Economy news: Hunting for opportunities

In Finansavisen’s “Economy News”, CEO Sidsel Lindsø talked to reporter Marius Lorentzen about her concerns regarding the low levels of more courageous exploration in a situation with the European energy crisis.

We have transcribed and translated the interview for our English speaking readers below:

Marius Lorentzen (ML): Today’s guest will perhaps help us gain some new perspectives on the energy crisis. This week we have seen the German authorities step in with tens of billions to save Uniper, and we all see how good times are for the Norwegian oil and gas industry. Sidsel Lindsø, geologist, founder, and CEO of ExploCrowd. Welcome!

Sidsel Lindsø (SL): Thank you very much.

ML: You are Danish, but the company is based in Stavanger?

SL: Stavanger based, yes. I apologise for my Norwegian not being as sound as one would like.

ML: Not a problem. Among other things, you have worked at Noreco, and six years ago you started this company, a kind of consulting house for exploration departments, oil companies?

SL: That is correct. We contribute when different companies see a business opportunity where they have to move quickly, or when they need expertise they don’t have in-house, or elsewhere our contribution is needed.

ML: So, if an oil company gets an offer to buy a discovery or a license, they can call you to get help to find out what they hope to get out of that discovery, perhaps?

SL: Right, we have contributed to that. We also contribute within normal exploration, APA applications, and the latest now being CO2 storage capacity where we help some companies with the need to move quite quickly. And it’s going very, very fast [in that business] at the moment, so our contribution is needed.

About the CCS business

ML: Yes, let’s dwell on that before we talk about oil and gas, so carbon capture. At ONS, Northern Lights partners Total, Shell and Equinor were delighted to have signed Yara as their first commercial customer, who will send a lot of carbon up from the Netherlands to the Norwegian continental shelf starting 2025. And just now, we heard that the UK has received 26 applications from 19 companies for carbon capture from 2027 on the British shelf. As someone who actually help these companies to find out where they can store [carbon] and which licenses and formations can take what, how high is the activity levels now? It’s sort of entering a new chapter, it’s starting to become a bit more tangible and commercial now, isn’t it?

SL: What is happening is that [companies] are developing a business case. It is still not in place, but the momentum is there. And as Equinor mentioned at a conference; those who own the underground are the ones who [will] profit from CO2 storage.

ML: That’s where the margins will be?

SL: Yes, and this is what we see [happening] now; the authorities have made the necessary arrangements and the companies are moving very quickly now. And those who come in late, they understand that they are late, and then it’s all about moving very quickly.

ML: So those who are not in the game [by now], the start to panic a little or getting a hurry on?

SL: Yes, they understand that it takes extra effort and that when you are late to the game, there are consequences.

ML: But is [carbon capture] most interesting in the southern parts of the North Sea, [where one is] as close as possible to Europe?

SL: It depends on whether you want to have a pipeline or shuttle tankers. With shuttle tankers you have more flexibility, but there are also some technical complications in keeping a steady flow going with CO2 injection. And then there is … So, Norway is very well placed, positioned, because of the underground expertise from oil and gas. It is a 99 percent directly transferable expertise. We just need a little more reservoir engineering.

ML: We can have the same oil directorate, the same oil company – pretty much the whole apparatus can just go along?

SL: Correct. And what is [also] interesting, is that Norway focuses on virgin reservoirs, while the Netherlands and Denmark and the UK focus on reuse of infrastructure, existing infrastructure from [oil and gas] fields. A lot of it is at the experimental stage, so it is a very immature child you are dealing with, and there will be quite a few things to discover. Among other things, the CO2 corrodes the steel that is already in the ground, and also the cement. So, when you go in and look at the wells that have been drilled and perforate the top seal, there is a real risk of getting seeps of CO2 to the surface.

ML: So, what is being done on the Norwegian continental shelf, with new virgin reservoirs, is actually a safer and simpler process as such [rather than using existing depleted oil and gas fields]?

SL: I would think so.

About the energy crisis

ML: Let’s move on to the energy crisis. All this CO2 coming from oil and gas and coal every single day is worked on, something is being done about it, but still – we also have to have light and heating, and cooling for the food being produced by farmers, and a lot of different things. The market has been very special, coming out of the pandemic. But you who have been in the industry for a long time – what do you think about all the news we are getting about company rescue operations and state guarantees for the power industry and …?

SL: To me, this was expected. I didn’t think we would end up in a situation where Putin is actually burning gas, ten million cubic meters per day, to ensure that the gas didn’t reach Europe …

ML: … Yes, you mean on the Finland border, at the NordStream terminal?

