SPE 109057

Exploration Performance of Northwest Europe

Rhodri Thomas, Wood Mackenzie

Copyright 2007, Society of Petroleum Engineers

This paper was prepared for presentation at Offshore Europe 2007 held in Aberdeen,
Scotland, U.K., 47 September 2007.
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Abstract
Despite having been explored for over 40 years, 3.6 billion
barrels of oil equivalent have been discovered in the last five
years in north west Europe. On average US$2.4 was spent on
exploration for each barrel found in the offshore region. This
unit finding cost is comparable to that in the deepwater Gulf of
Mexico over the same period, one of the global hotspots for
exploration.
The largest volumes of reserves were found in Mid Norway
where 1 billion barrels of oil equivalent has been discovered in
the last five years. Despite this apparent success, only one of
the 11 fields found in the sector is currently expected to be
developed before 2012. Gas export capacity from the region
remains an issue.
The North Sea itself attracted 75% of the exploration
expenditure over the last five years and 2 bn boe of reserves
were discovered. Finding costs ranged between US$2.5/boe
for the Norwegian North Sea to US$3.5/boe for the UK
Southern Gas Basin. Although significantly higher than the
US$1.5/boe unit finding costs in Mid Norway, over 50% of
these reserves are expected to be developed within five years.
Industry cost inflation and lower discovery sizes have resulted
in the finding costs of the last five years doubling from the
previous five. However, with a record number of exploration
licences being held, US$2.5 billion being spent on exploration
last year and substantial finds still being made, there will be
many more exploration success stories to come in the region.
Introduction
The offshore regions of north west Europe have been explored
for more than 40 years, over which time 4,000 exploration
wells have been drilled. The core areas of the North Sea in
particular, have undergone intensive exploration with 30
exploration wells drilled on some blocks. Unsurprisingly the
average size of new discoveries has reduced since the early
days and in the late 1990s and early part of this decade there
was a significant drop in the number of wells drilled in the

region. The dramatic drop in oil price and the mega-mergers

at that time caused companies to rethink their global
exploration strategies and the perception of the North Sea as a
mature province, coupled with the opening up of new global
provinces, resulted in a smaller proportion of exploration
budgets being allocated to the sector.
More recently interest in north west Europe exploration has
returned and the number of companies holding licences in the
region has risen by 50% since 2002, from 163 to 248. This
has been driven primarily by the increase in oil and gas prices,
but has also been encouraged by fiscal incentives, regulatory
changes plus a number of high profile discoveries. Countries
and regions are effectively competing for exploration spend.
Overall, north west Europe has been successful over the last
five years in attracting exploration investment despite global
cost inflation and a reduction in the volume of reserves
discovered.
North west Europe offers a wide spectrum of exploration
drilling opportunities from frontier regions such as the Barents
Sea, to step out wells from existing developments. Recent
exploration wells have been drilled in water depths ranging
from 20 metres to nearly 2 kilometres. In addition, new play
concepts are still being tested and technology is constantly
being pushed. Notably, major steps forward have been made
in high pressure / high temperature (HP/HT) drilling.
Methodology
The numbers in this paper are based on Wood Mackenzies
upstream database. The information is collated from a range
of public domain sources plus feedback from operators and
participants across the North Sea. The final numbers that are
in the database are Wood Mackenzies view based on analysis
of the information that was available. Well cost data is based
on estimated costs per well which has been compared to
reported government and company figures in each country or
region. Wood Mackenzies global well cost database includes
190 countries where any significant exploration has taken
place. The only notable provinces excluded are the onshore
US, the US Gulf Shelf and Eastern Europe.
Our reserve figures are estimates of proven plus probable
recoverable reserves.
These are split into commercial
reserves, defined as reserves already onstream or where there
are firm plans for development and we expect work to
commence within five years, and technical reserves where no
firm plans exist or issues remain that mean development is
unlikely to start within five years. Estimates of recoverable
reserves associated with technical reserves are necessarily
tentative given the often limited understanding of the
discoveries. Unless otherwise stated the reserves estimates

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SPE 109057

referred to in this paper include both technical and commercial

reserves.
For the purposes of this paper offshore north west Europe is
defined as the offshore regions of Denmark, The Netherlands,
Norway and the UK.
Exploration Spend
In 1997 north west Europe attracted over one quarter of global
exploration spend. This proportion dropped dramatically over
the subsequent five years as companies re-evaluated their
global exploration strategies in the wake of the oil price crash
of the late 1990s and the mega-mergers. For example BP
(incl. Amoco and ARCO) was involved in 24 exploration
wells in north west Europe in 1997. This compares to just
three in 2002.
North west Europe was not the only traditional oil producing
region to suffer from a reduction in exploration over this
period. Global exploration spend dropped from nearly US$14
billion in 1998 to around US$10 billion in 2000 and only
really began to maintain a sustained recovery from 2003 as the
oil price began to increase. At the same time exploration was
ramped up in new frontier areas. This was most notable in the
new deepwater plays, in particular, the deepwater Gulf of
Mexico where exploration spend more than doubled from
1997 to 2002.
Figure 1: Exploration Spend in North West Europe
by Year and Proportion of Global Exploration Spend

