ExxonMobil's Guyana Oil: A Trillion-Dollar Opportunity?

By David Messler - Aug 30, 2024,

ExxonMobil's Guyana oil production is rapidly expanding, with the potential to reach 2 million barrels per day by the early 2030s.

• The company's Permian Basin assets are also poised for growth, with production expected to reach 2 million barrels of oil equivalent per day by 2027.

• ExxonMobil is involved in a high-stakes dispute with Chevron over the latter's proposed acquisition of Hess, which could have significant implications for ExxonMobil's Guyana operations.

There are two main drivers for ExxonMobil, (XOM), in the face of crude’s relatively tight pricing band-low $70’s to low $80’s, for the most the past year. The first is the Guyana, Stabroek production ramp, and the related kerfuffle with Chevron, (CVX) over the nature of their proposed acquisition of Hess, (NYSE: HES). The second is the ongoing digestion of Pioneer assets and acceleration of Permian output toward 1.2 mm BOEPD.

XOM is a huge company with a lot of irons in the fire-LNG, chemicals, carbon capture, refining, biofuels, and heck, they’re even dabbling in lithium. None of these really matter to the stock in the near term. XOM moves with higher or lower oil and gas prices and is likely to perform in lockstep with these commodities well into the future. Darren Woods, CEO let loose with a pithy comment in the Q-2 call that reveals the firm priorities of this company, regardless of what other “ponds” into which, they dip their oars-

“Later this month, we'll publish our global outlook, which projects global energy demand 15% higher in 2050 than it is today. We see oil demand holding steady at around 100 million barrels per day in 2050, while demand for renewables and natural gas grows considerably.”

Let’s give Mr. Woods his due. As the CEO of a company producing ~4.3 mm BOPD of crude oil, it is fair and reasonable for us to assign a solid probability of his being right. In this article we will cover a tight focus on what we believe to be the key needle-movers for the company.

Guyana

As was noted in the early August, Bloomberg piece by Kevin Crowley the 2015 Liza discovery well almost didn’t happen. Guyana’s waters were a minefield of 40+ dry holes accumulated over the years and XOM management wasn’t convinced that this prospect met their capital allocation criteria. Even more critical was the fact that XOM’s concession was about to expire, if they were going to do it, it had to be then. Read Crowley’s piece for more of the back story, but the success of Liza changed the company and the country. Quoting Crowley from the article-

“Today, Liza is the world’s biggest oil discovery in a generation. Exxon controls a block that holds 11 billion barrels of recoverable oil, worth nearly $1 trillion at current prices. The find has transformed Guyana from one of South America’s poorest countries into one that will pump more crude per person than Saudi Arabia or Kuwait by 2027. Guyana is on track to overtake Venezuela as South America’s second-largest oil producer, after Brazil.”

Now with more than 30 discovery wells, 6-sanctioned projects, current daily production of ~650K BOPD rising to 750K in 2025 with the commissioning of Yellowtail, 1mm+ BOPD in 2027 with the commissioning of Whiptail, and up to 1.5 mm BOPD with the startup of the 7th project- Hammerhead, the company is growing Guyana production at a rate of about 20% annually. The “Guyana Effect” shows up in total return comparisons with key competitors and the overall S&P 500 index, as noted in the Crowley article.

Guyana appears to have a long ramp for future development in Stabroek, as reporting indicates that another two fields, Fangtooth-now under delineation drilling, and the  Haimara discovery-new appraisal wells planned for later this year, could take reserves well beyond the 11 bn BOIP now booked.

If the company can continue the pace of announcing a new project for Guyana every eighteen months or so, it’s not hard to imagine daily production hitting the 2.0 mm BOPD level in the XOM graph below in the early 2030’s.

As a final point on Guyana, low cost of supply is everything in long-term oil production. With supply costs of less than $35 per barrel, Stabroek fits nicely in the low-cost category assuring profitable production at any likely Brent prices.

The XOM, CVX, Hess kerfuffle

Chevron-CVX has lagged Exxon in reserves replacement over the last few years, as this OilNow article points out. Although down from 2018’s peak of ~24 bn bbls, XOM is comfortably ahead of Chevron with 16.9 bn bbls compared with 11.1 bn for CVX. Chevron’s motivation for its takeout offer for Hess, (HES) is pretty clear. With HES’ 30% stake in Stabroek, CVX saw an easy way to tack on several bn barrels on reserves with its $53 bn offer for HES. Shareholders for both companies approved the deal, but roadblocks began to crop up.

