Big Oil’s exit turns into revival for Norway’s aging North Sea

Bloomberg

Back in 2015, Royal Dutch Shell Plc and BP Plc cast doubt over the future of aging oil fields offshore Norway. A crash in crude prices and high operating costs threatened to shut them early, leaving millions of barrels in the ground.
Two of the fields, Draugen and Valhall, have since fallen into the hands of smaller, local companies, and they’re now expected to keep producing well into the 2040s.
The recovery in oil prices is certainly helping. But the turnaround also shows how the changing make-up of Norway’s oil industry is putting assets in the hands of new companies willing to invest billions of dollars in projects discarded by the majors. Oil and gas fields that got a new operator since 2010 have had a higher reserve growth compared to the average in Norway, according to Oslo-based consulting firm Rystad Energy AS.
The shift, evident also in the neighbouring UK, will be a key topic of discussion at the ONS Conference. The fierce competition between projects in the global oil majors’ portfolios got even more intense after crude fell in 2015. That meant even profitable fields got bumped down their priority list, making them available for smaller companies that also had more time and capacity to take a deeper look at how to improve returns.
“If you have a global portfolio, you need some form of mechanism to allocate your capital,” Karl Johnny Hersvik, Chief Executive Officer of Aker BP, said in a interview last month. “If you only have one portfolio with a few assets to look after, you’re more focused on each individual asset.”
While Big Oil’s retreat is creating some concerns in Norway’s largest industry and in government offices, the positive aspects “very clearly” outweigh the negative, said Norway’s Petroleum and Energy Minister Terje Soviknes.
“We’re getting players that have the ability and willingness to bet on the Norwegian shelf,” he said in an interview this month. “It doesn’t help to have the big ones as operators on the Norwegian shelf if the capital is going to other projects anyway.”
The collapse in crude prices forced the biggest companies to narrow their focus on higher-return projects, such as US shale or liquefied natural gas ventures. This meant that Norway, with its aging North Sea province and disappointing Arctic exploration, fell off their radar.
Through mergers or asset sales, BP, Shell, Exxon Mobil Corp. and Total SA have all taken a step back from Norway’s offshore, leaving smaller and more specialised companies in charge, often backed by private equity.
A landmark transaction was the 2016 merger of BP’s Norwegian unit with Det Norske Oljeselskap ASA, creating Aker BP ASA. The company plans to more than double its output, to 330,000 barrels of oil equivalent a day in 2023, potentially making it the third-biggest producer in Norway after state-controlled Equinor ASA and Petoro AS. Part of this new output will come from Valhall, where Aker BP aims to produce 500 million barrels, an additional to the 1 billion already sold.
Exxon sold its operated fields to a unit of Norway’s private-equity firm HitecVision AS, which then agreed to merge with Eni SpA’s Norwegian subsidiary. Eni retains 70 percent of the new company, Var Energi AS, which plans to invest $8 billion over the next five years, including on Exxon’s former fields, Ringhorne and Balder, which have been in production since 1999.
In a $540 million deal, Shell is set to transfer operatorship of Draugen to OKEA AS, a private equity-backed company which prides itself on its focus on smaller fields.