As the oil price began to increase from 2002 exploration

activity began to pick up both in north west Europe and across
the globe. This was facilitated by the completion of the main
mega-mergers and the drive by companies to replace reserves.
During this period the percentage of global exploration spend
in the region stabilised and has in fact under gone a slight
recovery.
The focus of recent exploration drilling has remained on the
North Sea. In particular the Central North Sea and Northern
North Sea have attracted the most attention with 50% of all
exploration expenditure directed at this area. The southern
North Sea gas basin attracted just 20% of expenditure which is
partially a result of the lower well costs in the area.
Although often high profile, the Atlantic Margin has attracted
only a quarter of exploration expenditure. The significant
number of exploration successes in Mid Norway over the
period have encouraged companies to continue investing in
this area. The limited expenditure in the UK Atlantic Margin
highlights difference in opinion over the future prospectivity
of the region. Some companies have continued to explore
over the last few years including Chevron and Statoil, whilst
others have reigned in exploration expenditure in the area.
Overall, the UK and Norway have attracted a similar level of
exploration expenditure over the last five years (US$3.5
billion each) and represent 80% of the exploration spend
offshore north west Europe. The UK is often considered more
mature than Norway, but with a greater number of companies
present, lower fiscal terms and a more open business
environment, it has successfully competed for spend.

mmboe
3,500

30%

3,000

25%

2,500

20%

2,000
15%
1,500
10%

1,000

5%

500
0

0%
1997

1999

2001

NW Europe Exp Costs

2003

2005

% of Global Exp Costs

Figure 2: Exploration Spend 2002 to 2006 Split by

Sector

Volumes discovered
Over the period 1997 to 2006 we estimate recoverable
reserves of 13 billion barrels of oil equivalent (bnboe) were
discovered offshore in north west Europe (technical and
commercial). The volume of reserves discovered each year
has trended down over time (figure 3) with 70% of the
reserves discovered in the first five years. This includes the
giant Ormen Lange gas field discovered in 1997 that is
estimated to have recoverable reserves of 2.6 billion barrels of
oil equivalent.
Figure 3: Proven plus Probable Recoverable
Reserves Discovered in North West Europe by Year
mmboe
(4369)

UK-CNS/NNS
30%

1,600

Mid Norw ay
18%

Norw ay-CNS/NNS
19%

1,200

800

400

0
UK-Atlantic Margin
Barents Sea
3%
4%

Denmark
5%

UK-SGB
8%

Netherlands
13%

1997

1999

2001

Reserves Discovered

Exploration Spend 2002-2006 = US$8.5 billion

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2003
3 yr Rolling Average

2005

SPE 109057

Figure 4: Proven plus Probable Recoverable

Reserves Discovered 2002 to 2006 by Sector
Mid Norw ay
27%

Denmark
1%
UK-SGB
5%

UK-NNS/CNS
23%

UK-Atlantic Margin
8%

Norw ay-NNS/CNS
18%

Barents Sea
9%

Netherlds
9%

Total Reserves Discovered = 3.6 bnboe

Although no discoveries of the size of Ormen Lange have

been made over the last five years, an estimated 1 bnboe of
recoverable reserves have been discovered in Mid Norway.
This is made up of 11 fields averaging 90 million barrels of oil
equivalent (mmboe) each. 70% of these reserves are gas,
which has been challenging to develop given the remote
location of the region and the limited export infrastructure.
There remains considerable potential in Mid Norway and large
areas are unexplored. As a result, interest in this region is
expected to continue despite the challenges of developing
fields.

Finding costs
The overall finding cost per barrel in the offshore north west
Europe region has been US$2.4/bbl over the last five years,
double the US$1.1/bbl of the previous five years. The finding
costs of 1997 to 2001 period was positively impacted by the
discovery of Ormen Lange but, as shown in figure 5, the per
barrel costs for 1999, 2000 and 2001 were also substantially
below those of 2002 to 2006.
The increase in finding costs has been due to the drop in the
volume of reserves discovered per well which has occurred at
the same time as an increase in costs. Between 1997 and
2001, 415 wells were drilled in the region with average
reserves discovered per well of 22 mmboe. Between 2002 and
2006 only 296 wells were drilled and the average reserves
dropped to just 12 mmboe per well.
Costs have increased substantially across the oil industry over
the last few years and in particular rig rates have risen
dramatically. For example the day rate for a standard jack-up
rig in the UK was around US$50,000/day in 2003. In 2006 the
day rate for a similar rig had risen to US$200,000/day. Of
course the rise in oil price has meant that despite the increase
in costs, exploration activity has increased over recent years
and, as highlighted earlier, the number of companies with
acreage in the region is at record levels.
Figure 5: Finding Costs for Proven plus Probable
Recoverable Reserves (Commercial and Technical)
by Year
US$/boe

