers from land has been stalled for years on galloping costs and technical challenges. A venture agreement with Statoil and France’s Total SA lapsed July 1, opening the door for talks with potential new partners.
Rosneft, Russia’s biggest oil producer, has secured partnerships with Statoil and Eni to explore the Barents. Rosneft and Statoil will drill their first exploration well in the Perseevsky block in 2020 and Rosneft and Eni will drill a first block in the central Barents in 2021.
Eni will put up about $2 billion for initial exploration for the offshore venture that also includes the West Chernomorsky block in the Black Sea and Fedynsky in the Arctic. The two blocks to be drilled in the central Barents lie close to the recent Norwegian finds.
“We consider the Russian Barents Sea a promising zone,” CEO Paolo Scaroni said in London this month.
While the NPD’s estimates would mean the Barents holds 42 percent of all undiscovered resources off Norway, the area remains relatively untouched. Only 95 exploration wells have been drilled compared with 1,048 in the North Sea and 279 in the Norwegian Sea.
That will soon change. Of 86 drilling blocks to be awarded to oil companies by the government in coming months, 72 are in the Barents.