Industry Trend Analysis - Decom And Late-Life Opportunities To Grow - JAN 2018


BMI View : Declining production from the Norwegian Continental Shelf offers an attractive business opportunity for late-life asset management and decommissioning-focused companies. We expect that higher oil price s will push IOCs to either invest in late-life projects, divest mature assets or decommission projects.

Norway's oil production has seen a substantial decline since its peak in 2001. Efforts to maximise value from late phase operations have slowed the decline over recent years, though Oil & Gas UK estimates that a total of 362 wells on the Norwegian Continental Shelf (NCS) will be plugged and abandoned between 2016 and 2025.

With smaller and older fields generating less and less revenue, decisions will need to be taken on the future of a number of projects. Low oil prices have delayed both decommissioning projects, due to the high cost of plugging and abandoning wells and removing oil rigs. Similarly the low oil price has been a key barrier to investment in late-life developments at depleting fields due to the low margins.

Production Stabilising
Norway Oil Production [000b/d]
Sources: NPD, BMI

Having said that, we believe that a more positive oil price outlook expected in the coming years will trigger investment in the further development of the Norwegian Continental Shelf as it will become more economically viable to extend the lifespan of many ageing fields ( see 'Increasing Opportunities For Specialist OFS', 24 January 2017). At the same time, IOCs will increasingly have the capital flexibility to decommission low margin fields, or divest smaller projects to late-life specialists.

As oil prices move into a more bullish outlook, we see a number of opportunities for oil field service companies specialising decommissioning and in maximising value from late phase operations. We believe that a number of projects currently operated by IOCs, offer opportunity for specialist late-life or decommissioning-focused firms. Norway is a non-core business area for many IOCs present in the region and selling mature assets would allow oil majors to employ their tighter capital budgets more effectively on higher margin projects elsewhere in their portfolio.

Opportunities For Specialist OFS
Draugen Skirne Ringhorne Ost Jotun Balder Tor
Source: Norsk Petroleum
Production Start 1993 2004 2006 1999 1999 1978
Current Operator Shell Total ExxonMobil sold it to Point Resources in 2015 ExxonMobil sold it to Point Resources in 2015 ExxonMobil sold it to Point Resources in 2015 ConocoPhillips
Remaining Reserves (mn boe) 38 5 17.5 Production ceased in 2016 59.7 Permanently closed in 2015
Further Information Expected to produce oil until 2025 Jotun B facilities used to enhance production from neighbouring fields

This trend is already proceeding, with Point Resources, purchaser of mature ExxonMobil assets earlier in 2017, outlining a USD2.45bn late-life programme for the fields. The company is planning to extend the field life of Balder and Ringhorne by initiating new drilling campaigns and conducting new seismic surveys. The company's late-life programme will help Point Resources expand its total production from around 50,000b/d currently to over 80,000 boe/d by 2022.

Low oil prices have been a key barrier to investment in both the development of late-life asset management and decommissioning services. With declining production from fields located on the Norwegian Continental Shelf, late-life operators and decommissioning-focused companies are set to see growing demand for their services. With higher prices, it will become more economically viable to extend the lifespan of many ageing fields. Subsequently, higher oil prices will bring more clarity and will help the IOCs determine the direction of operation of more mature assets.