In late December of 2023, the FTC filed a request for more information on the deal but delayed any action pending the outcome of ExxonMobil’s objection to the merger. With the three-judge panel only recently confirmed recent reporting has a timeline well into 2025 for any resolution.

The core of the dispute lies in the interpretation of the Joint Operating Agreement-JOA, which contains a section on the Right of First Refusal-ROFR that governs the disposition of assets run by the consortium. XOM feels that the HES share should be offered to it under the ROFR language in the JOA. Chevron disagrees, and took pains in setting up the deal to provide for HES’ survival as an entity, effectively eliminating the “change of control” provisions of the JOA. Analysts feel the outcome will come down to the arbitration panel’s interpretation of the “intent” of the CVX/HES agreement as regards the asset. M&A expert, James English at law firm Clark Hill Law was quoted as saying-

"The crux here is whether a change of control even occurred. The three-person arbitration panel that will make the call must decide in part whether to focus on the language in the contract or to delve into Chevron's intent. “A plain language approach would be very favorable to Chevron, while if you go with the intent, Exxon may have a case," English said.”

There is no downside for XOM in this process, in my view. The valuation of the stake held by HES is a closely guarded secret, but we can make some assumptions and arrive at an estimate. 

A trillion dollar valuation has been put on the 11 billion worth of reserves already booked, implying a Brent price of $90-not out of line, but aspirational from current levels. That would put HES’ 30% share at ~$335 bn or so, 6X+ above the $53 bn takeout price. Depending on which estimate you use for the percentage ascribed to HES’ 30% as part of the CVX bid -60-80% according to experts cited in the Reuters article, it’s not hard to imagine a significant payday for XOM.

ExxonMobil is in the catbird’s seat in this scenario. They could make a counter offer for the HES stake, bid for a fraction of it, or take compensation from Chevron, if they prevail in arbitration. If it gets too pricey CVX would just walk away, accepting a $1.72 bn break-up fee from HES.

There’s no way to handicap the outcome of this dispute. As I noted there is no downside for XOM. A lot will come down to how the single word-intent, is interpreted.

The Permian

As the first full quarter of Pioneer assets operating under XOM’s umbrella approaches as Q-3 wraps we will get a peek at how efficiently this merger is being implemented. The company has put a big number on the bulletin board-$2 bn, in cost savings that will accrue from the merger annually. In a Bloomberg article, CEO Darren Woods noted that these savings will come from improved technology and extraction-fracking and cube development techniques, as well as the logistics advantages the merger provided in terms of lateral lengths and materials sourcing. XOM projects costs of supply at $35 per barrel from the Permian.

For full year 2024, XOM projects daily Permian production of 1.2 mm BOEPD across their 1.4 mm acre position in the basin. The company has a target of increasing Permian production to 2.0 mm BOEPD by 2027, implying a growth rate of 20% a year.

Your takeaway

XOM is trading at some fairly rich multiples at current prices. The EV/EBITDA is 7.65X, and the flowing barrel stat is $116K per barrel. Analysts rate the stock as Overweight with price targets ranging from $110-157.00 per share. The median is $130.00.

For those looking for well-covered shareholder returns, XOM is generating free cash of about $26.5 bn annually on a TTM basis. The company distributed $8.1 bn in dividends and repurchased $16.3 bn in stock for a modest free cash yield of ~5%. The company beat EPS estimates by ~5% in Q-2, and estimates have been raised for Q-3 to $2.14 per share. If they come in with a beat we could certainly see a move higher toward the midpoint of estimates. The inverse is also true.

XOM should be a part of every long-term energy investor’s portfolio for growth and income. Currently, it is trading near the top of its one-year range-$97-$123.00. Recent weakness in oil and gas prices would certainly argue for a judicious entry point that might come when Q-3 earnings are released in November.

