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The SDFI arrangement was established in 1985. The arrangement entails that the state participates as a direct investor in the petroleum activity on the Norwegian shelf, so that the state receives revenues and incurs costs associated with the SDFI shares. Petoro acts as a licensee for the state’s interests in production licences, fields, pipelines and onshore facilities. As manager of SDFI, Petoro contributed a cash flow of NOK 120 billion in 2018, a significant part of the state’s total revenues from the petroleum activity.
 

External trends 

The Norwegian oil and gas activities operate in a global arena with tough competition for capital and competence. Therefore, maintaining the competitiveness of the shelf will be crucial to the future of the Norwegian petroleum industry. 

The Norwegian petroleum industry is now characterised by optimism. Several years of adjustment and efficiency measures, well-assisted by the fact that oil and gas prices stabilised in 2018 at a somewhat higher level than the previous year, give the industry a good starting point for new profitable investments and increased activity. Demand for oil and gas is still increasing, but prices are uncertain and considerable volatility is expected in the time ahead. 

Gas makes an increasing contribution towards phasing out coal in several countries, thus substantially reducing greenhouse gas emissions. The Intergovernmental Panel on Climate Change’s (IPCC’s) status report from October describes with even greater clarity than before the consequences of global warming, and that today’s climate measures are far from sufficient. Rapid and far more sweeping measures are called for, and in November, the EU Commission announced its vision for a climate-neutral Europe by 2050. While the greenhouse gas emissions from the Norwegian shelf are low in an international context, it is important that we implement climate measures to further reduce emissions, and thus strengthen competitiveness.

The break-even price for important projects has been substantially reduced in recent years. However, the expected price volatility in the years to come underlines the necessity of further improving the competitiveness and attractiveness of the Norwegian shelf to realise future values. The major effects of adjustment and streamlining we have seen in recent years are levelling off, and we need new measures and new ways of working to achieve further efficiency. At the same time, there is a risk that the cost level will once again rise in line with the increased activity level on the shelf. This can pose a challenge for the shelf’s competitiveness.

In 2018, Equinor presented plans for renewal of the Norwegian shelf. These plans largely coincide with Petoro’s strategy, particularly as regards focus on mature fields, including a significant increase in number of wells, extension of field lifetimes and  leverage of existing infrastructure, along with a commitment to digitalisation.

Driven by the need to further improve competitiveness, it is important that we continue the work to reduce uncertainty in reserve estimates, improve efficiency, develop cost-efficient solutions and reduce emissions. Recent years’ strong and rapid development of digital technologies on a global basis are among the most important strategic instruments in most oil and supplier companies. The main challenge when it comes to realising the potential in digitalisation is not primarily technology, but bringing about the changes that are needed in the way we work. Management, culture and work processes are therefore the most important factors.

It is positive that the most important operators and suppliers in the SDFI portfolio work well with digitalisation linked to the areas with the largest commercial significance within both reservoir, drilling and operations. Several successful pilot projects have already yielded good effect. Petoro notes that the operations models are in the process of changing on the operations side through the establishment of onshore operations centres. Activities and personnel within drilling are also being moved onshore. This development is mainly still in an early phase. The industry’s efforts are reinforced through joint initiatives under the direction of Norwegian Oil and Gas and Konkraft, as well as authority initiatives such as Digital21 and OG21.

There has been considerable interest in exploration acreage on the Norwegian shelf, and a record-breaking number of production licenses were awarded in 2018 in both the ordinary licensing round and awards in predefined areas (APA). Exploration activity in 2018 has also been rising, with a total of 53 exploration wells, 17 more than in 2017. Estimates from the Norwegian Petroleum Directorate reveal that only close to half of the recoverable resources have been produced and sold so far. This shows that the Norwegian shelf is still attractive. This is confirmed by the fact that several new, medium-sized players have entered the Norwegian shelf in recent years as a result of mergers and acquisitions. Several of the major international oil companies have reduced their presence on the shelf through the sale of own and partner-operated licence shares, but the newcomers often see opportunities in these licences. These companies also contribute to a new dynamic by introducing different forms of cooperation and business models. 