SL: Yes, so I didn’t … I didn’t think it would come this far. But we have been in a situation where we have become dependent on Russian gas. It was a business opportunity; it was an opportunity to create a powerhouse based on cheap gas. And Putin has been engaged in, what should one call it, cheap warfare, for a long time, influencing the American election, the French election, and most certainly other elections as well, with the aim of destabilising Europe. And this is exactly what is happening now. Europe is destabilised, and we must come together to find good solutions. I am personally surprised that the politicians did not listen already this spring when the EU announced major changes and presumably also rationing. And the word ‘rationing’ itself, [the meaning] is completely unknown to most people.

ML: Yes, we haven’t seen that since the oil crisis at the beginning of the 70s or something like that?

SL: And what are the implications? I think you have a responsibility as a politician, to go out and explain to the population what it means, what it entails. And if you choose to go along, choose to see it as a possibility that we will again import Russian gas, what are the compromises you must face then?

ML: Hmm.

SL: Now we went a bit outside [the energypolitical to] the geopolitical arena, but it is part of the big picture.

About underinvesting in exploration

ML: But many of the ‘oil giants’, especially those who can talk more freely, for several years many of them have been talking about what they consider as a general underinvestment in the [petroleum] industry. Few of them would admit that they underinvest themselves, though. But still, they do point it out, and then the Norwegian investor Tor Olav Trøim at the Pareto conference last week, said he was tired of ESG and that he is expecting a huge oil and gas super cycle. In you view, what are we really facing here?

SL: (…) When you have been in the industry for a while, you are aware of these cycles. And they will come, whether you want them to or not. I lost my job in a downturn, but I knew there would be a cycle, not a super cycle like this one, I hadn’t expected that. But I believed in it to the extent that I started a company to have a team ready for when it would happen.

ML: And then there was a pandemic in the meantime, which put things on hold a bit perhaps?

SL: Personally, I have been waiting for a replace reserves panic to come. But it is not here yet, even though we are in a situation where Europe needs all the energy [they] can [get].

ML: Yes. It is a very special situation with crazy prices, especially for gas, [but] the oil price has also been at 90, 100, 110, 120 dollars for quite some time now. The earnings of the oil and gas companies are absolutely phenomenal, and we see the same happening in the power industry, somewhat depending on how much financial derivatives they have invested in of course, but: Does this translate into exploration at all? (…) During the cycle we had from the 2000s, which probably culminated in 2014, a lot of new projects were started, a lot of new rigs were ordered, a lot of new supply boats [as well], resulting in [numerous] rigs, supply boats and other things in stock in 2016 – it was a complete crisis. Now it doesn’t seem like one new rig is being built, right? But what is really happening on the exploration front, is it … Is anything happening at all?

SL: We have not experienced much activity on the exploration front, and we have experienced less activity compared to other years, which has something to do with the quality of the available [APA licence] area [this year]. My big concern are two things. Number one: Diversity of oil companies. This is something that the Norwegian Petroleum Directorate also highlights. There have been so many acquisitions because if you want growth in reserves there are two ways to do it; exploration or buying [companies].

ML: Yes, we have seen that Exxon and Chevron have left the Norwegian continental shelf, Aker BP has bought Lundin …

SL: … but it does present business opportunities, when you evaluate acreage previously owned by big foreign majors with a large global portfolio to consider, because there often are so many untested traps remaining - which is exactly what happened in the story of the [now revived] Balder [Field].

ML: Yes, and Vår Energi is now, proceeding Exxon, in the process of upgrading [Balder], even if it is to a higher cost than expected.

SL: Yes. My other concern is the way that … Well, there is a high level of exploration activity, everyone says this, and in one way it is true, but the way I see it, it is mostly about infrastructure led exploration. It is about already existing operations. And if you have an innovation portfolio, it should have been 70 percent daily operations, 20 percent on emerging, and then you should have ten percent on the frontiers, these crazy ideas. But those who can be company makers, and we just don’t see that, but –

ML: … because there is no will going into (…) an open area, but still in the Barents Sea or the Norwegian Sea or wherever, where companies have hardly drilled [any wells]?

SL: Yes, so, for example Lundin has been daring, but they have been systematic in their progress. [When] they drilled a well like Silfary which is, so – everyone knew that the risk was high, but it provided such important learning about the area. And now we have a situation where the UK, on their side, have drilled three times as many wells in an area the size of [our part] of the North Sea. We haven’t even started yet.

ML: Yes.

