Serial development with leased facilities proposed for small Norway developments

Aug. 1, 2000
Low risk, but not optimal drainage

The Glitne Field in the Norwegian sector, which Statoil applied to develop in mid-year, should be the first in a series of profitable small field developments. Statoil has a portfolio of small fields in the southern Viking Graben - the region between Sleipner and Heimdal in the west of the Norwegian North Sea - which it aims to develop in a coordinated fashion.

They share a number of common features - reserves of black oil with a low gas content, good reservoir quality, low reservoir risk, and assurance of a good production rate over a reasonable period.

Norway has a significant volume of discovered resources in small finds. Though attention on the country's continental shelf is mainly focused on the development of sizeable fields and the efforts to find more, sooner or later the question of how the small finds are to be developed has to be tackled. Statoil's success in the Viking Graben South could prove a ground-breaking experience. The issue is also one which concerns authorities, and the oil and energy ministry is preparing a small field initiative.

"Statoil sees this as a part of the reality on the Norwegian continental shelf," says Tim Dodson, Vice President in the Troll/Sleipner core area. "There's a lot of resources tied up in small prospects, and the authorities are concerned about whether these will get developed. So it's a question now of who is going to grasp the challenge."

Glitne was originally conceived as part of a Sleipner area oil project, to be developed in conjunction with reserves at Volve and Sleipner West, using the Sleipner infrastructure. But the synergies made available by using the Sleipner infrastructure turned out to be less than expected and the project was unable to demonstrate good enough economy, says Dodson.

But Glitne was not long left on the sidelines. A proposal was put to Statoil to develop the field using leased facilities. The company liked the idea and has now negotiated a contract with Petroleum Geo-Services to use the Petrojarl 1 production ship. It aims to bring the field on stream in July 2001 and keep production going for about 26 months. For the first 15 months or so, production will be maintained at a peak of around 40,000 b/d, after which it is expected to gradually decline to around 16,000 b/d when the field will be shut in.

Not optimal drainage

PGS production ship Petrojarl 1 will produce Statoil's Glitne Field under lease, starting in July 2001.
Click here to enlarge image

"One thing that we have to accept is that there won't be optimal drainage," says Dodson. "Glitne's technically recoverable reserves are about 36 million bbl, but economically we can only aim to recover around 25 million bbl. That represents recovery of 30-35% of in-place reserves. To put it into perspective, the alternative may be to recover nothing."

The proposed scheme allows Glitne to be profitably developed, and is economically robust against an oil price much lower than that of recent months. But profitability can be enhanced if a series of fields can be developed. This would allow re-use of the same equipment under the same or similar contract terms. It would also bring into play a learning experience which would bring advantages - for example, if the rig contractor has a series of similar wells to drill, it should be able to deliver productivity gains. Statoil has an option to extend the PGS contract beyond Glitne.

Volve is a candidate to be developed as the second field in the series. With its potential 35 million bbl in recoverable reserves, putting Glitne and Volve together would make a combined six-year project recovering some 60 million bbl, with an increased net present value.

One of the critical factors in making the strategy work is the need for partnerships willing to become involved in small field development - some majors have declared their intention of focusing their efforts solely on larger fields. Hence, an important step in implementing the small field strategy will be a process of portfolio alignment, in which the licensees uninterested in becoming involved make way for others willing to engage in this form of development.

Therefore, Statoil was pleased to agree to sell 10% of its Glitne stake to DNO, which has declared its interest in small field and tail-end production. In mid-year, this deal was still awaiting government approval. In addition to the State's direct financial interest, the other licensees in Glitne are Norsk Hydro and TotalFinaElf, both of which are also licensees in several of the other small fields which make up the Viking Graben South portfolio. Whether they want to become involved in the strategy remains to be seen.

Small upfront investment

One advantage of the strategy at least is that for the licensees, it calls for a relatively small upfront investment. Capital investment for Glitne is only NKr 800 million. On the other hand the operating costs in the form of the lease payment are relatively high, but, if all goes according to plan, these will be adequately covered by the income from production. "We expect to get a positive payback on small projects in a short period," says Dodson. "In fact, we may get a very beneficial cash flow."

Most of the upfront investment is related to drilling, and it is here that the greatest risk lies. If a well does not come in as planned, there is not much chance to correct matters, Dodson points out.

Meanwhile, Dodson says that some of the fields have upside potential, either in themselves or in the shape of nearby prospects. One of the finds is too small to justify development on its own, but a nearby prospect could provide sufficient additional reserves to go ahead. So, the strategy will also involve some exploration drilling, and here Dodson envisages simple and inexpensive wells which can be drilled in 10-15 days.

Technology development is another relevant parameter. Assuming subsea processing proves viable, it will in the future be possible to use it in conjunction with a simplified floating production, storage, and offloading (FPSO) vessel. This will mean both reduced leasing costs for the vessel and longer potential tieback distances, bringing currently remote fields within the envelope of commercial development.