Exploring Opportunities in Offshore Norway

Over the next five years, the offshore drilling services market is expected to grow from $73.1 billion in 2013 to $121.1 billion by 2018. Within this market, Norway is expected to spend $220 billion, second only to Brazil's $250 billion on the development of their offshore off reserves. Three companies that will are well positioned to take capitalize on this spending are: Statoil ASA (NYSE: STO  ) , Transocean LTD (NYSE: RIG  ) and Tidewater (NYSE: TDW  ) .

Map sourced by (Aker Solutions)

Norway has three substantial bodies of water to access offshore oil and gas developments. As the chart below indicates the North Sea, Norwegian Sea, and Barents Sea offer vast discovered and undiscovered resources. Norway recently raised its estimate for undiscovered oil and gas by 31% to 8 billion barrels of oil equivalent in the Barents Sea while the Norwegian Petroleum Directorate says  it has increased its estimates for undiscovered recoverable oil and gas resources offshore Norway by 16% to 18.74 billion barrels of oil equivalent. This estimate is up from its last estimate made in 2011 of 16.17 billion boe and does not include some reserves in the Norwegian Barents Sea.

 

Chart sourced by (Statoil)

The Barents Sea
Norway and Russia recently resolved a 40-year-old dispute over how to divide the Barents Sea and part of the Arctic Ocean. Since then, the Norwegian government has decided to increase its production in this region. Statoil, which operates over 80% of Norway's oil and natural gas production, has stated they will spend $13.8 billion USD with Petoro As and Eni  to develop the Skrugard and Havis reserves in the Norwegian Barents Sea.

 

Map sourced by (Statoil)

The Norwegian Sea
Substantial advancements are being made on Aasta Hansteen or formerly Luva gas fields off the northwest coast of Norway. These fields are expected to drive the development of deep-water production in the Norwegian Sea. According to Statoil, which is a deep-water pioneer in the Norwegian Sea, this development may be the first to have a Spar platform on the Norwegian continental shelf (NCS). Statoil Senior vice president for NCS field development Ivar Aasheim states, "This development may represent the start of deep-water production in the Norwegian Sea, and it will enable the tie-in of other discoveries in the same area."

The North Sea
Statoil and the Norwegian government are looking to increase production in the North Sea over the next three to five years. Focusing on the Greater Utsira region and further investigating the Kin Lear area, Statoil expects production in the north sea to increase by ~70 mboe/d over the next few years.

Benefiting from Norwegian Offshore Sector Growth
Besides Statoil, which is 67% owned by the Norwegian Government and is intensely involved in the development and production of the Norwegian reserves, two other interesting companies that are heavily involved in the Norwegian waters are Transocean and Tidewater

As Transocean is currently focusing its fleet on harsh weather and deep-water capabilities, the company looks to be ready to capitalize on the Norwegian front. Over the past few years the drilling company has benefited from Norwegian capex spending as revenues from Norway have increased from $756 million in 2010 to $1.174 billion in 2012. This represents an increase of 55.29%. Currently, Transocean's ties with Norwegian oil company Statoil are proving to be beneficial, as Transocean currently has seven rigs operating in Norway; as production increases in the three Norwegian Seas this number is expected to increase.

In May of 2013, Tidewater expanded their footprint in the Norwegian waters as they entered into an agreement with HitecVision to purchase Troms Offshore Supply AS or Troms Offshore. In the acquisition Tidewater paid approximately $395 million for the company headquartered in Tromsø, Norway. The timing for this acquisition is excellent as the fleet will expand Tidewater's presence in Norwegian part of the North Sea and will add support to Tidewater's vessel fleet that operate in harsh environments. Jeffrey M. Platt, President, CEO and Director of Tidewater states, "Troms Offshores expertise, relationships and location in Northern Norway provides Tidewater with a unique entry point into the Norwegian sector of the North Sea and cold water markets, including the Barents Sea, Greenland and Eastern Canada."

Foolish Conclusion
As capex spending in the Norwegian Seas is expected to increase significantly over the next five years, this will provide opportunities to companies that are well positioned in the region. Statoil ASA, which is 67% owned by Norwegian government; Transocean, whose fleet is focused on Harsh and deep-water drilling; and Tidewater, which just added to its presence in Norway, are solid companies that are well positioned to capitalize on this growth.

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