"The cash flow reduction is a direct consequence of the global challenges for the oil and gas industry," says Petoro President and CEO Grethe Moen. "Over the short term, this will have an immediate impact on the state's revenue from our portfolio. Despite the oil and gas companies being better equipped to face this crisis than they were for the previous price collapse in 2014, the current situation causes significant uncertainty as regards the long-term consequences the pandemic will have for the industry. Therefore, it's never been more important to bolster the attractiveness of the Norwegian shelf," Moen says, while emphasising the significance of the authorities' stimulus package in both the short and long term.
This package provides considerable incentives for the industry to initiate profitable developments that will generate revenue for the state. According to Rystad Energy, this stimulus package could contribute to the realisation of 15-20 new projects over the next two to three years. Petoro calculates the profitability of projects before tax and our profitability assessments are therefore not directly affected by the stimulus package. One of the major projects now slated for realisation is the further development in the Grane area, called Breidablikk, where Petoro has considerable ownership interests. "This is an extensive project leveraging existing infrastructure to enable the production of additional profitable resources in this area," Moen says.
The SDFI portfolio is among the most mature portfolios on the Norwegian shelf, and Petoro's goal is to endeavour to ensure the realisation of the highest possible value from this portfolio. This means that time is an important factor, where aspects such as technical lifetime, pressure development in reservoirs and cost level affect the profitability of remaining resources. Reserves near existing fields are dependent on host platforms in operation, and the host fields are dependent on new production to maintain profitable operations. "This is why we're focusing on increasing production on all fields within the opportunities available on and near fields today," Moen says. The most important way to do this is to ensure a continuous supply of new production wells, which requires continuous improvement in drilling efficiency. At the same time, continuous, high exploration activity is key to ensure that potential discoveries can start producing while the infrastructure is still operational.
It is important to maintain activity on the Norwegian shelf, not least as an effort toward retaining the expertise found in the Norwegian supplier industry. "This is necessary to secure technology development, realise remaining resources and protect skilled jobs in the industry. The broader Norwegian supplier industry employs more than 200,000 people. Many of these jobs are spread along the entire country and many local communities depend on them as irreplaceable regional employment. This represents knowledge and competence that will be crucial in further development of the oil and gas industry, while simultaneously securing Norway’s future as a carbon-neutral industrial nation", says Grethe Moen.
HSE
HSE-results have improved somewhat compared with the same period last year, but we are still seeing too many undesirable incidents in the portfolio. The serious incident frequency is at 0.7 as of the first half of 2020. As a licensee, Petoro is obliged to contribute toward good HSE in the license portfolio and ensure that the operators exercise their role in line with the established requirements.
"We have chosen to direct our attention toward handling major accident risk, where, for example, the Covid-19 situation's effect on maintenance in the portfolio is a factor that could affect the risk picture and is therefore followed closely. So far, our assessment is that this has been handled well by the operators," Moen says.
Net SDFI income for 1st half of 2020
Net cash flow from the State's Direct Financial Interest (SDFI) in the oil and gas activities totalled NOK 34 billion at the end of the first six months, a reduction of NOK 25 billion from the same period last year. This decline is primarily caused by lower prices as a result of the Covid-19 pandemic. Total production amounted to 979 thousand barrels of oil equivalent per day (kboed), a decline of 43 kboed compared with the same period last year.
"It's very positive that the Covid-19 situation has not led to a halt in production and that operations has been maintained through a very demanding period", Moen underlines.
Gas production totalled 95 million standard cubic metres (mill. scm) per day, a decline of 11 per cent compared with the same period last year. This reduction was primarily caused by the use of flexible gas production for price optimisation on Troll and Oseberg.
Liquids production amounted to 379 kboed, 34 kboed higher than the same period last year. The increase was caused by Johan Sverdrup starting up in October 2019. Excluding production from Johan Sverdrup, production declined by 35 kboed, mainly because of natural production decline on multiple fields, as well as further reductions in oil production in June for the fields included in the authorities revised production permits.
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