Despite the solid cash flow of NOK 27 billion in the first quarter, it is expected to be considerably weaker for the rest of the year. "The Covid-19 pandemic has taken a severe toll on large segments of the global economy. The pandemic has also had a significant impact on the oil and gas industry, particularly from the end of the first quarter," says Grethe Moen, President and CEO of Petoro.
 
Considerable surplus supply as a result of weakened demand has caused oil and gas prices to fall to historically low levels. The extraordinary measures implemented to limit Covid-19 infection will continue to have a negative impact on prices in the upcoming quarter, and it is highly uncertain how long this will affect the market.
 
The previous crisis in 2014 and 2015 is still fresh in the oil industry's memory. During and after this crisis, the industry implemented a number of efficiency measures that have made us more robust against low prices, but not enough to prevent considerable consequences from the extreme situation the industry is experiencing now.
 
The backbone of the industry
"This particularly applies for the supplier industry, which in many ways is the backbone of the oil and gas industry in Norway, as they are the source of most of the industry's jobs. The supplier industry has been highly adaptable in the face of transition following the previous drop in oil prices, among other things by expanding their customer base. But of course, the optimal situation would have been for them to have the opportunity to consolidate to a greater degree," Moen says.
 
On 29 April, the Government announced that the authorities will implement cuts in oil production to contribute toward more rapid stabilisation of the oil market. The production restriction will be 250,000 barrels per day in June and 134,000 barrels per day for the second half of 2020. The provisions also include a few exceptions; for example, gas fields are exempted. "Work is now under way to identify how this will affect production from the SDFI portfolio," Moen says.
 
In a short-term perspective, the most important thing now is to get through the crisis and support the industry's initiatives to handle this challenging situation. "It is important that we're able to handle the new risk scenario that has emerged, without undermining opportunities for long-term value creation. This particularly applies for the importance of completing ongoing projects, developing new robust projects, as well as maintaining production drilling. It's also important that the industry not lose sight of its efforts to reduce greenhouse gas emissions or the work initiated for further efficiency measures, for example the digitalisation of work processes and data sharing across the industry," Moen emphasises.
 
Long-term perspective on the Norwegian shelf
Fortunately, we can see the long-term perspective reflected in several projects in the quarter. The Johan Sverdrup field in the North Sea, which came on stream in October 2019, expects to reach plateau production for the first phase sooner than expected. Capacity in the facility has been expanded, so plateau production is now expected to increase from the previous 440,000 to 470,000 barrels per day. When Phase 2 is completed, the field is expected to produce around 690,000 barrels per day and have an estimated lifetime of close to 50 years.
 
On 8 April 2020, the Ministry of Petroleum and Energy approved the development plan for the offshore wind project Hywind Tampen in the North Sea, the world's largest and Norway’s first installation for floating offshore wind. This project involves transitioning the power supply on the Snorre and Gullfaks installations and will reduce CO₂ emissions from the Norwegian shelf by 200,000 tonnes per year from 2022 to 2030.
 
HSE
HSE results have improved somewhat from the same period last year. This results in a serious incident frequency in the SDFI portfolio of 0.7 as of the 1st quarter. The industry has proven successful in its ability to handle the pandemic situation, as expressed by the Petroleum Safety Authority.
 
Financial results
Net cash flow from the State's Direct Financial Interest (SDFI) in the oil and gas activities totalled NOK 27 billion as of the 1st quarter, a reduction of NOK 6 billion from the same period last year. The reason for this is lower prices. Total production amounted to 1,092 thousand barrels of oil equivalent per day (kboed), on par with the same period last year.
 
Gas production amounted to 110 million standard cubic metres (mill. scm) per day, a decline of 6 per cent compared with the same period last year. The average realised gas price was NOK 1.46, compared with NOK 2.22 per scm in the same period last year. The gas price on the spot market declined considerably in the 1st quarter, primarily due to an oversupplied market as a result of increased LNG imports and historically high storage levels.
 
Liquids production amounted to 398 kboed, 10 per cent higher than the same period last year. The increase was chiefly caused by Johan Sverdrup starting up in October 2019. The realised oil price in the 1st quarter was NOK 450, compared with NOK 547 per barrel in the same period last year.


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