Depressed oil prices at the end of the 1990s prompted a number of mergers between some of the world’s very largest oil companies, or super-majors. On the NCS, where the majors had dominated for many years, the result was fewer players and reduced exploration.
The new millennium also opened with a crisis of confidence. Ormen Lange, the last really big discovery on the NCS, was proven in 1997. Many felt the days of the big finds was over, and the companies lost interest in exploring.
Jarand Rystad, CEO of analysis company Rystad Energy, remembers that period well, and says a mastodon philosophy, an elephant sickness, prevailed on the industry.
“Only big fields – or elephants – were interesting, and the perception was that none were left to find. There was far too little active exploration. Something had to be done.”
The Norwegian government took several steps to boost the attractiveness of the NCS, primarily through amending the offshore tax regime.
A reimbursement system for exploration costs ensured that companies with no production – and therefore no revenues – received the same tax benefits as those which were producing.
“An exploration company no longer needed to produce, and could thereby devote its resources to exploring,” says Rystad. “That created a very important diversity.”
In addition, exploration acreage was awarded more frequently and extensively. The awards in predefined areas (APA) scheme, introduced to supplement the regular licensing rounds, aimed to achieve more effective exploration in mature parts of the NCS.
Third, the government made active efforts to extend the range of players rather than being mainly concerned to retain the big Norwegian operators and the largest international companies.
These participants were involved in every phase on the NCS, from exploration and development to operation and sales. The door was now opened to small and medium-sized companies – preferably the exploration specialists.
And the cure worked. Within a few years, as many as 50-60 new companies had made their entry to the NCS.
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Bjørn Thomas Bache, director of supervisory activities at the PSA, says that these newcomers were characterised by great diversity.
“They came from different cultures and had varying ambitions,” he recalls.
“Some secured licence interests with the aim of becoming operators, others had a strategy of growth through acquisitions. And some concentrated solely on exploration in order to sell out if a discovery was made.”
But all had to respect the Norwegian safety regime. “The regulations were the same for every company, large or small,” says Bache.
In order to ensure that companies had the necessary capacity and expertise, the government introduced a prequalification system for licensees and operators which still functions today.
The PSA is involved in these assessments. Anyone wanting to pursue petroleum activities on the NCS must show they can add to value creation and have HSE capabilities which help to strengthen safety.
“A company must document that it has expertise and capacity in HSE as well as an adequate management system and financial strength,” explains Bache. “It must also have the necessary competence and organisation in Norway.”
He reports that virtually all the companies have arrived with broad expertise. But the PSA has nevertheless found it important to follow up these new players closely.
“The Norwegian Oil and Gas Association established a dedicated network for smaller companies early on, and its HSE forum became a good arena for collaboration with us,” he says.
“That’s functioned well and has been necessary, particularly with regard to spreading information about Norway’s safety regime. We always conduct an audit, for example, when a company is to drill its first well as operator.”
Bache emphasises that the new players on the NCS have made many positive contributions, including with regard to safety. But he says Norway’s petroleum sector has no room for freeloaders.
“The regulations set clear requirements. Operators have overall responsibility for activities being conducted prudently and within the rules. But licensees also have duties.”
A company must document that it has expertise and capacity in HSE as well as an adequate management system and financial strength. It must also have the necessary competence and organisation in Norway.
Bjørn Thomas Bache, director of supervisory activities, PSA
Many of the small newcomers were nicknamed “oil mosquitos”, but Bache is not keen on that term. Nor is Rystad, who prefers the word “petropreneurs”.
He nevertheless admits that the smallest companies had certain features in common with mosquitos.
“They arrived in great numbers, and many of the big players disappeared in their wake. But they were much less irritating than mosquitos, and contributed something important.
“If you look at the geology on the NCS, interesting formations outnumber exploration geologists. In the early 2000s, we needed more eyes and brains to investigate these – and got them.”
2000: Acknowledgement of compliance (AoC) scheme introduced. Obligatory from 2004.
2001: Safety Forum established.
2004: PSA established by hiving off the NPD’s safety division. Receives supervisory responsibility for operations on the NCS and at petroleum plants on land.
2004: Regulatory Forum established.
Many of the companies which appeared on the NCS during this period vanished fairly quickly, without achieving anything of note. Others did better, and have remained.
A few became success stories. Rystad highlights Swedish-owned Lundin Energy Norway, which subsequently merged with Aker BP, as one of these.
“Lundin is clear evidence that the measures adopted by the government worked. In its early phase, this company depended entirely on the reimbursement scheme.”
In 2010, the company made the giant Avaldsnes discovery in the Norwegian North Sea – later renamed Johan Sverdrup.
The question which remains to be resolved is what this shift in Norwegian oil management and the increased diversity has led to in the longer term. Rystad feels the answer is fairly clear.
“These new companies added creativity, innovative thinking and increased activity to the NCS. That’s enough in itself to say the change has been a success.
“If you look at value creation alone, the result also seems surprisingly good.
The companies which needed the reimbursement scheme have created as much value as those already producing and paying tax.”