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Playing a different game in Norway

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Kjell Einar Eriksson Kjell Eriksson
Regional Manager, Norway, DNV GL - Oil & Gas
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Region Norway, DNV GL
Platform Photo: DNV GL
Collaboration, standardization and innovation are the keys to long-term success, says Kjell Eriksson

Norway’s oil and gas industry has a long-term future despite current high costs and low oil prices. Collaboration and innovation, two traditional strengths of Norwegian Continental Shelf (NCS) companies, can underpin this future, as will a greater appetite for standardization.

Times are undoubtedly challenging. However, the initial wave of cost cutting is about to generate positive results. The Norwegian Oil Industry Association (OLF) has said that the outlook from 2018 onwards appears brighter.[1] Thirteen thousand new jobs are expected in the region by 2020, with a further 9,000 needed to replace people who will have left the industry by then.

Long term, it is expected that the NCS will continue to attract investors due to its highly stable political environment. A recent indication of this came with the government’s offer of 57 exploration licences in frontier areas including the Barents Sea. The 26 applicants for this twenty-third licensing round were mainly large and medium-sized companies, and there was first-time interest from Inpex of Japan and Kufpec of Kuwait.

Different thinking needed
NCS operators’ short-term response to safeguard the viability of projects and operations has been to reduce headcount, renegotiate contracts with vendors and suppliers, and simplify processes.

While understandable and expected, some of these tactics could lead to supply chains and labour markets lacking sufficient capacity and competence to maximize opportunities in the inevitable upswing after the slump.

Collaborate and standardize
To achieve the next level of efficiency improvement, the industry needs to move beyond traditional cost cutting. DNV GL sees current conditions as an opportunity for change that will serve the industry well now and long term. Companies should increase collaboration, drive standardization and reduce complexity.

Collaboration drives efficiency, raising the bar for all. It shares knowledge and experience, and creates trust and certainty by establishing new standards and practices, or through consolidating existing ones.

Like DNV GL, large worldwide organizations, such as the International Association of Oil & Gas Producers (IOGP), are starting to look more closely at developing global standards. This could lead to great efficiencies for companies operating in more than one oil and gas region.

Standardization is becoming increasingly important globally, and in Norway in particular. In DNV GL's latest research on the outlook for the sector, 65% of NCS respondents expected to seek even greater standardization of tools and processes in 2016.

An example of the power of collaboration for standardization is our Recommended Practice (RP) for steel forgings for subsea equipment, which will be increasingly in demand on the NCS as underwater solutions become more popular. If this could cut six months from the typical time needed to bring a small subsea tie-in into operation, it would save around NOK250 million (USD30m) per project in net present value terms.

Among NCS respondents, the most likely priorities for standardization aimed at stricter cost control are simpler processes and design (22%); adoption of industry standards in processes and design (14%), and increased replication across operations (8%).

New technologies, processes and procedures are a strength of Norway’s oil and gas industry, confronted as it is by demanding challenges.

This tradition continues. Operator Total Norge is implementing a safer and more environmentally-friendly development solution in its Martin Linge field, for example. The fully-electrical facilities are powered via a 160 kilometre subsea cable from shore, helping to reduce the field’s CO2 emissions. Platform operations can be controlled remotely from shore using real-time data transmitted securely via fiber optic cable.

DNV GL itself continues to invest five per cent of revenue in research and development (R&D), a key enabler for sustainable long-term competitiveness. Encouragingly, 19% of NCS respondents to our research aimed to ringfence R&D budgets this year.

Many expect the future to be radically reshaped by unleashing the safety, efficiency and cost benefits of data analytics.[2]

Our research found that 38% of NCS respondents currently see solid or high potential for smart data and analytics to transform the industry’s operating efficiency in 2016. This is good news as operation on the NCS is expected for decades to come.

Indeed, Norway's prime minister Erna Solberg has said that the person who will turn out the lights on Norwegian oil “has not yet been born”.[3] This confidence is well placed. The NCS has produced hydrocarbons for more than 40 years, but only around 47% of the region's total expected reserves has been extracted.

An efficient ending
At the end of field life, plugging and abandonment of offshore wells represent a significant challenge. Around 2,350 wells will require plugging and abandonment on the NCS, and 3,000 more are planned to be drilled in the future. The Norwegian Petroleum Directorate reckons all decommissioning activities could eventually cost more than NOK160 billion (USD18.6bn).

Recognizing the huge cost to operators worldwide, DNV GL has published a new guideline on a risk-based approach to well plugging and abandonment. Combined with optimized project execution and new technology, this approach could reduce costs by 30-50% compared with current practices prescribed by regulation.

It is just one example of how DNV GL can work with the industry to generate benefits that, for companies and the whole sector, can be worth several orders of magnitude more than the initial investment.

[1] ‘Prospects for new upturn in oil activity by 2018’, www.norskoljeoggass.no, 18 November 2015
[2] ‘Moderate investment in big data, despite potential for operational efficiencies in oil and gas’, DNV GL, 17 March 2016
[3] ‘Forecast: more offshore jobs in Norway starting 2018’, www.maritime-executive.com, 10 March 2016

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DNV GL prides itself on providing accurate information but makes no claims or guarantees about the accuracy, completeness or adequacy of contents in this publication, and disclaims liability for any errors or omissions. The authors’ views here do not necessarily reflect DNV GL’s views.