The British government is doing all it can to revive fledging oil fields in the North Sea, but there has been little success so far. Oil & Gas UK expects production to drop to between 1.2 million and 1.4 million barrels of oil and gas per day this year.
It’s a mystery why Brent crude from the old fields of the North Sea is still the international benchmark. The drop in production has been furthered by disruptions in operations and maintenance problems.
But the British government and energy companies aren’t giving up. Analysts are expecting new investment to drive up production to 2 million barrels, but this is not concrete, and there seems to be no major discoveries on the horizon.
But exciting discoveries are taking place further north in the Arctic Barents Sea region, where Swedish company Lundin Petroleum (STO: LUPE) made a discoveries of up to 145 million barrels of oil and 545 billion cubic feet of natural gas in the Gohta region. Gohta is also the region where Lundin made its first discovery in offshore Norway, according to an official statement from the company.
There is an estimated flow rate of 4,300 barrels of oil per day, and the discovery is considered the first successful test of Permian carbonates in the Norwegian Continental Shelf, according to Businessweek.
CEO Ashley Heppenstall is hopeful of the discovery. She said in a statement, as reported by Businessweek:
“The discovery has proved the Permian carbonate play concept in the area and as well as delineating the discovery, we will now look to drill similar exploration prospects in adjoining licenses where we have a significant acreage position.”
The company has an exploratory budget range of $400 million to $500 million for next year, and if drilling operations keep at this pace, we could see an additional 18 wells.
This is not only great news for Norway and Lundin, but for other companies investing heavily in the region as well. Despite protests and the hardships that come with drilling in this area, the Arctic is gaining the attention of oil companies around the world.
When it comes to oil discoveries, the Arctic is one of the last frontiers in the energy world.
But the region has its own set of challenges.
The sea can be fraught with thick ice sheets, which can make traversing the icy water by ship a harrowing venture. But as the ice sheets melt, this will become less of a problem – virtually non-existent by 2050.
And it just so happens that companies like Royal Dutch Shell (NYSE: RDS-A) are looking to 2050 in the Arctic as a long-term investment strategy. Shell has had problems in the Alaskan portion of the Arctic, but is looking to the northern Barents region as a safer bet.
As more ice recedes, companies are racing to the region to attain drilling rights. Norway’s Statoil (NYSE: STO) has been active in the region, and ConocoPhillips (NYSE: COP) received the first federal approved for an unmanned aircraft that will survey the Arctic region by monitoring ice and marine life.
Up to 15 companies, including BP (NYSE: BP), ConocoPhillips, Total (NYSE: TOT), Chevron (NYSE: CVX), have purchased $2 million seismic data packages for Norway’s southeast portion of the Barents Sea, as UPI reports. According to estimates from the Norwegian government, there could be 7.9 billion barrels of oil contained within Norway’s side of the Barents Sea.
And with negotiations involving Norway, Finland, and Russia for the creation of a wealth fund for exploration of the Barents, this area will continue to generate positive production levels.
The primary company to watch out for is Statoil, Norway’s state company that produces 80 percent of the country’s oil supply. In the Skrugard prospect, Statoil made a significant discovery of 150 million to 250 million barrels of oil back in 2011. And there was an additional discovery in the Havis field that same year.
Statoil also plans on constructing a new terminal that will come online in 2018 – specifically for transporting oil from the Skrugard field.
Britain hasn’t had much success in the development of North Sea oil, but British company Tullow Oil (LON: TLW) has had positive findings in the Barents – discovering a reservoir that could contain 160 million barrels of oil and 40 billion cubic feet of natural gas.
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Is Norway Worth the Risk?
The Arctic is generally a risky venture, but when it comes to Norway’s portion of the Barents Sea, you’re in good hands. You’re also in good hands with a country that derives much of its wealth from oil – one of the reasons this Nordic nation has remained relatively unscathed by the European economic crisis.
And while other companies have had tougher times drilling in the North American side of the Arctic, Norway’s government is more accommodating to oil and gas exploration. The government has issued over 20 new permits to companies interested in exploring Norway’s portion of the Arctic.
The southeastern portion has yielded promising results, but the Norwegian government has also opened more environmentally sensitive areas of the territory to drilling and exploring.
The excitement and yearn for exploring is there, but this does not negate how hard drilling in the Arctic can be.
ConocoPhillips canceled exploration campaigns in the Arctic for 2014, and Statoil was forced to postpone drilling its northern wells partly due to ill-preparation.
But despite the setbacks, the reward can be worth the effort, which is why you’re seeing such a fierce race for drilling rights.
Oil drilling may be more expensive and politically inconvenient, but you’ll want to stick with the companies that have the most experience conducting operations in frigid weather – the ones that are specifically equipped to deal with drilling in the Arctic.
Perhaps the more successful operations in the Arctic will trickle down to North Sea ventures in the future.
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