Summary of SDFI results 

Cash flow to the state was NOK 120 billion in 2018, which is the highest cash flow in 5 years. The increase in relation to 2017 was NOK 33 billion, mainly due to significantly higher oil and gas prices. 

Total production was 1.085 million barrels of oil equivalent (o.e.) per day, just above 2 per cent lower than in 2017. Gas production was at a record-high level in 2018, marginally higher than in 2017. Together with high gas prices, this resulted in gas revenues from own produced gas of nearly NOK 90 billion. 

Liquid production was 372 thousand bbl o.e. per day, 7 per cent lower than in 2017. The drop in liquid production is mainly caused by production shutdowns in connection with maintenance and natural production decline. In contrast to previous years, increase in number of wells on production efficiency has not compensated for the production decline. Nor were any new fields started up that contributed to production. 

Investments in 2018 were NOK 23 billion, which is about NOK 3 billion lower than the previous year. The reduction is mainly due to drilling fewer wells, and a somewhat lower activity level within development.  

The annual profit in 2018 was NOK 114 billion, NOK 15 billion higher than in 2017. The increased profit as a result of higher prices was partly offset by impairment of the Maria field in 2018, reversal of previous years’ impairments in 2017, as well as change in loss provisions for outstanding positions in the gas market and  recognition of liability for the negative outcome of the initial verdict from the District Court in the case of Troll Unit.
 
The positive trend of reduction in production costs has reversed, and costs increased in 2018. Cost must therefore be carefully monitored in the time ahead. 

Recorded assets were NOK 247 billion at 31 December 2018. The assets consist of fixed assets related to field installations, pipelines and onshore facilities, as well as short-term debtors. Equity at year-end was NOK 163 billion. 

Health, safety and the environment (HSE) 

The objective for Norwegian petroleum activity is to be a leader within health, safety and environment. This places demands on cooperation and sharing lessons learned, and that the companies take responsibility for a sustainable safety culture. Strong and clear expectations must be set for HSE leadership and HSE culture. In 2018, Petoro has been particularly focused on risk assessments in a major accident perspective and robustness in technical, operational and organisational barriers. Petoro has also in 2018 carried out several management visits focussing on health, safety and environment on selected fields and onshore facilities. 

The HSE results for 2018 show that the serious incident frequency is still too high. Serious incident frequency, defined as the number of actual and potential near-misses for serious incidents per million hours worked, which is at 0.7, is on par with 2017. None of the incidents in 2018 had major accident potential. Most incidents are linked to falling objects. The personal injury frequency, that is, the number of personal injuries per million hours worked, declined from 4.2 in 2017 to 3.8 in 2018. No serious discharges to sea were recorded in 2018.

Main activities in 2018

At the end of 2018, the portfolio consisted of 198 ownership interests in production licences, 12 more than at the beginning of the year. In January 2018, the Ministry of Petroleum and Energy implemented awards in predefined areas (APA 2017) where 17 production licences were awarded with SDFI participation. In the 24th licensing round in June 2018, 6 production licences were awarded with SDFI participation.  During the course of 2018, 2 production licences were carved out from existing licences, 11 production licences were relinquished and 2 were sold. In January 2019, the Ministry of Petroleum and Energy implemented APA 2018, where an additional 14 production licences were awarded with SDFI participation.

In 2018, plans for development and operation (PDOs) were submitted for Johan Sverdrup phase 2 and for Troll phase 3. During the course of the year, the authorities approved the PDOs for Johan Castberg, Snorre Expansion Project and Troll phase 3. The third phase in the Troll development realises 2.2 billion bbl o.e., has a break-even price under 10 dollars per barrel and a CO2 intensity of 0.1 kg per bbl.

