with Peter Helmer Steen, CEO, Nordsøfonden
Nordsøfonden (NSF) was founded in 2005. Why did it happen at that point in time and how is the role of the NSF as an NOC different from the one that Dong fulfilled until then?
After Maersk’s relinquishment of the majority of the Sole Concession, the Danish Government decided that Denmark should have State participation in all new licenses as was the case in the other North Sea countries Norway, England and Netherlands. Dong handled the State participation from the first licensing round in 1984 until 2004. In 2004 it was decided that Dong should be able to go abroad, have private capital and be stock exchange listed similar to Statoil in Norway. Therefore Dong could not continue to be the state participant and NSF was formed as the new state participant, based on the Norwegian Petoro model. This lead to a new type of state participation in Denmark with NSF as active State partner. Since 2005 NSF has participated in all new licenses in the Danish sector with a 20 % interest.
Mr. Pedersen, the CEO of Petoro, told Focus Reports in a recent interview that ‘we want to be an industrial partner, not a political animal or company being run on a different basis to that of the rest of the industry.’ How do you want to be perceived by the industry?
We participate as a commercial partner; we are not an authority. Our task is simple: to produce as much oil & gas as possible from the Danish continental shelf and we have formulated different ways in which we can add value to the existing operations in Denmark.
One of the ways to add value is indeed through increasing the recovery from the oil and gas fields. On July 9, 2012, we became a 20% shareholder in the DUC, which overnight made us the third-largest oil producer in Denmark. This was a great opportunity, but also a challenge.
The target and the task for us in the DUC is to ensure that the three traditional partners – Shell, Chevron and Maersk – constantly focus on enhanced recovery of these fields. Extending the license with another 30 years was actually explicitly connected to the condition that an extra effort for exploration and production should take place.
NSF focuses on increased recovery, and there is good economic sense in doing so: the bigger the cake, the better for everyone.
That requires first of all good, clever, experienced people. We are talking about a need for investments in extraction methods for the unique conditions of these chalk fields, and it is a challenge to get the people with the right expertise.
Over the past years a strong focus has developed among the DUC partners on implementing innovation to ensure that the long horizontal wells needed on the Danish Continental Shelf are becoming cheaper and easier to realize, and the NSF strongly supports this focus. There is a lot of potential in the completion of these wells in very tight chalk, so innovation and research development has a high degree of interest in the group. Luckily, Shell and Chevron are showing continued interest to provide good people into the collaboration with Maersk Oil, the operator in the partnership.
What are your expectations for the 7th licensing round?
My expectations are high. A lot of good, new data has been developed in the last years. The 6th licensing round took place as long ago as 2006, and data collected since indicates that there is a lot of oil left in the Danish subsoil. It is not easy oil, but very interesting nonetheless.
The source-rock found in the Danish North Sea is of a good and productive type, and it contains vast amounts of oil. If we can produce just one percent of the oil in the source-rock, it will represent three times as much as we have produced so far in Denmark. If new or enhanced techniques could be developed, it would become very interesting.
Denmark has been known for many years as a chalk reservoir. Therefore much of the seismic investigation has been targeted to chalk. The other layers have not been targeted that much, which perhaps has led some opportunities to stay below the radar until now.
We have already in the 6th round made some interesting discoveries in other geological layers, which can be put into production.
The fact that Denmark has never had ‘easy oil’ led the Danish oil & gas industry to develop a cost-efficient and innovative reputation. Could you outline to our international readership, what the rest of the world can learn from Denmark, also taking into account the industry’s move into more challenging and remote conditions?
The techniques used in the production from tight reservoirs have for an important part been developed in Denmark. Many of these new techniques have been developed or improved by Maersk, Shell and Chevron, and Danish companies have been a part of this and gained a reputation for this.
A great example is the Danish company Welltec that has looked at ways to decrease the costs of wells. If we wish to produce more than the current percentage, we need to keep costs low in all aspects of drilling, and the completion techniques that Welltec is working with could be a possible cost reduction in the completion of these wells.
