This post which is based on results from earlier research and analytic work posted on The Oil Drum, Fractional Flow and not least in recent (private) discussions with other international acknowledged experts present some facts and observations about developments of tight oil (which to some extent also applies to oil sands) versus small deep water discoveries*.
*Small deep water discoveries are here meant discoveries with Estimated Ultimate Recovery (EUR) below 100 Million Barrels of Oil Equivalents (MBOE).
Figure 1: Chart above shows relative developments in annualized yield curves (lh scale) of oil for so-called elephants (Norwegian deep water discoveries estimated to hold ultimate recoverable reserves (EUR) above 1,000 million barrels with crude oil [red lines]). Small discoveries (Norwegian deep water discoveries estimated to hold ultimate recoverable reserves (EUR) below 100 million barrels with crude oil, [green lines]). The reference tight oil well for Bakken [violet lines]. The cumulative versus time is plotted against the rh scale. Note also the short high flow life cycles of small deep water developments and tight oil.One big takeaway from the chart above is that both developed small deep water discoveries and tight oil wells have steep decline rates and short high flow life cycles. These are now the major sources that offset declines from the bigger, heavily depleted legacy fields (with long productive life cycles) and provide any growth in global oil supplies.
In this post I present a closer look at 4 developed discoveries (of a total of 10) that started to flow as from 2012 and their production as of September 2013 as these have been reported by the Norwegian Petroleum Directorate (NPD).
A common feature for several of the recent developments offshore Norway is that they have estimated recoverable reserves ranging from 10 – 100 Million Barrels of Oil Equivalents (MBOE) and are expensive to develop and generally developed with sub sea completed wells flowing back to an existing (host) installation for processing. The host installation normally provides for essential services for the operations of these sub sea installations. These discoveries typically annual flow are 15 – 25% of estimated recoverable reserves at some kind of plateau and enter into steep declines as they become 50 – 60% depleted. Normally these developments reach expected plateau a few months after they start to flow.
Several of the recent smaller developments* on the Norwegian Continental Shelf (NCS) have so far under-performed with regard to expected production. So far these have resulted that some companies have taken some write downs, and others will have to accept considerably lower returns on their investments.
The presented 4 developments were now expected to flow a total of 90 – 100,000 BOE/d. Actual data from NPD show that these 4 developments had an average total flow of 13,000 BOE/d for August and September 2013.
*) By smaller developments are here meant discoveries with estimated recoverable reserves below 100 Million Barrels Oil Equivalents (MBOE).
This is worrisome for several reasons:
Write downs and lowered returns impact the companies’ financial abilities to develop future capacities and to carry through planned exploration activities.
Write downs destroy shareholder value.
If there is a general trend with weakened profitability and/or losses from smaller developed discoveries (which for some time has been dominant on NCS), this may lead to future revisions of the criteria the companies use for commercialization of these. In other words more experiences confirming the uncertainties surrounding smaller discoveries could push the commercial break even price lower, thus deferring developments of such discoveries that already are within the companies’ portfolios.
This may fly under the radar coverage with the euphemism “targeting financial performance”.
To finance these developments, the companies took advantage of their debt carrying capacities and took on more debt. The companies thus bet their future on households and sovereigns (already overstretching their debt carrying capacities) being able to continue to take on more debt to pay for more expensive oil and natural gas so that the companies can retire their debts as these mature.
Apart from price, production flows have a considerable impact on companies cash flows and profitability. In the short to mid term it is more about the flows and less about the stocks.
The developments of these smaller discoveries have so far reduced the decline in total production from the legacy installations on the NCS as can be seen in figure 1. For some time these smaller developments also hid the “The Red Queen” effect from NCS discoveries brought to flow since 2002, refer also figure 2.
A more reserved attitude of the companies towards future developments of the discoveries made (and to be made) due to financial considerations, sets up the potential for a near term further acceleration of the decline in total NCS crude oil production.
This also illustrates that future developments now appear to be at the crossroads with what price the oil companies need for development of discoveries with what the consumers will continue to afford.
Figure 1: Development in crude oil production from the Norwegian Continental Shelf (NCS), split on fields flowing prior to January 1st 2002 (green) and discoveries developed to flow as from 2002.
The new developments have now reduced the annualized total decline in crude oil production from NCS to just above 7%, refer also to figure 2. Discoveries/fields flowing prior to 2002 has seen a decline in their total crude oil production of more than 70% since 2002.
United Kingdom (UK) is widely associated with the industrial revolution which was a fossil fuel revolution.
Coal fueled the industrial revolution and UK also exported coal. The next cycle in UK’s energy history came with the discoveries and production from the oil and natural gas discoveries in the North Sea in the 1960’s which happened while UK’s indigenous coal production had been in general decline since the late 1920’s.
The oil and natural gas discoveries in the North Sea made UK again a net energy exporter for some years during the 1980’s and from the middle of the 1990’s through 2004, refer also figures 2, 3 and 4.
Beginning in 2005 UK again became a net importer of energy and as of 2012 UK imported around 42% of its primary energy consumption (primarily fossil fuels). The portion of imported energy for 2013 is expected to grow to 50% and beyond in the near future. Few countries have so rapidly transitioned from being self-sufficient and an energy exporter to develop such a high and growing dependency on imported energy.
The imports of expensive energy increasingly weigh heavier in the UK trade balance, refer also figure 7.
Figure 1: Development of UK’s total energy consumption for the years 1965 – 2012 split on energy sources.
The UK has in recent years experienced a strong growth in energy production from renewables (light green area in figure 1). The recent years general decline in total energy consumption is likely primarily due to the ongoing financial crisis.
Coal’s portion within the UK energy mix declined as it was being replaced by a growing supply of oil and natural gas from the North Sea. The growing supplies from the North Sea may at the time have defined the UK government’s position during the coal miners strikes in 1984 – 1985.
The portion of fossil fuels in the UK’s energy mix has declined from 92% in 2008 to 87% in 2012, mainly due to lower oil and natural gas consumption following the financial crisis and persistent higher oil and natural gas prices.
In 2012 barely 5% of the UK’s energy consumption was from renewables which also includes hydroelectric.
![Figure 1: Chart above shows relative developments in annualized yield curves (lh scale) of oil for so-called elephants (Norwegian deep water discoveries estimated to hold ultimate recoverable reserves (EUR) above 1,000 million barrels with crude oil [red lines]). Small discoveries (Norwegian deep water discoveries estimated to hold ultimate recoverable reserves (EUR) below 100 million barrels with crude oil, [green lines]). The reference tight oil well for Bakken [violet lines]. The cumulative versus time is plotted against the rh scale. Note also the short high flow life cycles of small deep water developments and tight oil.](https://runelikvern.com/wp-content/uploads/2020/05/e4f80-relative-yield-curves-elephants-small-deepwater-and-tight-oil.png)
Fractional Flow 
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