2020 estimates for oil investments marginally reduced

Due to the steep oil price fall, and in the wake of the global Covid-19 measures, the Norwegian government has suggested temporary changes in the petroleum tax system on the Norwegian continental shelf, in order to improve the oil companies’ economic liquidity. The industry has also proposed their own suggestions, and have expressed that the government’s current proposals are not strong enough. The support package is now been negotiated in the Parliament, and a final package is expected to be approved soon. The companies’ relatively strong estimates for 2020 are most likely based on assumptions that the approved support package will be aligned with their own suggestions.

The oil companies’ latest estimates for 2020 are 2 per cent lower than the corresponding figure for 2019, given in the same quarter last year, shows the statistics oil and gas, manufacturing, mining and quarrying and electricity supply. In the previous survey, the 2020- figures showed an expected increase of 7 per cent. The decline which is indicated now, is due to the fact that  the 2019-estimates, in the corresponding survey last year, were strongly revised upwards (see figure 2).

Quarterly investment statistics for oil and gas extraction and pipeline transport are included in the survey Investments in oil and gas, manufacturing, mining and electricity supply. For more details about total investments, please see the following article.

Severe investment decrease indicated for 2021

The newest investment forecast for oil and gas extraction and pipeline transport for 2021 is estimated at NOK 145.6 billion. This is 4 per cent lower than the first estimate for 2021, given in the previous quarter. Compared with the corresponding figure for 2020, this represents a significant decrease of as much as 16 per cent. As can be seen from figure 2, the investment estimate for 2020 increased strongly from the February- survey to the May -survey last year. Thus, the decrease for 2021 is more pronounced now than what was projected in the previous survey.

The downward adjustments for 2021 can be mainly found within the category exploration and concept studies. The exploration costs are reduced with as much as 29 per cent compared with the previous survey. This represents a significant decrease of as much as 39 per cent compared with the corresponding figure for 2020.

Preliminary figures suggest decline within field development

The estimates for 2021 within field development are moderately adjusted upwards. However, compared to the corresponding figure for 2020 a severe decline of 24 per cent is projected. The decline must be seen in context with the fact that some major development projects will probably be moving into a completion phase next year. However, given that a support package aligned with the industries’ expectations is approved, some new development projects may be added later this year. Among these are Hod redevelopment and Breidablikk. Based under the same conditions, several new PDOs are also expected to be submitted in 2021. This includes Noaka, Eldfisk North, Grevling and Lavrans.  If these plans are realised, the accumulated investment costs in 2021 from these projects will increase the investments in field development compared to the present estimate. Therefore, it is not unlikely that the decline for 2021 will be less severe than what is indicated in this survey.

On the other hand, the estimates for fields on stream are adjusted upwards compared to the previous survey. This represents a moderate increase of 2 per cent compared with the corresponding figure for 2020, and contributes to dampen the overall investment decline.

Significant fall in exploration and concept studies in 2020

The investments in oil and gas extraction and pipeline transport for 2020 are now estimated at NOK 180.3 billion. The estimate for 2020 is 2 per cent lower than the corresponding estimate for 2019, given in the same period last year. Reduced estimates within exploration and concept studies are the main reason behind this decline. The companies’ exploration budgets for 2020 are strongly reduced since the last survey, and compared to the corresponding figure for 2019 a decline of as much as 22 per cent is indicated. This must be seen in context with the low oil price.

On the other hand, estimates both for field development and fields on stream are upward adjusted compared to the previous survey. Compared to 2019, the 2020-figures for fields on stream indicate a moderate increase, while estimates for field development show a marginal decline. This might be an indication that the companies are expecting a comprehensive tax support package to be approved in the Parliament now in June. As mentioned above, some new development projects may thus be added later this year. In isolation, these will lead to a further increase in the estimate for 2020.

The estimate for shutdown and removal is also downward adjusted compared to the previous survey. However, compared to the corresponding figure for 2019, given in the 2^nd quarter last year, the 2020-estimates show a strong increase of 15 per cent.

Seasonal adjusted increase in Q1 2020

The final investments in the 1st quarter of 2020 amounted to NOK 44.1 billion. This is 8.9 cent less than estimated in the previous quarter, and 11 per cent lower than final investments in the 4th quarter of 2019. The seasonally adjusted figures, on the other hand, show an investment increase of 2.6 per cent. Final investments in the 1st quarter of 2020 are also 16 per cent higher than the final investments in the 1st quarter of 2019.