Such innovations are a great Danish contribution to the international oil & gas industry.
Speaking more broadly about contributions towards development of the DCS, what do you envision NSF, as the still relatively new NOC, to contribute in the next 5 to 10 years, and beyond?
Our core strategy is to increase recovery from the Danish chalk fields, to facilitate research & development, and try to utilize our unique role as partner in all licenses.
We are the only company with a stake in all licenses, so we know everything that is going on, on both the technical and the commercial side.
Of course we are not allowed to pass data from one license to another, but we have experienced that due to our extensive knowledge the operator values our in-put. We often put in more weight than our 20 percent.
We have a great role to play on the Danish Continental Shelf. NSF has been pushing for two multi-client research projects – one of which is on the Jurassic side. In this project, GEUS is undertaking a multi-client regional mapping of the Jurassic that is showing some very good results already.
The NSF has also been pushing for the joint chalk research program, in which ten companies from Norway and Denmark are pooling their resources and focus on research and development projects that are looking into the production from chalk fields. Norwegian operators are now testing completion methods that provide a much cheaper and more efficient fracking method in these chalk fields.
In all our licenses we focus a lot on the start-up process of the project and make sure that there are good, capable people to contribute to the development of a discovery. It is crucial to us to make an extra effort in the front end of the project to create more value and increased recovery later on.
Our third task is to create interest in some of the new types of prospects and possibilities in Denmark. We have actually drilled new wells that led to some interesting conclusions.
Onshore, in the southern part of Jutland for instance we have located prospects that are very much like the ones in Poland and in Germany, and actually we drilled a beautiful structure. We discovered gas, but unfortunately it was 95 percent nitrogen, making it not very interesting commercially. But it shows that there are possibilities even onshore, and there are small companies who like to look for these developments.
Crucial for oil & gas investors, especially with regards to the mature Danish oil fields where extraction is challenging, are stable framework conditions – not just today, but for decades to come. Revision of the 2003 North Sea Agreement with Maersk could be considered controversial – does DK offer stable framework conditions today?
When governments grant a concession, it means that a contract is set up between a company and the government, and the company has to fulfill a work program. If they fulfill this work program, they are allowed to continue working under the concession. But oil companies do not accept to invest large sums of money in these projects if there is a risk of unstable framework conditions.
The government has just finalized the Service Check on the 2003 North Sea agreement, and has concluded that the agreed economic conditions in the North Sea Agreement are both well balanced and durable. This means that we now have broad political support to the framework conditions that lies within the North Sea Agreement, which can be the basis of increased exploration and production in the future.
As a part of the Service Check the Government and the DUC has made a common agreement that among other things focuses on a strategic collaboration between the Government and the oil and gas industry to optimize oil and gas recovery in the Danish North Sea. As a part of this strategic collaboration the DUC partners have declared themselves ready to establish and finance a research center that will work to improve the Danish production to the benefit for both the Danish State and the oil and gas companies. NSF is very pleased with the agreements focus on development, innovation and research. Also because it is important to show the youth in Denmark that the oil and gas industry offers beautiful career perspectives in terms of professional challenges, cutting edge technical developments, investments in research and development, pay, international possibilities etc..
How do you see a sustainable oil & gas industry in connection with the planned Danish green transition?
In Denmark we are talking so much about the green transition that some people tend to think that we have already realized the green future, and that there is no need to invest in exploration and production of oil and gas.
But we are not there yet and it is crucial that we keep investing in the Danish oil and gas industry both in terms of Danish security of supply and Danish economy. It is also important to stress that the utilization of e.g. Danish gas resources is not in conflict with the green transition. Natural gas can play a useful role in the green transition as a transition fuel with a lower CO2 content. At the same time the production of oil and gas can contribute to financing the green transition in Denmark.