New podcast: Critical resources in times of crisis

29/05/2020 Norwegian podcast translated into written English. In this podcast, we will be speaking with Kalmar Ildstad, director of development and operations in the Norwegian Petroleum Directorate about critical resources in times of crisis. What is the actual status on the Norwegian shelf?

Ildstad talks about how the Norwegian shelf is characterised by the decline in oil prices and restrictions in connection with the corona epidemic. Despite this, the companies are working hard to maintain normal oil and gas production. This shows how competitive and cost-effective parts of the production on the Norwegian shelf really are, according to Ildstad.

Bjørn Rasen: Welcome to a new podcast from the Norwegian Petroleum Directorate

I am sitting here with the NPD’s director of development and operation, Kalmar Ildstad, welcome.

Kalmar Ildstad: Thank you.

BR: We’d like to talk a bit about critical resources in times of crisis. That is no joke.

You lead development and operation in the NPD that might seem like a very difficult job right now, to many the impression out there – developments have to be put on ice, operations are slowed down. Production goes down. 

Is that an apt description of the situation on the Shelf now? And many wonder about the status of development projects, the status of production.

KI: The situation on the Shelf now is characterised by the decline in oil prices and the restrictions due to the Corona pandemic

Obviously, a low oil price means lower value creation. Nevertheless, the companies are devoting a lot of resources to maintain production at the same level.

That shows how competitive and cost-effective large parts of production on the Norwegian Shelf are. Work is also proceeding well on the projects that have been decided and in progress. Here, however, the various restrictions and consequences as a result of COVID-19 could lead to delays but my impression is that the licensees are working well to get projects completed. The area of greatest concern for us now is progress on projects that do not yet have a positive development decision.

That is - projects that are matured from an early phase.

BR: On the drawing table

KI: Yes, you can say that. The oil companies as a response to these times, like we are in the midst of now Is to think cost-effective, and that has generally been to reduce investments and the easiest way to reduce investments is obviously to avoid starting new projects. 

On the Norwegian shelf, there are quite a lot of these kinds of projects. But, there is currently a lot of uncertainty linked to what kinds of projects the companies want to delay and what types of projects will have priority and this is an area we’re following closely with a view to what kinds of consequences this will have on resource management.

BR: One of the NPD’s mantras is to secure continued value creation on the Norwegian shelf and I assume that this is still valid. And in this also lies the term which we introduced at the beginning -  time-critical resources - So, Kalmar - Can you tell me what you mean by the term time-critical resources.

KI: Well, in general, time-critical projects are projects where delays not just lead to delayed production, but where delay will most likely lead to a loss of these profitable resources.

The reasons for that can be many, but roughly speaking, there are two things. Firstly, it is linked to projects that are dependent on using existing infrastructure that is - pipelines, platforms, etc. in order for the resources to be produced.

It is important to utilised the available capacity that is found in the infrastructure before it is too old and must be shut down.

And if the projects are completed too late then these resources will probably not be produced and here we are talking both about tie-in of new discoveries as well as improved recovery measures on fields already on stream. 

With an aging infrastructure like the one we have on the Shelf today we experience an increased and increasing number of such time-critical projects. 

The other group with time-critical resources is linked to the fact that there has been longstanding production from mature fields which means that the pressure in the subsurface in the entire adjacent area is reduced to such a degree that other discoveries in the area will not have enough time to exploit reservoir pressure. 

BR: And you have to have pressure to get the resources up. 

KI: That is the main reason we can exploit resources on the Norwegian shelf. 

BR: When we talk about time-critical resources, as the resource authority.

So, you have explained your definition of that. Do the companies have the same definition?

KI: Yes, I think they largely do - the term is well-accepted.

The difference lies in the fact that we have different assessments in relation to what is time-critical and this is something that we need to talk about and have a dialogue with the companies. What we are very focused on is that time-criticality is used as an important criteria in connection with prioritisation of what type of projects that will progress in such a situation where we see that we have to have to prioritise. 

It’s important to avoid resources being lost simply because the industry right now is in a period of extraordinary short-sighted decisions.

BR: Apropos short-sighted. 

Now the industry is in a really tight squeeze. 

Not least the supplier industry, which delivers many of the key services that are necessary and the technology that is necessary in order to produce these difficult barrels.

But doesn’t that lead to a danger that time-critical resources will not be produced at all?

KI: Yes, and that is exactly why we are concerned with ensuring that the licensees maintain focus on this.

There is quite a lot of the future value creation we see on the Shelf that will be linked to utilising the available capacity in the infrastructure that is already there, and much of the resource potential we see on the Shelf will have a fairly long production horizon.

Delaying these projects will mean that the lifetime for the host facilities will place restrictions on how much we can produce and ultimately, whether projects are actually realized

BR: What can the NPD do in this situation? And what should the industry do to prevent significant values from being lost?

KI: In general, it is the NPD’s job to make sure that the activity is carried out in line with the intentions in the Petroleum Act and that applies in both good times and bad and in that context, it means that we follow developments closely, and remind the licensees of the responsibility they have on the Shelf and the industry should follow up.

BR: There are big numbers here – always when we are talking about the oil and gas industry.

What values are we talking about here – a billion kroner? Which is a big number in itself. Is it a hundred billion kroner? Is it more?

KI: As you say, it is very easy to lose sight of the numbers involved in this industry. 

One billion kroner is quite a lot of money and most of the projects we are talking about here are in the category of multiple billions of kroner and the potential value creation is around the same amount.

So when we have a list of around 20 projects of this type. We are talking about an overall value of several tens of billion kroner.

BR: A lot of money. 

So the thousand dollar question - Where will we be - if we look ahead one – two – three years – are you an optimist?

KI: Yes, I am an optimist, but I am no psychic. 

But the opportunities on the Shelf are many and I am confident that we have licensees that are willing to make a long-term commitment on the Norwegian Shelf also during downturns like the one we are in now.

History has shown that, in any event, those who do that, do succeed.

And I hope and believe that when we look back we can say that smart choices were made in 2020, despite the crisis we were in the midst of. 

BR: I want to say thank you to you, Kalmar Ildstad, the NPD’s director for development and operation

KI: My pleasure.

BR: Thank you for that.

Updated: 29/05/2020

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