Norway E&P Better Placed than UK: Westwood
Norway's upstream industry is better able to cope with low oil prices than the UK's, according to a new report by Aberdeen-based Westwood Global Energy.
The UK oil and gas industry has worked hard to cut costs since the last oil price crash in 2014, with its operating costs having fallen well below $20/b on average, the report provided to NGW states. Yet some production facilities, most of which are ultra-mature, are burdened with costs above this level. Some are likely to shut down earlier because of the current downturn.
Westwood estimates that 11% of the UK's forecast production in 2020 comes from assets with operating costs above $20/boe, and 4% from projects with costs above $30/boe. Norway is in a better position, with under 2% of production costing above $20/boe and only 0.6% above $30/boe.
What is more, if oil prices do not exceed $27/b, UK production will not generate enough revenue to cover both operating costs and planned capital expenditure in 2020, even after recently announced cuts. Norway, on the other hand, can cover both operating and capital expenditure even if oil dips below $20/b.
At the start of the year, 12 UK fields with a combined 320mn boe of reserves were expected to be sanctioned for development. But decisions on seven of the fields containing 264mn boe have been deferred or removed. The biggest project to be deferred is the Cambo oilfield being developed by Siccar Point Energy and Shell. Siccar announced this month it would delay Cambo's sanctioning until the second half of 2021, but insisted it was still committed to the venture.
In Norway, only three projects had been slated to get the greenlight this year but these fields are comparatively large, holding 269mn boe of reserves. Decisions on two of the fields have been postponed.
Exploration activity will be hit hardest by the price collapse, as in previous downturns, Westwood said. At the start of the year, operators had plans for 66 exploration and 17 appraisal wells in the UK and Norway this year. These plans have been revised, with the UK number of exploration wells falling to 14, of which five will most likely be deferred until next year. Some 32 exploration wells are now scheduled off Norway, but Westwood warned that 17 would likely be delayed.
Appraisal drilling is also under review, it said, with many of the wells set to be postponed until 2021.
"The current Covid-19 induced crisis is perhaps the greatest challenge yet to face our industry," Westwood said. While Norway's oil industry is in better shape to handle low prices than the UK's, the Norwegian government will still see its tax revenues plummet.
"Deep spending cuts are inevitable and the focus will be on delaying and deferring capital projects, as there is little room for cuts in an already squeezed supply chain," Westwood said. "It will undoubtedly hurt the industry and hasten abandonment for some assets. There are, however, some notable companies with low operating costs who may yet find opportunity in adversity."