Production from the mature oil fields continues to dominate liquid production in the SDFI portfolio. The Troll, Oseberg, Åsgard, Heidrun, Grane, Snorre and Gullfaks fields accounted for 68 per cent of the total liquid production in 2018. The gas share of total production measured in o.e. amounted to 66 per cent in 2018. More than 72 per cent of the gas production came from the Troll, Ormen Lange and Åsgard fields. No new fields came on stream in 2018, but two new further development projects on existing fields, Oseberg Vestflanken 2 and Visund Nord IOR, started production in 2018. The Polarled pipeline also started operations, initially to route gas from Aasta Hansteen to Nyhamna. Polarled lays the foundation for new activity in the Norwegian Sea.

The company’s strategy was updated in the first half of 2018 and has three strategic areas: Competitiveness, Mature fields and Wells. These areas are supported by four strategic prioritisations: Well maturation and drilling efficiency, Optimised recovery strategy, Fields and further development, and Effective operations. A common factor for all these prioritisations is to exploit the opportunities created by the work on digitalisation. Through focussed follow-up supported by in-depth technical efforts, Petoro works to reinforce value creation opportunities with emphasis on long-term business development. The company’s climate policy emphasises that Petoro shall contribute to making the oil and gas industry on the Norwegian shelf a leader in meeting the climate challenges. 

In line with this strategy, Petoro has devoted particular efforts to the Troll, Heidrun, Oseberg and Snøhvit fields in 2018. Well maturation and digitalisation have also been addressed as special topics for the entire field portfolio.

On Troll, where Petoro has an ownership interest of 56 per cent, the company has worked for several years to shed light on the consequences that increased gas production can have on the oil production. The development of digital technologies has dramatically accelerated the pace of data handling. Through close cooperation with the service provider, Petoro has applied “next generation” reservoir simulation tools on Troll, where the reservoir model and pipeline system on the seabed were joined in a comprehensive model to analyse the link between oil and gas production from the field. The results from these studies also contributed to support the preparation of the PDO for Troll phase 3, as well as the licence’s annual application for gas export volume.

On Heidrun, where Petoro has an ownership interest of 57.7 per cent, the company has conducted its own simulation studies in 2018 aimed at optimising the drainage strategy and contributing to identify new drilling targets. This effort has supported the work on Heidrun redevelopment and the approved lifetime extension for the field. This could realise significant value through the Heidrun nord phase 2 project. Petoro’s efforts over several years have been important for the development and results on the field, and illustrate the value of diversity among the licensees in a licence with a view towards arriving at good, comprehensive solutions. 

On Oseberg, where Petoro has an ownership interest of 33.6 per cent, the company has conducted its own simulation studies in 2018 for the southern part of Oseberg to identify the potential for new improved oil recovery measures on the field. This work has contributed to identify new drilling targets that can be drilled from existing infrastructure on the field, and which therefore have both low investment costs and risk. 

On Snøhvit, where Petoro has an ownership interest of 30 per cent, the company has had significant preparatory work in 2018 aimed at the investment decision for the Askeladd project, which will be the first plateau extension of the field since its start-up in 2007. Among other things, Petoro has addressed the rig strategy, synergies with other fields in the area and subsurface work. The investment decision was made in 2018. 

As regards new fields in the portfolio, Petoro’s efforts in 2018 have included preparations for the investment decision and the PDO for Johan Sverdrup phase 2, where Petoro has an ownership interest of 17.36 per cent. The PDO was submitted to the authorities in August. Johan Sverdrup is a pioneer field within digitalisation. Here, Petoro has been involved in the licence’s work to make a decision on full coverage of the field with seismic cables for reservoir monitoring, implementation of fibre optics in wells, along with installation of equipment for water and gas injection (WAG). These decisions are expected to contribute to significant improved recovery. 

Establishment of a solution for power from land to Johan Sverdrup and the other fields on the Utsira High is also part of phase 2. The Johan Sverdrup project has also experienced positive cost development in 2018, and the project distinguishes itself with its good profitability. 