By David Messler for Oilprice.com 

UK Plans New Environmental Guidance for North Sea Oil and Gas Firms

By Charles Kennedy - Aug 29, 2024

The UK government plans to introduce new environmental guidance for oil and gas companies operating in the North Sea, following the landmark ruling of the Supreme Court which requires regulators to consider the Scope 3 emissions of future projects when approving them.

The UK Supreme Court ruled in June that a local council unlawfully granted approval to an onshore oil drilling project as planners must have considered the emissions from the oil’s future use as fuels, in a landmark case that could upset new UK oil and gas project plans.

The judges wrote in the judgment that “It is an agreed fact that, if the project goes ahead, it is not merely likely but inevitable that the oil produced from the well site will be refined and, as an end product, will eventually undergo combustion, and that that combustion will produce greenhouse gas emissions.”

In light of this ruling, the Labour government announced on Thursday it plans new environmental guidance for oil and gas companies, which, the cabinet says, would help “provide stability for industry, support investment, protect jobs, deliver economic growth, and meet its climate obligations, as the North Sea transitions to its clean energy future.”

Minister for Energy Michael Shanks said,

“We will consult at pace on new guidance that takes into account the Supreme Court’s ruling on Environmental Impact Assessments, to enable the industry to plan, secure jobs, and invest in our economy.”

While planning new environmental guidance to provide certainty to industry, the government also said in the same communication that it would not challenge the judicial reviews brought against development consent for the Jackdaw and Rosebank oil and gas fields in the North Sea, throwing more uncertainty on these already consented projects.

Climate groups Greenpeace and Uplift have sued to seek judicial reviews to stop the development of Rosebank and Jackdaw.

Earlier this week, Equinor, the operator of Rosebank, said it awaits clarity on the UK tax regime by the Labour government before strategizing and committing to investments in the UK North Sea.

By Charles Kennedy for Oilprice.com

 

Harris Does U-Turn on Fracking ahead of November Election

By Irina Slav - Aug 30, 2024Kamala Harris said she would not ban fracking if she becomes the next U.S. president, reversing an earlier stance she had made while campaigning as Joe Biden’s vice president.

In an interview with CNN, Harris said “As vice president, I did not ban fracking. As president, I will not ban fracking.”

“We have set goals for the United States of America and by extension, the globe, around when we should meet certain standards for reduction of greenhouse gas emissions, as an example. That value has not changed,” the Democratic presidential nominee also said, adding “What I have seen is that we can grow and we can increase a thriving clean energy economy without banning fracking.”

Harris’ statements are a stark departure from those made in 2019 on the campaign trail. CNN quoted her as saying in September 2019 during a climate change event “There’s no question I’m in favor of banning fracking, and starting with what we can do on Day 1 around public lands,” which led many to expect a hard line against the oil and gas industry from a potential future Democratic administration.

Even without a ban on fracking a Harris presidency would be bad news for the industry. Overviews of her career that have flooded the media space recently note her lawsuits against oil companies including Chevron, which she prosecuted for hazardous materials mishandling. Plains All-American Pipeline also became a target for California's Attorney General back in 2015 for an oil spill off the state's coast. Interestingly, Harris' claim that she also sued Exxon, which she made during the run-up to the 2020 elections, appears to be inaccurate.

The change in Harris’s stance on fracking has visible roots. In order to win the election, she would need to secure votes from swing states such as Pennsylvania, which is heavily dependent on its energy industry. Declaring an intention to ban fracking would alienate such crucial states and lose her the election.

By Irina Slav for Oilprice.com

China Is Rethinking Its Russian Pipeline Plans

By Eurasianet - Aug 29, 2024

• China appears to be reconsidering the Power of Siberia 2 gas pipeline project with Russia, as indicated by Mongolia's exclusion of funding for the pipeline in its economic plan.
• 
  
• Turkmenistan is emerging as a favored gas supplier for China, with increased cooperation and higher gas export revenue compared to Russia in 2024.
• 
  
• Experts suggest that China sees Turkmenistan as a more manageable partner for energy projects, given its political landscape and simpler economy.

Buddies in war, Russia and China appear to be frenemies when it comes to energy. As a result, Turkmenistan may be the primary beneficiary of Beijing’s need for more natural gas.

