Norwegian suppliers reduce field costs by 40%

Group aiming at exporting standardization, procurement processes

Nick Terdre
Contributing Editor

The Norne FPSO, the first for permanent production on the Norwegian shelf, is an example of Norway's capability in floating production technology. [56,675 bytes]

Norway's supply industry has achieved dramatic reductions in the cost of offshore oil and gas activities in one of the world's most demanding offshore arenas. This success can also be transferred to operations in other countries, according to the Norwegian Trade Council (NTC).

"The cost level in Norway used to be considered quite high," says Einar Risa, director of business development at the NTC. "Thanks to considerable efforts by the Norwegian oil and supply industries, through Norsok as well as by other means, we've brought it down considerably."

Norsok, a joint initiative between oil companies, suppliers and authorities, has had the effect of focusing industry's attention on cost-related questions, says Risa. It has led to radical changes in procurement procedures in line with the principles behind the European Union procurement directives.

It has also opened the way to the standardization of many products, and to greater cooperation between oil companies and the supply industry. At the same time new technology, such as the widespread use of floaters and improved drilling and subsea technology, has also stamped its mark on the economics of the sector.

"All these factors have brought costs down dramatically," says Risa. "Comparing fields today with those in the past, even just five or six years ago, we're probably talking of a cost reduction of more than 40% on a per-barrel basis. And bearing in mind that many of today's fields are looked on as marginal while those of the past were often quite the opposite, the real cost reduction is probably much more than 40%." The lead time to bring fields on stream has also been cut dramatically, by 60-70% to a period of 15-20 months.

International markets

Having sharpened its competitive edge in recent years, the Norwegian supply industry is more and more turning its attention to the international market. "There has been a quite clear increase in the number of suppliers showing an interest in exporting, and having a more realistic basis for doing so," says Risa.

The move into foreign markets is to some extent made easier by the fact that the Norwegian oil companies - Norsk Hydro, Saga, and in particular Statoil - are themselves active internationally. Moreover, there is an increasing number of oil company personnel around the world who have become familiar with the Norwegian supply industry while working in Norway.

Many of the majors have undergone formative learning experiences in developing Norway's big fields - Phillips on Ekofisk, Mobil on Statfjord, Elf on Frigg, Esso as a partner on Sleipner, Shell on Troll, and so on.

Through Norsok, the oil industry in Norway has found viable ways of doing business at a time of smaller discoveries and tighter margins. Now it has initiated a new internationalization campaign - Intsok - to widen its impact on the world market.

The export targets it has set itself - from NKr 17 billion in 1995 to NKr 25 billion in 2000 and NKr 50 billion in 2005 - are quite realistic, in Risa's view. Intsok - industry in search of more markets, as he puts it - is now in the process of identifying priority markets for the export drive.

The initiative is fully supported by the NTC, on whose scale of priorities the oil sector also ranks high. Oil and gas is one of the key sectors for which the council has developed a plan of action, and also figures prominently in the regional cooperation promotion plans for areas such as Asia and Latin America.

While providing valuable assistance to exporters, the NTC has no desire for a directing role. "These initiatives are industry based and led, and reflect its needs," says Risa. "The driving force has to be industry."