Over the course of 2018, Grane and Åsgard started a joint centre for integrated operations. The centre monitors and supports offshore operations from land. This is an example of digitalisation which, through easier access to data, specialised software and changes in the operations model, enables better utilisation of the facilities’ capacity, optimisation of energy consumption and improved safety. The plan is to expand to include more fields and new centres. 

Petoro has followed up a large portfolio of new, major development projects in 2018: Johan Sverdrup phase 1, Johan Castberg, Snorre Expansion Project, Martin Linge and Dvalin. 

The follow-up work has targeted several factors that have an impact on HSE, climate and implementation risk, and has also focussed on ensuring good preparations for operation.

Subsea wells account for about 60 per cent of the SDFI production. In contrast to the positive development in drilling pace for new wells from fixed installations in recent years, updated forecasts reveal a need to increase the number of new subsea wells on mature fields in the years to come. In an effort to increase the scope of subsea wells in the SDFI portfolio and supplement efforts by operators, Petoro has worked in 2018 to mature proposals for new well targets on selected fields with significant subsea infrastructure, such as Oseberg and Gullfaks. This work also contributes to efficient utilisation of rig capacity.

Over the course of 2018 there has been increased activity in Petoro’s portfolio linked to electrification measures that can contribute to substantial reductions in greenhouse gas emissions from the SDFI portfolio, also for the mature fields. On several fields, such as Troll, Snorre and Gullfaks, project development is underway with a view towards decisions within the next few years. If these projects are realised, they could contribute a reduction in CO2 emissions of nearly 2 million tonnes per year on the Norwegian shelf, corresponding to 0.8 million tonnes per year for SDFI. The first investment decision is expected in 2019 and is in regard to the floating wind turbine facility in the Tampen area, that will partially electrify Snorre and Gullfaks. 

Petoro participated in 17 exploration wells in 2018, of which ten were wildcat wells that resulted in 6 new discoveries. Four of these are gas discoveries, and the most promising of these is Balderbrå in the Norwegian Sea. One new oil discovery was also made, Skruis in the Barents Sea. This is situated close to existing infrastructure and will be evaluated with a view toward tie-in to Johan Castberg. Appraisal of the Cape Vulture discovery in the Norwegian Sea was successful. Presuming a positive development decision, this will mean a doubling of remaining oil reserves that can be produced through the Norne field. Appraisal of the Grosbeak discovery in the North Sea also yielded a positive result, and further plans for developing the field are being assessed.

At the end of 2018, the portfolio’s expected remaining oil, condensate, NGL and gas reserves were 5 545 million bbl o.e., a decline of 334 million bbl o.e. compared with the end of 2017. The growth in reserves of 62 million bbl o.e. was considerably lower than production in 2018, which was 396 million bbl o.e. The reserve replacement rate was 16%.  Reserve growth in 2018 primarily came from the decision on Johan Sverdrup phase 2. 

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Research and development

Petoro contributes to research and development (R&D) through SDFI covering its share of the operator’s costs for general research and development pursuant to the Joint Operating Agreement and Accounting Agreement. The funds are managed by the respective operators. This amounted to a total of NOK 497 million for SDFI in 2018. Projects aimed at field-specific qualification of new solutions or first-time application of technology in licences where costs are charged to the  joint venture companies come in addition. Petoro does not initiate its own technology development and research projects.

Marketing and sale of the products  

All oil and NGL from the SDFI portfolio is sold to Equinor. SDFI’s natural gas is sold by Equinor together with Equinor’s own natural gas as a joint portfolio for the state’s own expense and risk. Petoro’s task is to monitor to ensure that Equinor conducts the marketing and sale of the government’s petroleum together with its own petroleum in accordance with the marketing and sale instruction given to Equinor. The objective of the marketing and sale instruction is to achieve the highest possible value for Equinor’s and the state’s petroleum, and to ensure a fair distribution of the overall value creation. In this work, Petoro concentrates its efforts around Equinor’s marketing strategy, issues of great significance in value terms, as well as matters of principle and questions relating to incentives.