Just a few months ago, Russian and Chinese officials were saying that an agreement to build a new gas pipeline connecting the two countries, dubbed Power of Siberia 2, was imminent. Now, it appears those plans have been put on hold. A recent decision by Mongolia’s government not to include funding for pipeline construction in a five-year economic plan is widely seen as an indicator that China is rethinking the pipeline project, the South China Morning Post reported. 

Power of Siberia 2 is projected to carry up to 50 billion cubic meters of gas annually from western Siberia to China via Mongolia. Its operation would provide much needed revenue for Russia, which is straining to afford the cost of its war in Ukraine. China has proven an important supporter of Russia, helping the Kremlin surmount sanctions imposed by the West. But the hold put on the Power of Siberia 2 project suggests Beijing’s friendship does have boundaries, despite the famous proclamation by Chinese leader Xi Jinping and his Russian counterpart, Vladimir Putin, that bilateral relations had “no limits.”

While China is keeping Russia hanging on energy cooperation, it is tightening ties with Turkmenistan. A cohort of Turkmen students, for example, has spent the summer taking a training course at Petroleum University in Beijing, the Turkmenportal website reported.

RFE/RL cited a regional expert, Alexey Chigadayev, as saying a new pipeline connecting China and Turkmenistan makes more sense for Beijing. For one, China would maintain a far greater degree of control over such a pipeline during both the construction and operational phases. “Negotiating with Turkmenistan’s political leadership is also easier – it has an even higher level of authoritarianism than Russia and a simpler economy,” Chigadayev told RFE/RL.

So far in 2024, Turkmenistan is outpacing Russia in supplying gas to China, in terms of revenue. A report published by an Uzbek news outlet, Spot.uz, said that Turkmenistan was China’s top gas supplier during the January-July period, exporting $5.67 billion in gas. Russia was second with $4.69 billion in sales. Kazakhstan also provided over $730 million worth of gas to China during the period.

By Eurasianet.org

Understanding Peak Oil: What It Is And Why It Matters

By Michael Kern - Aug 29, 2024

• Peak oil and peak oil demand are two separate phenomena with different implications for our society and economy.
• 
  
• It is important to understand the complex factors driving peak oil, from geopolitics to technology.
• 
  
• We need to prepare ourselves for a sustainable future based on renewable energy sources by navigating the uncertainty of peak oil demand and production.
• 
  

Are we running out of oil? 

This question has been on the minds of many experts in recent years.

The world consumes a staggering 100 million barrels of oil every single day. This dependence on fossil fuels has powered our modern society, but recent events like the war in Ukraine and the resulting energy crisis have underscored our vulnerability to disruptions in the global oil supply.

But what does this mean for our future? Will we have to give up our cars and switch to bicycles? Or will new technologies save us from a world without oil? 

Understanding the concept of "peak oil " is crucial in navigating this uncertain energy landscape.

In this article, we'll dive deep into the topic of peak oil and explore its causes, implications, and potential solutions. 

What Is Peak Oil

Peak oil refers to the point in time when global petroleum production reaches its maximum point and subsequently begins an irreversible decline. This occurs when readily accessible oil reserves are depleted, forcing us to rely on more challenging and expensive extraction methods.

The concept was first introduced by M. King Hubbert in the 1950s. His theory proposed that oil production would follow a bell-shaped curve, with a peak representing the point at which half of the total recoverable reserves had been extracted. This prediction has been largely accurate, as we have witnessed a steady increase in global oil production followed by signs of plateauing and even decline in recent years.

The implications of peak oil are far-reaching. As we deplete the most accessible oil reserves, extracting remaining resources becomes increasingly challenging and expensive. This leads to higher production costs, which are eventually passed on to consumers in the form of higher prices for gasoline, diesel fuel, and other petroleum-based products. Additionally, the transition to less accessible reserves can disrupt supply chains and geopolitical stability, further exacerbating the challenges associated with peak oil.

What Will Cause Peak Oil?

