Norwegian continental shelf to bottom out in 2017


Stavanger/Edinburgh – 29 August 2016 - US$50 billion has been removed from Wood Mackenzie’s forecast of 2016-2020 capital investment in Norway. This is based on over 10 projects being deferred or scrapped to cut costs, according to our latest study on the future of projects in the Norwegian continental shelf.

Malcolm Dickson, principal analyst for Upstream Oil and Gas for Wood Mackenzie, says: "Companies are seeking lower cost solutions, be that from cheaper market rates, or different development options."

There are 3 billion barrels worth of pre-final investment decision (FID) projects sitting waiting for sanction – and the timing of these is crucial in determining the costs of the kit required for development.

"The best time to FID from that point of view is before 2018, after which we expect demand to pick up in line with oil price recovery. This will push costs up in the global supply chain, and there could be a demand crunch at that point," says Dickson.

"Mid-2017 is the bottom if you believe in oil price recovery, as we do. That means that cost inflation will begin to creep into fields from 2018 onwards. FID in the next year or so would make sense to capture lower costs," explains Dickson. "However, cost optimisation can trump everything. Too many of those projects have breakevens in excess of US$50 a barrel – and simplification, standardisation and optimisation, not cyclical benefits are the keys to new investment."

For those looking to invest, FIDs targeting 2017 would be optimal for lower costs.

Click the chart to view full screen: Click to view full screen

Commenting on the effect of the oil price drop on capital investment spend in Norway, Dickson says: "We can’t change the oil price, but we can look to bring costs in line with it. The most prevalent type of optimisation has been simplification of projects such as moving to lower cost drilling techniques, scaling down vessel spec and moving from large platforms to subsea." Examples of optimisation include the evidence of more efficient drilling in exploration – with wells being drilled 50% faster than 2013, as well as new technology approaches like Åsgard's subsea compression, which adds around 300 mmboe to that project. Statoil is among the companies benefitting from the use of standardised and simplified well designs to cut time and costs.

"While costs have come down, there’s a lot further to go," says Dickson.

Wood Mackenzie's research shows that in 2016, subsea equipment, drilling and seismic will see the most cost deflation.

Based on our recent survey, independent oil companies are more optimistic of further deflation in 2017 – while the supply chain foresees an earlier demand uptick, curtailing deflation.

Find out more
View our latest article Counter cyclical investment: the industry's silver lining 

For further information, please contact:

Europe, Middle East, Africa, Russia and Caspian Region

Americas Region

Asia Pacific Region