In 2018, Petoro has prioritised following up matters of principle within marketing and sale of both oil and gas. In this context, Petoro has had particular focus on Equinor’s management and follow-up system.  

The company’s focus is on ensuring that the products are sold in the markets that yield the highest price. In this context, optimal further development, regularity, capacity utilisation and flexibility in production facilities and infrastructure are of great significance.

Selected verifications have been performed to ensure that SDFI receives its rightful share of expenses and revenues related to this marketing and sale. Petoro is engaged in dialogue with the Ministry of Petroleum and Energy as regards certain clarifications in the marketing and sale instruction. 

Working environment and expertise 

The company’s personnel policy shall ensure diversity and equality, expertise development and facilitation of a good working environment that prevents discrimination on the basis of age, gender, cultural and geographical background.

Petoro’s employees have extensive experience from the petroleum industry and a high level of technical expertise. Each individual employee is essential for the company’s deliveries and success, and the board emphasises offering competitive terms and a stimulating working environment that attracts people with the right expertise. Opportunities for professional and personal development contribute to retaining, developing and attracting skilled staff.   

At the end of 2018, Petoro had 64 employees, one less than at the end of 2017. There was one new hire in 2018. The company had 34 per cent women at the end of 2018. The company’s management includes 25 per cent women, while 43 per cent of the company’s board is female.
Petoro emphasises gender equality as regards opportunities for professional and personal development, as well as wage development. The company facilitates working conditions so that employees with disabilities can also work in Petoro.

Absence due to illness was 2.6 per cent in 2018, compared with 2.1 per cent in 2017. The company considers this to be low. In 2018, Petoro had an inclusive workplace agreement, and emphasises close follow-up and dialogue to promote health and prevent work absence. There were no occupational accidents among Petoro’s employees. 

The company conducts regular working environment surveys as a step in the work to safeguard a good working environment. In 2018, the company’s work has focused on vitalisation of the value basis, as well as further development of the organisation. Collaboration with the company’s working environment committee (AMU) and works council (SAMU) forms an important foundation for a good working environment in the company. The work in these committees also functioned well in 2018.

Corporate governance  

The board prioritises good corporate governance and management to ensure that the state’s portfolio is managed in a way that maximises financial value creation in a long-term perspective. The corporate governance requirements are stipulated in the “Rules for financial management in the State” and standards for good corporate governance and management. The board follow’s the state’s principles for good corporate governance as expressed in Report no. 27 (2013-2014) to the Storting on “A diversified and value-creating ownership” and those sections of the “Norwegian recommendations for corporate governance” that are considered to be relevant for the company’s activity and the framework set by the company’s form of organisation and ownership.

The management system is tailored to Petoro’s distinctive character, and the management of the enterprise is based on balanced scorecards, where goals are established to support the company’s strategy. Reference is made to a separate chapter in the annual report.

The values base and ethics are founded on the company’s values and guidelines on business ethics. 

Corporate social responsibility (CSR)

Petoro safeguards its CSR in accordance with the company’s guidelines for exercising corporate social responsibility tailored to the company’s role. Petoro’s funds for performing its management duties and operation of the company are provided through appropriations from the government. Petoro is not permitted to provide financial support for social purposes.  

Measures that ensure exercise of CSR in Petoro include guidelines for business ethics, an HSE declaration, climate policy and a personnel policy that ensures diversity and equality. Activity outside Norway is very limited. The board provides a more detailed account of how CSR is exercised in a separate chapter of the annual report.
 

Risk management and internal control

In 2018, the board has assessed the risk scenario with a point of departure in adopted strategy and specific goals set for the coming year. Risk-reduction measures have been identified for the most significant risks that Petoro has an opportunity to influence, within the company’s frameworks. Three internal audit projects were conducted in 2018. The board has received a report that summarises and describes verification activities, findings and proposed and implemented measures for the internal audit projects.

The internal audit projects in 2018 were performed by PwC, which has also handled the internal financial audit of SDFI for the 2018 accounting year.