The inevitability of peak oil is driven by a confluence of factors:

• Geological Constraints: One of the primary reasons for peak oil is geological constraints. Most of the world's easily accessible oil reserves have already been discovered and exploited, meaning that oil companies must turn to more difficult-to-reach reserves, such as deepwater offshore drilling or unconventional sources like shale oil. These reserves are often more expensive to extract and produce smaller yields than traditional wells. As a result, the cost of producing each barrel of oil increases over time.
• Geopolitical Instability: Geopolitical instability can also play a role in peak oil. Many of the world's largest oil-producing regions are located in politically unstable areas where conflict and unrest can disrupt production and supply chains. For example, wars in Iraq and Syria have led to significant disruptions in global petroleum production in recent years. And Venezuela’s ongoing economic crisis has absolutely crushed its ability to produce oil.
• Technological Limitations: Despite advancements in drilling technology, there are limits to how much oil can be extracted from a given reserve. Environmental concerns also restrict new drilling sites and expansions, making it more challenging to increase production.
• Rising Demand: The growing energy needs of developing economies, particularly China and India, put additional strain on the global oil supply. As these countries continue to industrialize and urbanize, their demand for oil is expected to rise, further accelerating the depletion of reserves.
• Environmental Pressures: The increasing awareness of climate change and the associated environmental impacts of fossil fuel consumption have led to growing pressure to reduce reliance on oil. This includes efforts to transition to renewable energy sources and to implement policies that limit the use of fossil fuels.

The consequences of this decline could be catastrophic if we do not take action now to transition away from fossil fuels towards renewable energy sources or invest heavily in carbon capture technologies designed to mitigate their impact on the environment.

Peak Oil Is Not The Same As Peak Oil Demand

One common misconception about peak oil is that it is the same as peak oil demandhttps://oilprice.com/Energy/Crude-Oil/How-Close-Are-We-To-Peak-Oil-Demand.html. While both concepts are related to the future of global petroleum production, they represent different phenomena.

Peak oil refers to the point at which global petroleum production reaches its maximum point and begins to decline. This means that we will have extracted all of the easily accessible and cost-effective reserves, and will need to turn to more expensive and difficult-to-reach sources to meet our energy needs. The consequences of peak oil could be significant, including higher prices for gasoline, diesel fuel, and other petroleum-based products.

On the other hand, peak oil demand refers to the point at which global demand for petroleum products begins to decline. 

This could happen for a variety of reasons, including: 

• Increased adoption of electric or hydrogen vehicles
• Increased availability of consistent renewable energy
• Rising oil prices 
• Environmental concerns

While these two concepts are related in that they both relate to the future of global energy production and consumption, they represent fundamentally different phenomena with distinct implications for our society and economy.

It's worth noting that while peak oil demand may not necessarily coincide with peak oil production, there is some evidence suggesting that it may be coming sooner than previously thought. 

For example, several countries have announced plans to phase out gasoline-powered cars within the next few decades in favor of electric vehicles.

Additionally, advances in lithium battery technology, alternative battery technology and renewable energy could make it increasingly cost-effective for individuals and businesses alike to switch away from fossil fuels.

What's Next? Navigating a Post-Peak Oil World

As global oil production eventually declines, several scenarios could unfold:

• Complete Transition to Renewables: A shift towards solar, wind, and other renewable energy sources to meet all our energy needs.
• Reduced Fossil Fuel Use with Carbon Capture: Continued but diminished fossil fuel use, coupled with technologies to mitigate their environmental impact.
• New Technologies: Development of innovative extraction methods or synthetic alternatives to access previously inaccessible reserves.

Regardless of the path we take, proactive measures are necessary to avoid a chaotic transition.

One thing is certain: our reliance on fossil fuels cannot continue indefinitely. By investing in new technologies now, we can help ensure a smooth transition away from petroleum-based products over time.

Peak oil represents a major challenge for humanity as we seek ways to meet our growing energy needs. 

At least for now, we’re dependent on oil. And while no one knows exactly when or how this process will unfold, one thing is clear: change is coming whether we're ready for it or not.

Peak Oil Frequently Asked Questions

Will peak oil ever happen?

Yes, peak oil is highly likely to happen. It is a matter of when, not if. While new discoveries and technological advancements can extend the timeline, geological limitations and increasing demand will eventually lead to a decline in global oil production.

When was peak oil in the US?

