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Springtime weather in Stavanger, Norway, during mid-May can be fickle. Highs average 55°F, and lows are around 45°F. Yet, there can be significant variations—you’re as likely to experience rain as sunshine, with 17 days recording some amount of light-to-moderate rain during all of May. The wind can be light and variable, or come howling off the North Sea, putting a chill on everyone and everything.
I just finished an eight-day visit to Stavanger, in mid-May, as a guest of the Norwegian government. The weather was exceedingly good, say the locals, with short periods of rain on just two days, and bright sunshine otherwise. The good weather serves as a metaphor for the stout health of the Norwegian upstream industry. “We’re seeing high levels of activity with regard to exploration and development,” said Bente Nyland, director general of the Norwegian Petroleum Directorate. “Activity has turned upward since the mid-2000s, when there was a dip.”
Indeed, Norway has seen a gain in the number of operators, and an increase in the rollover of offshore acreage. “The last few years, we have had several good discoveries,” added Ms. Nyland. “They will stop the decline in the oil production rate. We have replaced some of the earlier oil production with gas output, so that the split between the two, in terms of boe’s, is about half-and-half.”
Exploration has surged since 2005, peaking at a record 65 wells during 2009. Last year’s 59 exploration/appraisal wells were second only to the record and netted 20 discoveries. Included in recent good finds that the director general mentioned are Johan Sverdrup in the North Sea, and Johan Castberg in the Barents Sea. Jointly discovered, operated and under development by Statoil and Lundin Petroleum, Sverdrup is Norway’s biggest oil find in many years, and the fifth-largest on the NCS, at between 2.0 Bbbl and 3.0 Bbbl.
Operated by Statoil, Johan Castberg is the world’s northernmost oil field, about 60 mi north of Snøhvit field. Statoil has a preliminary development plan that includes a floating production vessel, a pipeline to the North Cape, and a new oil terminal. However, a final investment decision was delayed until this year and now will be delayed again, until Statoil drills two more exploration wells in fourth–quarter 2014, in an effort to boost the project’s profitability. Overall, $8.41 billion were spent last year to drill 142 development wells on producing fields, representing half of all investment on these assets.
However, just like that wind blowing in off the North Sea, there is one concern that both government and companies agree could chill Norway’s rosy outlook—cost. “There is no doubt that cost poses a challenge, both for developing discoveries and for projects that can increase recovery from a field,” said Ms. Nyland. “For example, drilling costs have more than doubled during the last 10 years,” she explained. “Day rates are running between $500,000 and $650,000. This cost growth could threaten the profitability of future projects.” Fortunately, officials and companies, alike, recognize the problem and are beginning to look for ways to solve it.
Mirroring Norway’s recent E&P growth, Stavanger’s population has increased, growing from about 123,000 in 2010, to more than 130,000 currently. In the Stavanger metro area, population has exceeded 350,000 and is climbing toward 400,000, including 3,000 expats. Not surprisingly, Stavanger’s cost of living has marched steadily upward. Look for more about Norway’s E&P in an article authored by yours truly in the July issue of World Oil. There will be additional articles on specific Norwegian topics in later months.
Houston’s growing pains. Much like Stavanger, Houston’s cost of living is going up, due mostly to rapid growth. Thanks to high E&P activity levels over the last dozen years, Houston is experiencing a building boom that was unimaginable just 10 years ago. High-rise office and condominium towers are sprouting up everywhere, as are four-and-five-story, gargantuan, luxury apartment complexes, both inside and outside the Interstate 610 Loop. That’s all well and good, but conditions were already crowded inside the Loop, and one can only shudder at the worsening traffic congestion and inevitable gridlock.
Yet, neither city officials, nor their counterparts in Harris County, seem to be doing much to address the situation within the city by widening roads, and/or proposing and building additional mass transit projects. Instead, the city’s various civic leaders are busying themselves with feel-good projects, such as the $58-million aesthetic/recreational enhancement of Buffalo Bayou, which includes improved landscaping and the building of new trails, sidewalks and pedestrian bridges. That bayou project also includes the “Lunar Lighting Cycle,” whereby lights “transition from white, to blue, to white as the moon waxes, wanes, and waxes again.” Really?
Meanwhile, the Greater Houston Partnership (GHP) continues to blissfully extol to the rest of the U.S., the advantages of moving to, and living in, Houston. In fact, the GHP just launched a new image campaign entitled, “Houston: The City With No Limits.” So, people are pouring in from California, Illinois, New York, Florida, etc., yet the infrastructure can’t keep up with all the extra population.
By the same token, if U.S. oil production growth continues its current pace, we could see too much crude on the global market. If that happens, there could be a swift oil price reduction, and Houston’s building boom would come to a screeching halt, leaving us, once again, with too much capacity and shrinking real estate values (some of us remember the consequences of the 1986 oil price collapse). Yet, no one in Houston is talking about this potential problem, either. It’s not too late for officials to address these scenarios—all the GHP window dressing won’t mean a thing, if you can’t get from Point A to Point B in a reasonable amount of time. 
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