Work of the board  

The board has overall responsibility for management of the company, including ensuring that appropriate management and control systems are in place, and to conduct supervision of daily management and the company’s activities. Nine board meetings were held in 2018. An annual meeting and work plan has been established for the board, with emphasis on dealing with topical business issues, follow-up of strategy, budgets and quarterly results. The board uses a balanced scorecard as a key instrument in following up results.

The board addresses major investment decisions in the portfolio. It also follows up the activity in the licences, monitors marketing and sales and financial management, including assessing the overall risk scenario.  

The board has opted to organise work associated with compensation schemes in a sub-committee composed of two of the board’s directors elected by shareholders, one of which is the deputy chair. No other sub-committees have been established. The board has drawn up a declaration regarding remuneration of the chief executive and senior personnel. 

Conflicts of interest are a regular item on the agenda for the board’s meetings and processes, and potential conflicts of interest entail that the director withdraws from the board’s consideration of the relevant issue.

The board conducts an annual evaluation of its own work, which includes an assessment of its own work and the way it works, as well as how it cooperates with the company’s management. This self-evaluation has been completed for 2018. 

The work of the board is based on the “Instructions for the board”, which describe the board’s responsibility and proceedings. As an appendix to these instructions, the board has stipulated comprehensive provisions detailing which issues shall be addressed by the board. The board also reviews the company’s business ethics guidelines, CSR guidelines and the rules of procedure for the board. As a matter of course, directors shall provide information about shareholdings or the like in other companies that could lead to, or that could be perceived as being, a conflict of interest with their office. Directors shall furthermore provide information concerning other relationships with licensees in the petroleum activities on the Norwegian shelf, or with companies that are suppliers to licensees. 

Each director and the board as a collective body seek to strengthen their expertise in various ways. This takes place through participation in courses and conferences, and in general by staying up-to-date as regards the petroleum activities.  

The board of Petoro AS consists of Gunn Wærsted as chair, deputy chair Brian Bjordal, and Per A.  Schøyen, Trude J. H. Fjeldstad and Hugo Sandal as directors elected by the shareholders. Directors Anne-Cathrine Nilsen and Ragnar Sandvik are elected by the employees. 

Share capital and shareholder

Petoro AS was established as part of the restructuring of the state’s oil and gas activities in 2001, when Statoil was partially privatised and management of the SDFI was assigned to Petoro AS. The company’s operations are governed by Chapter 11 of the Petroleum Act. The company’s general meeting is the Ministry of Petroleum and Energy. 

The company’s share capital was NOK 10 million at 31 December 2018, divided between 10 000 shares that are owned by the Norwegian state, represented by the Ministry of Petroleum and Energy. Petoro’s business office is in Stavanger.

Net income and appropriations 

Petoro AS maintains separate accounts for all transactions relating to participating interests in the joint ventures. Revenue and expenses for the SDFI portfolio are kept separate from operation of Petoro AS. Cash flow from the portfolio is transferred to the central government’s own accounts with Norges Bank. The portfolio’s accounts are presented in accordance with the state’s cash basis and in accordance with the Norwegian Accounting Act and generally accepted accounting principles.

Petoro AS is the parent company for Petoro Iceland AS, which was established in December 2012. Through a branch, the subsidiary is registered on Iceland as licensee, and has taken part in production licences where the Norwegian state has chosen to participate. The company’s share capital was NOK 2 million at 31 December 2018, divided among 2 000 shares. The company has no employees, and has signed a management agreement with Petoro AS. Due to the relinquishment of the last licence on the Icelandic continental shelf, Petoro Iceland AS is not involved in any other production licences. Some supplementary work relating to the last relinquished licence has been conducted in 2018. The activity in Petoro Iceland AS has been limited in the past year; therefore no consolidated accounts have been prepared for 2018.  

Funds for operating Petoro AS and Petoro Iceland AS are provided by the government, which is directly liable for the commitments assumed by the companies. Appropriations for ordinary operations for Petoro AS amounted to NOK 350.3 million for 2018. 