The United States experienced its first peak oil in conventional oil production in 1970, reaching around 9.6 million barrels per day. However, with the advent of fracking and other technological advancements, the U.S. has seen a resurgence in production, reaching a new peak of approximately 13 million barrels per day in 2019. It's worth noting that this new peak is primarily driven by unconventional sources like shale oil, which are more expensive and environmentally impactful to extract. Experts predict a decline in U.S. oil production in the coming years as shale oil wells deplete faster than conventional ones.

How many years of oil is left in the world?

Estimates vary, but based on current proven reserves and consumption rates, we have roughly 50 years of oil left at current production levels. However, this is a dynamic figure influenced by new discoveries, technological developments, and changes in demand. As we transition to cleaner energy sources, oil consumption might decrease, extending the timeline.

How does peak oil affect humans?

Peak oil has the potential to cause significant disruptions to human society, including:

• Economic Impacts: Rising energy prices and supply disruptions can lead to increased transportation costs, higher food prices, and economic recession, particularly affecting industries heavily reliant on oil.
• Social and Political Unrest: Economic hardship and energy insecurity can trigger social unrest and political instability.
• Geopolitical Conflicts: Competition for dwindling oil resources can exacerbate existing geopolitical tensions and even lead to new conflicts.
• Environmental Impacts: Increased reliance on unconventional oil sources can lead to heightened environmental damage due to more intensive extraction processes.

It is crucial to proactively mitigate these potential impacts through a multifaceted approach, encompassing investments in renewable energy, energy efficiency measures, and sustainable transportation solutions.

 

By Michael Kern for Oilprice.com 

 

Shell To Slash Exploration Workforce by 20%: Reuters

By Charles Kennedy - Aug 29, 2024

• Reuters: Shell plans to reduce its oil and gas exploration and development staff by 20%.
• 
  
• The new cuts follow Shell’s earlier moves to reduce its workforce in the renewable and low-carbon segment.
• 
  
• Shell’s new CEO, Wael Sawan, is on a cost-saving drive to improve the company’s performance in comparison with its peers.
• 
  

Oil supermajor Shell (NYSE:SHEL) is planning to reduce its oil and gas exploration and development staff by 20%, according to an exclusive report from Reuters, citing intentions to cut costs to what has long been a wildly profitable segment of the oil giant’s business. 

The new cuts follow Shell’s earlier moves to reduce its workforce and costs in the renewable and low-carbon segments. 

According to Reuters, citing unnamed company sources, Shell is restructuring its operations, targeting exploration, well development and subsurface units, with its UK and Dutch branches set to carry the heaviest burdens. 

The workforce cuts are not set in stone, and must still be discussed with employee representatives.  

Shell’s new CEO, Wael Sawan, is on a cost-saving drive to improve the company’s performance in comparison with its peers. 

"Shell aims to create more value with less emissions by focusing on performance, discipline and simplification across the business. That includes delivering structural operating cost reductions of $2-3 billion by the end of 2025," Shell said in a statement carried by Reuters. 

On August 1, Shell reported adjusted earnings of $6.3bn for the second quarter, beating analyst consensus. The company initiated a $3.5bn share buyback program, to be completed by the third quarter results.

The previous month, Shell pressed pause on the construction of its Rotterdam biofuels facility and announced it would divest from a Singapore refining plant. Those two movies, plus slower trading in its gas division, resulted in a ~$2-billion impairment. 

Shell’s subsidiary Shell Nederland Raffinaderij announced in July that it would temporarily pause on-site construction work at its 820,000 tons-a-year biofuels facility at the Shell Energy and Chemicals Park Rotterdam in the Netherlands “to address project delivery and ensure future competitiveness given current market conditions,” the company said. 

That move saw Shell walk back several of its climate commitments and pledges, which triggered the resignation of several high-profile executives in its renewables division.

By Charles Kennedy for Oilprice.com

 

Can Norway Remain Europe's Top Gas Supplier While Meeting Climate Goals?

By Felicity Bradstock - Aug 29, 2024

• Norway's oil production could start declining as early as 2025 if new exploration activities are not pursued.
• 
  
• The Norwegian Offshore Directorate (NOD) has outlined three scenarios for Norway's oil and gas production between 2025 and 2050, all of which show a decline in output.
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• Equinor plans to invest $66 billion in oil and gas by 2035, with the aim of maintaining production at around 1.2 million bpd over the next decade.

