Marginal growth in oil investments for 2020

In the previous survey the companies’ investment estimates for 2020 suggested a decrease of 1.9 cent compared with the corresponding figure for 2019. As can be seen from figure 2, the estimates for 2020 are upward adjusted with 2.4 percent since the previous survey. All investment categories have been revised upwards, but it is particularly exploration and fields on stream that contribute to the overall upward adjustment.  

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.

2021-estimates moderately upward adjusted

The newest investment forecast for oil and gas extraction and pipeline transport for 2021 is estimated at NOK 148.6 billion. This is 2.1 per cent more than the previous estimate for 2021, given in the May- survey. The upward adjustment is particularly due to higher estimates within field development, but revisions within fields on stream contribute also positively. The higher estimate within field development is partly due to the delivery of a plan for development and operation (PDO) on a new development project. This project is now included in this survey.

On the other hand, the exploration estimates are sharply revised downwards since the last survey, and contribute to dampen the overall estimate increase. A possible explanation for the downward revised exploration estimates for 2021 might be that the tax support package which was adopted by the Parliament in June, has in relative terms, provided a more favourable framework for the other investment categories. Exploration activity already has favourable conditions through the reimbursement system for exploration costs. In a long term run, this might cause an investment move from exploration activity to the other investment categories. For instance, investment estimates within production drilling for 2021 have increased since the last survey. This may indicate that the oil companies are revising some of their initial plans, by moving some of their leased rigs from exploration drilling to production drilling.

Outlook for a severe fall in oil investments in 2021

Despite the upward adjustment in this survey, the investment estimate for 2021 is still as much as 15 per cent lower compared to the corresponding figure for 2020, given in the 3^rd quarter of 2019. The downturn is particularly due to lower investment activity within the categories field development and exploration and concept studies. The decline in field development must be seen in connection with the fact that some major development projects are expected to be moving into a completion phase this year and next year. However, the PDO on the development project Breidablikk is expected to be submitted to the government this autumn. This is a project that will probably have relative high investments in 2021. In addition, new PDOs for several minor development projects are also expected to be submitted in 2021. This includes Eldfisk North, Tommeliten, Frosk 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.

The estimates for exploration and concept studies also contribute to the overall investment fall in 2021 with a decline of as much as 37 per cent.

Fields on stream contribute to growth in 2020

The investments in oil and gas extraction and pipeline transport for 2020 are now estimated at NOK 184.6 billion. This is 1.6 per cent higher than the corresponding figure for 2019, given in the same period last year. The growth is particularly related to high investment activity within the category fields on stream. This increase is partly due to larger capacity expansion on some producing fields. In addition, the categories field development and shutdown and removal contribute also positively with a growth of 2 and 36 per cent respectively.

On the other hand, the exploration estimates show a severe fall of 19 per cent compared with the corresponding figure for 2019. Despite the fall, the exploration figures have been considerably revised upwards since the previous survey. In the previous survey, the exploration estimates were sharply reduced due to gloomy outlook with falling revenues as a result of the low oil price. When market conditions are poor, exploration activity is usually among the investment categories which are reduced first, since this activity is production independent in the short and medium term. Exploration drilling is by far the largest sub category within exploration activity. The upward adjustment now in the August- survey might be seen in context with the fact that the companies economic liquidity has improved as a result of the higher oil price and the government’s tax support package.

Seasonally adjusted decrease in the second quarter of 2020

The final investments in the 2^nd quarter of 2020 amounted to NOK 45 billion. This is 2 per cent higher than the final investments in the 1^st quarter. The seasonally adjusted figures, on the other hand, show an investment decrease of 8.5 per cent. The large difference in growth rates between these two figures must be seen in connection with the fact that investments tend to be clearly higher in the second quarter than in the first quarter due to seasonality.

High estimates for the second half of 2020

The investments in the first half of 2020 are 8 per cent higher than the investments in the first half of 2019.  Based on this, the outlook for an investment increase of 1.6 per cent in 2020 is realistic. Since the accrued investments in the first half of 2020 are accumulated to NOK 89.1 billion, the investments in the second half of 2020 are estimated to increase by 7 per cent, to NOK 95.5 billion. Figures from the last 19 years show that investments on average have been 10 per cent higher in the second half of the year than in the first half.

On the other hand, the figures show that in the last 19 years the estimates given in the 3rd quarter have on average been 4 per cent higher than the final investments. In only one of these years, in 2001, the final investments ended up higher than figures estimated in the 3rd quarter.

However, the development project Breidablikk is expected to be included in the next survey. If so, investment costs in 2020 from this project will increase the accumulated investments in 2020 compared to the present estimate, all other things being equal.

All this things considered, makes it plausible to believe that a greater portion than usual of the investments, which now is planned for second half of 2020, will actual be accrued in 2020. It is also within the range of possibilities that the investments will be equal to or above the estimates given in this survey.