Total costs for the year were in line with the budgets approved by the board, the company’s appropriations and letter of assignment. The net income for Petoro AS was NOK 5.7 million. The board proposes that the profit in Petoro AS be transferred to other equity. The profit for the year increased other equity to NOK 13 million as of 31 December 2018. 

Pursuant to Sections 3-3 and 3-2a of the Accounting Act, the board confirms that the annual accounts for the portfolio and the company provide a true and fair picture of the company’s assets and liabilities, financial position and result, and that the annual accounts have been prepared on the going concern assumption. The company has satisfactory equity and low financial risk.

Outlook

The Norwegian petroleum industry is characterised by a new optimism, and activity in the years ahead will be high. Major projects such as Johan Sverdrup, Johan Castberg, Martin Linge and Snorre Expansion Project will be completed over the next two to three years. A higher activity level brings the risk of a new period with pressure on costs. A continued focus on costs will therefore be essential in maintaining the competitiveness of the shelf.

The mature fields account for about 85 per cent of the values in the SDFI portfolio. These fields, with their associated infrastructure, are currently distinguished by high technical integrity and operating efficiency. We must continue to operate the mature fields efficiently to ensure a long and profitable tail phase. It must become profitable to produce even  smaller discoveries, and to drill wells that are to produce smaller and shrinking volumes. Important measures for realising the value potential are optimisation of the drainage strategies, identification of new well targets, streamlining drilling operations and more efficient operations, along with reducing greenhouse gas emissions. Analyses show that the potential associated with digitalisation of mature fields is considerable. 

In the absence of new, major oil and gas discoveries, production from the Norwegian shelf will decline rapidly in the last half of the 2020s. Maintaining the attractiveness of the Norwegian shelf will demand active exploration for new resources, as well as the maturing of attractive projects that are also competitive in a global context. Access to attractive exploration acreage in the areas open to petroleum activity is important for the oil and gas industry. There is a potential entailed in utilising available infrastructure capacity. More exploration in nearby areas is key to uncovering additional profitable gas and oil resources that can rapidly be phased in to existing infrastructure. New discoveries can be developed quickly by exploiting the competitive advantage that the existing infrastructure represents.  

The SDFI portfolio is robust, even with low product prices. However, future revenues from the activity will be very dependent on the price level. As regards oil, it is expected that the price in the years ahead will be around the current level, but with periods of major volatility. Development in the market will primarily be determined by how much oil is offered, particularly from OPEC and shale oil from the US. Demand is still expected to rise in the years to come, but the rate will be impacted by changes in economic growth. Increased protectionism could curb future economic growth and thereby also affect the development in oil markets.

Gas is expected to gain more importance, particularly at the expense of coal. Cost-effective fields and reliable infrastructure make Norwegian gas extremely competitive. Enhanced exploration for gas could contribute to maintaining high gas deliveries from the Norwegian shelf, also over the longer term, and could thus replace falling production in the EU.

Climate policy will continue to challenge fossil fuels, particularly coal. However, in the longer term, gas will also encounter tougher competition from renewable energy and electrification. The role of gas in Europe’s future energy supply is a topic of considerable interest. Extensive development of renewable energy will have to take place in order to achieve the EU’s long-term climate goals. It may also be necessary to develop new technology to reduce greenhouse gas emissions, for example through CO2 capture and storage, or through decarbonising natural gas to hydrogen with CO2 storage. These are measures that are being discussed, but the ultimate outcome is difficult to predict. In the meantime, Norwegian gas will play an important climate policy role by replacing coal. The board is aware that Norway’s Climate Risk Commission presented its report at the end of 2018, making several recommendations as regards climate risk.

Recruiting to the petroleum industry could become challenging in the future, as a new and different generation will be taking the stage. The trend we have seen over several years is that young people are opting out of education aimed at petroleum subjects. Reinforcing the legitimacy of our industry, along with digitalisation, are considered to be important instruments that will contribute to secure recruitment to the industry.