The Central North Sea and Northern North Sea accounted for
an estimated 41%, or 1.5 bnboe, of the recoverable reserves
discovered in the last five years. Unsurprisingly given the
maturity of the region the average size of 30 mmboe
was significantly lower than Mid Norway. Notable areas of
success include the high pressure / high temperature prone
region of the UK Central North Sea where the Jasmine,
Jackdaw and West Franklin discoveries were made. These
fields have estimated recoverable reserves totalling 260
mmboe with further potential upside. Total also added
significant reserves in its prolific Alwyn Area in the UK with
the Forvie North and Jura West discoveries.
In the Norwegian North Sea, ExxonMobil and Marathon have
both had success in their operated Ringhorne and Alvheim
areas in the last five years, and eight new satellite, or potential
satellite fields, have been discovered around the Gullfaks area.
Also of note is the Norsk Hydro-operated Peon gas discovery
which is estimated to contain recoverable reserves of 130
mmboe and proved up a new play. The field is located in a
Pliocene reservoir at a depth of just 165 metres below the
seabed.
The reserves in the Barents Sea and the UK Atlantic Margin
are dominated by two discoveries, Goliat and Rosebank. With
recoverable reserve estimates of 400 million barrels and 250
million barrels respectively these finds have attracted a lot of
attention and re-invigorated interest in these frontier areas.

4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1997

1999

2001

2003

2005

North West Europe

NW Europe 3 yr Rolling Av.

GoM (Deepw ater)

Rest of World (Deepw ater)

Also shown in figure 5 for comparison are the finding costs

for reserves in the deepwater Gulf of Mexico and also other
deepwater provinces around the world. Figure 5 highlights
that on a unit finding costs metric Europe has been
competitive with the deepwater Gulf of Mexico. Clearly it is
not only finding costs that matter in measuring the
attractiveness of a region for exploration, the reserves need to
be developed and produced. Other deepwater provinces may
have much lower finding costs but developing reserves in
these regions can be challenging.
Finding costs within north west Europe vary significantly by
sector as shown in figure 6. In Denmark only two discoveries
were made between 2002 and 2006 with total recoverable
reserves of 25 mmboe despite an estimated US$405 million
being spent on exploration over this period.
Mid Morway looks an attractive exploration province based on
finding costs of US$1.5/boe, reserves discovered of 1 bnboe,
and an average field size of 90 mmboe. However, as

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SPE 109057

highlighted in figure 7 the challenge is bringing the fields

forward for development. We only currently classify one of
the discoveries in the last five years (Str) as commercial. We
do anticipate that more of the recent discoveries will be
developed in time but the limited gas export capacity from the
sector is like to delay development of these discoveries for
another ten years.
The recent success in the Barents Sea and UK Atlantic Margin
is highlighted in figure 4. Despite limited exploration spend in
the region significant reserves have been discovered albeit in
two main fields Goliat and Rosebank. Development of both
of these fields is expected to commence within five years.
The finding costs in the UK southern gas basin and The
Netherlands at over US$3/bbl are amongst the highest in the
region. Despite this, a high percentage of the reserves
discovered have been developed and often at lower costs,
helped by the shallower water and extensive existing
infrastructure.
In addition, the presence of significant
infrastructure and the well understood geology mean fields are
often developed rapidly post discovery. This has ensured that
companies have had considerable success in exploring across
the southern North Sea and continue to invest in the area.

Conclusion
North west Europe remains an attractive place to explore with
3.6 bnboe discovered at a unit cost of US$2.4/bbl over the last
five years. The unit costs have more than doubled from
US$1.1/boe over the previous five years, but with the oil price
at historical high levels, the region is attracting record interest.
The US$8.5 billion spent on exploration over the last five
years has been spread across the region from the mature areas
of the North Sea to the frontier areas of the Atlantic Margin.
There have been notable successes in most of the sectors and
significant reserve additions. Only Denmark stands out as an
area where little reserves have been added for the exploration
effort. The lowest unit finding costs have been in the frontier
areas of the Atlantic Margin but as the example of Mid
Norway highlights, it is in these regions where the biggest
development challenges often exists.
In the Central North Sea and Northern North Sea drilling has
ranged from near field exploration, through technically
challenging HP/HT wells, to testing new play concepts. The
US$4 billion invested in this area over the last five years
highlights the ongoing enthusiasm for exploration even after
40 years, and the 1.5 bnboe of recoverable reserves discovered
underlines that there are still plenty of successes to come.

Figure 6: Finding Costs for Proven plus Probable

Recoverable Reserves (Commercial and Technical)
by Sector 2002 - 2006
US$/boe
16.5

4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5

M
ar
gi
n

Se
a
U

KAt
la
nt
ic

Ba
re
nt
s

M
id

ay
-C
N

N
or
w

S/
N
N

ay

S
S/
N
N
N
or
w

KC
N

et
he
rla
nd
s
N

U
KSG

en
m
ar
k

0.0

Figure 7: Split of Discovered Reserves by Status and

Sector
100%
80%
60%
40%
20%

Commercial reserves

Ba
re
nt
s

ay
N
or
w
M
id

Se
U
Ka
At
la
nt
ic
M
ar
gi
n

or
w

ay
-N
N

S/
C
N

S
S/
C
N
KN
N

et
he
rla
nd
s
N

B
U
KSG

en
m
ar
k

0%

Technical Reserves

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