Downward adjusted estimates in oil investments for 2017

The oil companies’ latest estimates for 2017 show that oil investments are expected to amount to NOK 150.8 billion. This is 11.4 per cent lower than the corresponding figure for 2016 given in the 4th quarter of 2016. The decline is higher than indicated in the previous survey, which showed a 7.1 per cent decrease. The steeper decline indicated now is due to a downward adjusted estimate for 2017 and an upward adjusted estimate for 2016 given in the corresponding surveys last year.

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.

Upward adjusted estimate for 2018

The investments in oil and gas extraction and pipeline transport for 2018 are estimated at NOK 144.3 billion. This is 1.8 per cent higher than the estimate given in the previous quarter. Higher figures within fields on stream and field development more than offset the negative contribution from lower estimates within exploration and shutdown and removal.

The higher estimate within field development is not due to inclusion of new development projects. In the statistics on investments within oil and gas development, projects are first included when a plan for development and operation (PDO) is submitted to the government. No new PDOs have been submitted since the previous survey in August. PDOs are expected to be submitted for several development projects before the next survey in February next year. These are Johan Castberg, Snorre Expansion, Valhall Vestflanke, Storklakken, Snadd, Fenja, Yme and Skarfjell. Some other PDO applications are also expected to be submitted later in 2018, including Johan Sverdrup phase 2. If the schedules for these plans are realised, the accumulated investment costs in 2018 from these projects will increase the investments significantly in field development, compared to the present estimate.

The estimate for 2018 is 1.6 per cent lower than the corresponding estimate for 2017 given in the 4th quarter of 2016. This is a lower decrease than indicated in the previous survey, while the estimates showed a decrease of 6.9 per cent compared to the estimate for 2017 given in the 3rd quarter of 2016. The current lower decline is due to the upward adjusted estimate for 2018 now and a downward adjusted estimate for 2017 given in the corresponding survey last year.

The estimated decrease from 2017 to 2018 is due to lower investments within the categories field development, onshore activity and pipeline transportation. The estimates for exploration, fields on stream and shutdown and removal have the opposite path, and show an increase compared to the corresponding estimates given for 2017.

¹The contribution by cost category is calculated by multiplying the percentage change of the category with the category's share of investments in extraction and pipeline transport.

The estimates within field development show a 41 per cent decrease for the subcategory commodities and an increase of 85 per cent for the subcategory services from 2017 to 2018. The divergent development for these subcategories from 2017 to 2018 is partly due to the fact that few big development projects have been included in the survey in recent years. In addition, many field developments are approaching their completion date. Investments in field developments are usually commodity-intensive in the first part of the development, and more service-intensive in the later phase of the development. There is reason to believe that the investments in commodities for 2018 will increase substantially when and if new development projects are included in the survey.

Lower estimate for 2017

The investments in oil and gas extraction and pipeline transport for 2017 are estimated at NOK 150.8 billion, which is 3.1 per cent lower than estimated in the previous quarter. The decrease is driven by a sharp decrease in field development. Some of the decrease in field development from the previous survey is caused by a field that has reached the producing phase transferring from the category field development to the category fields on stream. For field in total, field development and fields on stream, the estimate for 2017 is 4.1 per cent lower than the estimate given for 2017 in the previous survey. At the same time, the estimate for field in total for 2018 has increased by 4 per cent from the previous survey. The simultaneous decrease and increase in the field estimate for 2017 and 2018, respectively, is partly because the operators, at this stage, realise that they will not be able to carry out all the investment they have planned for the present year. Some of the investment plans are therefore transferred from 2017 to 2018.

The estimate for 2017 is 11.4 per cent lower than the corresponding estimate for 2016 given in the 4th quarter of 2016. All the categories within oil and gas extraction show a decrease. Only pipeline transportation shows a moderate increase compared to the corresponding estimate given for 2016. Because of the great changes in the oil and gas sector due to the lower oil prices in recent years, there is reason to believe that the prices of important input factors in the sector have also been significantly reduced from 2016 to 2017. Therefore, the decrease in fixed capital investments in 2017 is probably lower than the nominal decrease indicated in this survey.

¹The contribution by cost category is calculated by multiplying the percentage change of the category with the category's share of investments in extraction and pipeline transport.

Lower investment activity in the 3rd quarter

While the accrued investment costs increased by 10.5 per cent to NOK 39.4 billion from the 1st to the 2nd quarter, the accrued costs decreased by 11.4 per cent to NOK 34.9 billion in the 3rd quarter. This is NOK 6 billion less than estimated for the 3rd quarter in the previous survey. Some of this is moved to the 4th quarter, while most of these planned investments are postponed to 2018 or later. The realisation of the present estimate for 2017 assumes NOK 40.9 billion in investment in the 4th quarter of 2017.