Industry Trend Analysis - Natural Decline Will Bite - DEC 2017

BMI View: Despite our view for a well supplied oil market until 2019, the increased investment into infill drilling to manage production decline, will see decline rates accelerate in the coming years. We see the biggest downside risk to accelerated decline in Asia and major offshore production areas including the North Sea and West Africa.

During the oil price downturn, companies have turned to more effectively managing decline rates through improving production efficiency rather than investing in new standalone projects. This includes processes such as working over wells to improve productivity, drilling infill wells to target more productive areas of the reservoir and minimising water production. Water and/or gas injection projects are also used increase reservoir pressures, though these are generally more costly to undertake.

Workovers and infill drilling have been favoured during the oil price downturn given the relatively low upfront capital costs, but relatively effective impact on stabilising production levels. After years of heavy natural decline, production from the Oseberg oil field - one of Norway's largest and a contributor to the Brent crude blend - rose in 2015 and 2016 after an extensive infill drilling and workover campaign in 2014. Continuing this trend, Statoil is progressing its Vestflanken 2 project, adding 10 new wells to an untapped part of the field, which will begin producing from Q218.

Heavy Declines Stabilising
Oseberg Oil Production (mn Sm3)
Source: Norske Petroleum, BMI

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