Why This Future Offshore Play Represents a Phenomenal Opportunity

An analysis conducted by Rystad Energy to highlight the opportunities in the oil and gas industry in northern Norway was released on Nov. 14, 2013. According to the release, recent findings have opened new areas that could be developed in the near future. As a matter of fact, about eight field centers in the north have been identified to contain significant oil and gas deposits.

The scenario
ProBarents, Knowledge Park North, Petro Arctic, and Innovation Norway are the organizations behind the issuing of the research. The report entitled "North Norwegian Oil and Gas Activity Level" stated that activity in the North Sea is expected to level off after 2020. Some producers are starting to contemplate the possibility of exploring uncovered areas, with northern Norway being the area of predilection.

By 2030, Rystad assessed that investment in exploration activities and operating costs in northern Norway could amount as much as $200 billion. The report mentions that northern Norway has been assessed by Rystad analysts to hold about 27 billion barrels of oil equivalent. In the long run, this would represent one of the most prolific offshore areas in the world.

The actors
Some companies that are producing close to northern Norway are very well positioned to be involved in this new venture. Statoil ASA (NYSE: STO  )  will surely be involved in the area. This international oil and gas producer is present in more than 30 countries, but its greatest activity is in Norway.

Statoil operates 55 fields located in the North Sea, the Norwegian Sea, and the Barents Sea. The company developed its expertise of over 40 years of oil and gas production on the Norwegian continental shelf and operates the most assets in the area.

Headquartered in Stavanger, Norway, Statoil is without a doubt the best positioned company to profit from this opportunity. The producer has made several discoveries throughout the years, and seven new plays were uncovered in offshore Norway in 2013 alone; this included three in the Norwegian Sea. In 2012, Statoil drilled 11 exploration wells in the Norwegian continental shelf, making it the operator with the most drilling wells in the area. Statoil is a favorite above all for its operating experience in harsh environments. It has developed an expertise second to none, representing a perfect fit for northern Norway.

Another great producer in the area is Lundin Petroleum, which operates primarily in offshore Norway. Lundin saw a growth in production from its Norwegian assets last year to an annual average production of 27,200 Boe/d, a rise of 17% over the 2011 production.

The company dedicates a great part of its operations to exploration activities. It owns working interest in 20 Norwegian wells, operating 16 of them. A total of 18 wells are scheduled to be drilled for this year's drilling program as well. At the end of 2012, Lundin had 151.7 Mmboe in proved and probable reserves.

About three years ago, an exploration well on the Avaldsnes prospect located 15.5 miles east of the Edvard Grieg field resulted in a giant oil discovery for Lundin. The well, renamed Johan Sverdrup in early 2012, was estimated to hold between 1.7 Bboe to 3.3 Bboe of gross recoverable resources following an initial appraisal. This made it the largest discovery on the Norwegian continental shelf since the mid-80s.

Finally, Total SA (NYSE: TOT  ) is also well involved in the Norwegian area. The French oil and gas giant owns a working interest in five projects, from which only one started producing very recently. Ekofisk South's production started up on Oct. 25, 2013, with a capacity of 70,000 Boe/d. Total has 39.9% working interest in this project.

Three projects are at several development stages and are scheduled for ramp up between 2015 and 2017. The last project in which Total owns a 20% working interest is Linnorm. Linnorm is currently under study by a joint venture that includes Shell, Petoro, and Statoil. The project is estimated to produce about 100,000 Boe/d once commissioned. Total's interest for the north and Norwegian seas is relatively recent, and I believe that it will grow very soon with the release of Rystad's analysis.

My Foolish take
Northern Norway undeniably represents a lot of potential, and some producers that are currently operating in offshore Norway will be attracted further north to seize the opportunity. With about 27 billion barrels of oil equivalent buried deep beneath the seafloor, producers possessing the expertise needed to operate in that kind of harsh environment have the edge over the competition. As the old saying goes, fortune favors the bold.

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