SL: And we have so much [left] to investigate, but those concepts and ideas require a high oil price. Usually, with an oil price of 80 dollars, it’s full speed ahead.

ML: That is when things start to happen?

SL: Yes, but it hasn’t happened this time, and I think the reason is the message from Europe. That they are running the green deal, they don’t need fossil fuels anymore, it will all be hydrogen from hereon. And hydrogen [is] very good if you have cheap electricity for power-to-X, but we don’t have that [now], and we can’t expect to have that for a long time to come.

ML: But these companies, Aker and Equinor and really all of them, brag a lot about their ILX exploration, meaning nearby fields and infrastructure, and show how much volume they manage to get there. But are you really saying that it’s not that real after all?

SL: We have a very, very high discovery rate, in fact an impressive discovery rate internationally, [and] the volumes that are found are reasonably large. But you won't find these '200 million discoveries', which everyone is looking for.

ML: You won't find a new Grieg or …

SL: … or Johan Sverdrup, ready for production …

ML: … or NOAKA or ...

SL: … in the required five years, right? So, what I really miss is the long term. (…) We have the western Barents Sea. Let me explain a little bit about the Barents Sea east and west. So, the Barents Sea East was a new area with everyone entering. Actually, there were 43 companies at the time, which joined forces to shoot seismic. Fantastic collaboration! This is one of Norway's strengths I think it will become much more important in the future. The other thing is that one went into the Barents Sea in the southeast, one knew that there would be a specific problem with the source rock. Has oil been generated here, or is the source rock too immature for this? Would we only find a nice source rock that will generate in the future?

ML: Becoming oil [in the future].

SL: It had to be tested out, and then they went in and drilled structures so big they could be seen from the moon. But everyone knew it was a risk [and it did turn out to be immature]. Then we see the western part – there we have a challenge with leakage, there is [abundant] 200-meter-high gas flares that just flows out of the seabed. You have natural leakage of oil, and then you have ‘candy store’ of oil-generating and gas-generating source rocks. Five of them actually, when most other places in Norway only have one. We have drilled, I think less than 20 wells, during the last 40 years. In an area as large as the North Sea. As of right now, there is no appetite for the Barents Sea, as we see it, according to our information. But we are a subgroup of geologists who believe that something must be done.

ML: (…) Do you think we might see a shift here? Timmermans and Kadri Simson, the energy commissioner in the EU, have written in a statement, after meeting with the Norwegian authorities before the summer, that they see a role for Norwegian oil and gas also after 2030...

SL: … but almost no one took notice of it.

ML: (laughs) No, it was mostly us who read a bit about this that took notice. But …

SL: But it was actually a big deal. Because it is Frans Timmermans, and he is responsible for The [European] Green Deal.

ML: So, this is a significant change. But then, combined with the fact that we can sell the oil, we do not have to sell it to Europe. It goes to Europe now because they are clamoring for it, but I remember the first loads from Johan Sverdrup went to China right away, and it may do so in the future if the demand is there. Now, in contrast to everything to do with Russia, Norway is a relatively safe and democratic region in which to engage in oil and gas activities. Can it become so extreme now that it can turn around and that we get a renewed deal to explore and develop in Norway?

SL: I actually thought we were there, but I can see that we're not. And I'm not one hundred percent sure what it is we're waiting for. Perhaps we need a green light, but we have Frans Timmermans who has said 'we need more oil and gas from Norway'. We have Jonas Gahr Støre who says to Ursula von der Leyen, 'we shall be a stable and trustworthy partner'.

About the situation in Denmark

ML: Any sign of change in your home country Denmark then, where they ... We see Noreco is reviving the Tyra field together with Total?

SL: Oh, that's interesting, it's almost a new…

ML: We can discuss that another time.

SL: No, let’s talk about it now. As a Dane living abroad, I look at Denmark from the outside, and the country has managed to create a narrative that is the green nation. Still, 60 percent of their energy comes from fossil fuels. Coal, oil, and gas. But they have managed to tell the population that …

ML: …” We live off windmills”?

SL: Yes. So, what I've been curious about is; what happens when the qouta prices for CO2 go up and people must pay? It is the population that will have to pay for it. But the energy prices got ahead of us, and Denmark has, in fact, been self-sufficient in oil and gas for years. However, due to the Tyra field being shut down, they no longer are now. The minister has decided to shut down exploration after 2050, so it will be really interesting to see what happens there.

ML: It can happen on both sides of the Skagerrak. Sidsel Lindsø in ExploCrowd, thank you for coming to us. It will be interesting to see what happens next.

Elin SolaSeptember 23, 2022Comment