Norway’s innovators help oil industry move to harsher climes

A drillship that cuts through two metres of ice, radar that detects oil spills in Arctic darkness and a drill that burrows through rock like a mole are among Norwegian innovations helping the oil industry as it moves into harsher climes. Small companies in Norway, backed by tax subsidies, a home-grown oil major and an abundance of experienced engineers, are bringing in technology that is leading the oil and gas industry in Arctic exploration and subsea production.

« This is an incredibly conservative industry, and it takes 10 years to adopt and commercialize new technology, » said Stig Hognestad, the chief executive of small technology firm Ziebel. « Nobody wants to be the first because it’s risky … and Norway’s the exception. » Stavanger’s Ziebel has designed a fibre-optic rod that can take thousands of images per second along the entire length of oil wells, which can extend hundreds or thousands of feet, detecting leaks that can reduce flows and pose a risk to the environment. Both ConocoPhillips and Chevron bought stakes in Ziebel recently.

« ConocoPhillips said we saved them $33.2 million on the first well we did for them, because we found a leak in hours, saving them from having to plug it and drill a new well, » Hognestad said. Industry experts say the greatest impetus for new technology comes from Statoil, which has grown from a domestic explorer to a $73 billion global major over the past decade.

Norway’s oil industry spent close to $670 million on research last year. Statoil alone earmarked $470 million, up from $350 million in 2011. « The early moves by the Norwegian government in terms of their support for R&D, their creation of Statoil and using Statoil as a vehicle to develop R&D, and the fact that once they got products or services they felt were commercial, they would sell them on to the industry – it was a very powerful model, » said Andrew Gould, the chairman of British oil company BG .

The oil major is now pushing boundaries as it seeks to move into more hostile waters and to squeeze more from maturing fields, targeting 60 percent recovery compared with the typical rate of 30 to 35 percent. Last week it awarded a contract to Inocean, a small Norwegian innovator, to design a drillship to search for oil in the toughest parts of the Arctic, with the ability to cut through two meters of ice if necessary. « A ship sailing through ice is nothing new. Drilling in ice is nothing new. But putting drilling on a floating installation in ice conditions is a first, » Jon Erik Borgen, the chief executive of Inocean said. « The challenge is in health and safety and in reaching zero discharge, zero footprint. »

« The North Sea remains the ideal proving ground for these technologies as water depths remain relatively benign, and it will be important to be confident in the reliability of these systems before employing them in ultra-deep basins in Brazil or the Gulf of Mexico, » Gould added. Among its most innovative projects, Statoil is working with Aker Solutions on technology to shift compression, which is needed to pump oil and gas out of most wells, from platforms above the water to pumps at the sea bed. Moving compression closer to the reservoir and utilising the added pressure exerted by the weight of water at depth improves a well’s recovery rate.

Oslo-listed Badger Explorer is developing a drilling head for exploration that works like a probe, burying itself in the ground with crushed rock moving behind it, while it sends the result up via a thin cable. If oil is found, the company can then use a more expensive, conventional drill. Badger says the technology could eventually cut drilling costs by 60 to 80 percent and reduce the lag from discovery to production by half to three to four years. West Group in Stavanger also aims to reduce drilling time by up to 50 percent through developing the first continuous motion rig, which adds new lengths of pipe as the drill moves deeper, without having to stop drilling. Cutting drilling time can mean significant savings, given that a deepwater rig, costing $600,000 per day, can take 40 to 60 days to drill a well.

As for oil spills, Norwegian newcomer Norlense is working on technology to collect over 90 percent of the oil that floats on the water surface. Miros, another small firm, has built a radar system that can detect spills in the near zero visibility of the Arctic winter. « It is very easy to test new technologies in Norway, » said Thierry Pilenko, chief executive of French oil services company Technip. « And you have visionaries in Norway. »

Norway has the highest oil tax in the world at 78 percent, but firms get a tax credit on research and development and a 78 percent rebate on exploration costs and can write off much of their investment costs. « With such a high marginal tax rate, you get pushed to invest and research, » said Erling Kvadsheim, director for industry policy at the Norwegian Oil and Gas Association. « Essentially you only pay 22 percent of the cost because the state picks up the rest. « Norway has had a much longer-term mindset with tax breaks to match. The thinking has never been that joined up in the UK, » said Bruce Ferguson, managing director at British equipment maker Hunting. « The other advantage of working in Norway is that if your product complies in Norway, you can sell it to any market in the world. »

But Norway’s role as an hub for innovation could come under pressure in the years ahead. As its fields mature and output falls, forcing development costs to rise, that could combine with Norway’s high taxes and high labour costs, second only to Australia’s, to stifle investment in research.


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