Norway has been investing heavily both in its renewable energy infrastructure as well as continuing to produce huge quantities of oil and gas for several years. However, with greater pressure from international organisations to curb oil production, a lack of new exploration activities, and worries of a decrease in global demand for fossil fuels in the coming decades, Norway’s oil production could begin to decline from as early as 2025. Norway’s upstream regulator, the Norwegian Offshore Directorate (NOD), reported this month that it expects the country’s oil and gas production to start decreasing from next year if the government does not pursue new exploration activities to maintain Norway’s output. This could prevent the Nordic country from earning billions in revenue. 

Norway has overtaken Russia as the biggest natural gas supplier for Europe, following the Russian invasion of Ukraine and subsequent sanctions on Russian energy. It has reserves of around 7.1 billion cubic metres of oil equivalent (Bcmoe), including around 3.5 Bcmoe of undiscovered resources, according to the regulator. In its report, the NOD set out three scenarios for Norway’s oil and gas production between 2025 and 2050, which all show a decline in output, and all, according to the regulator, adhere to Paris Agreement objectives. 

In the “base scenario”, oil and gas output increases to 243 million cubic metres of oil equivalent (MMcmoe) in 2025 before gradually falling to 83 MMcmoe in 2050. This would largely be owing to a decline in Norway’s bigger oil fields. The “low scenario” shows production falling, starting in 2025, to almost zero by 2050. This is driven by a lack of exploration activity and the drying up of wells in the Barents Sea. In the “high scenario”, production remains high for the next decade before decreasing to 120 MMcmoe by 2050. This is driven by greater exploration in the coming years and the rollout of advanced technologies in the industry. 

The NOD highlighted that the Norwegian continental shelf is still competitive, as it has vast oil and gas reserves and sufficient infrastructure, as well as favourable government policies. The 2000 petroleum tax reform has also helped spur investment in the sector, supporting growth. Further, Europe’s movement away from a reliance on Russian energy has helped Norway to become the biggest supplier of gas in the region, a trend that is expected to continue for several years, with natural gas seen as a transition fuel for the green transition. However, the regulator emphasised that the failure to capitalise on Norway’s massive oil and gas reserves, as shown in the high scenario, would equate to losing “nearly an entire government pension fund” – or around $1.42 trillion. 

Kjersti Dahle, the Director of Technology, Analysis, and Coexistence at the NOD, stated, “This is why we’ll need to ramp up exploration and investment in fields, discoveries and infrastructure moving forward in order to slow the decline in production. A failure to invest will lead to rapid dismantling of the petroleum industry.” Dahle added, “The scenarios reveal stark differences in future value creation and future government revenues from the petroleum activities. The Norwegian Offshore Directorate’s calculations show a difference in net cash flow of about NOK 15 thousand billion between the high and low scenarios.”

This year, two Norwegian firms brought an end to drilling operations in the Barents Sea. While Aker BP’s project resulted in a gas discovery, Equinor made no such find. Preliminary estimates show that the size of the Aker discovery could be between 0.51 – 0.7 million standard cubic metres (Sm3) of oil equivalent. The NOD is calling for more companies to launch exploration activities in the region, as well as for the development of a new pipeline to support increased gas production in the Barents Sea.

While Equinor may have failed to make a discovery in its recent Barents Sea project, it has big plans for oil and gas in Norway. Equinor's CEO, Anders Opedal, recently stated that it is important for Equinor to maintain economic growth and support Europe’s energy security, while also backing the green transition. Opedal said that high levels of investment in oil and gas will continue for “many, many years”, while also emphasising the importance of the electrification of Equinor’s operations to reduce emissions. 

This month, Equinor announced plans to invest $66 billion in oil and gas by 2035, as well as an emergency preparedness plan for Barents Sea activities, following the recent NOD report. The plan earmarks between $5.7 and $6.6 billion a year for hydrocarbons. The company hopes to maintain production at around 1.2 million bpd over the next decade. Funding will boost exploration activities, with plans to drill between 20 to 30 wells a year to ensure a stable output over the next 10 years. This action from Equinor is expected to help Norway avoid the “low scenario” set out by the NOD, as it continues to produce high levels of oil and gas well into the next decade. 

By Felicity Bradstock for Oilprice.com