Economic Analysis of the North Sea Oil and Gas Region

Abstract

Summary This study looks into the economics of 27 North Seaoil and gas fields in the U.K. and Norwegian sectorson the basis of the most recent cost and investmentestimates together with the expected productionprofiles. A sensitivity study of each project ispresented, including an economic analysis of therecent changes in the fiscal regime in both sectorsduring 1979-80 as well as a cost study consideringgeneral up-to-date statistics, the recent developmentsconcerning cost escalations, and some costcorrelations. Finally, the North Sea reserves andsupply potentials are discussed. Introduction The North Sea province, containing light, low-sulfurcrude oil as well as gas, and situated in a politicallystable region close to main consumer markets, is oneof the most important petroleum regions in the worldtoday. Since the onshore natural gas discovery inGroningen in 1959, the oil industry's interest in thispart of the world has increased rapidly. The firstoffshore drilling took place in Dutch waters in 1961, while the first application for permission to explorefor oil and gas in Norwegian and U.K. waters was received in 1962. In 1965, the first hydrocarbon wasfound in U.K. waters with a gas discovery, and in1969 the first major oil field was struck in theNorwegian part of the Continental Shelf. Duringthe last 10 years there has been a tremendousdevelopment in the North Sea area, and the region has become one of the most important offshorelaboratories in the world. We investigate the overall economic conditions of27 oil and gas fields in the North Sea sectors of theU.K. and Norway (Fig. 1). These fields have totalproved reserves of approximately 20 Bbbl of oilequivalent. The recoverable reserves for the differentfields vary from the small 50-MMbbl fields (Argylland Auk) to the giant Ekofisk area with a total of3,800 MMbbl of oil equivalent. The productionregimes of the fields in this study are presented inTable 1. Development began on all fields during the1970's--six fields have been completely developedand the other 21 fields are expected to be completedduring the 1980s. The development periods for theNorth Sea fields are between 5 and 14 years.Seventeen of these fields produced oil in 1980, whilethe rest will start production during the next 4 years. Production from these fields is expected to endbetween the mid- 1990's and the end of the firstdecade of the next century. The productive life spanvaries from approximately 10 to 35 years, with thebulk between 10 and 20 years. The average production-to-reserve ratio variesbetween 3 and 14% and the water depths range from45 to 186 m. The Ekofisk area, Brent, and Valhall areevaluated with production of oil as well as gas. TheEkofisk area comprises these fields: Albuskjell, Cod, Edda, Ekofisk, West Ekofisk, Eldfisk, and Tor. TheFrigg field is a gas field, and only the Norwegian part(60.82%)is included in this study. Further, only theNorwegian part of Statfjord(84.09%) and the U.K.part of Murchison (83.75%) are considered. The total development expenditure for the 27 fieldsin our study is estimated to be 56 billion 1980 dollars, while the investment per barrel per day of peakproduction varies from approximately $5,000 to $20,000. JPT P. 2515^