ANALYSIS: Denmark's oil, gas output unlikely to see future recovery
London (Platts)--1Feb2013/638 am EST/1138 GMT
Industry insiders and analysts don't mince their words when it comes to
Denmark's oil and gas industry -- as a producer it is in terminal decline and
unlike Norway no massive new discoveries are expected to emerge to halt that
In May or June this year, the Danish Energy Agency (DEA) will release
its next five-year set of predictions on future output and at an unannounced
date this year Denmark will also launch a new exploration licensing round, a
major event given the last round was held in 2005-2006.
Overall plenty is still going on offshore Denmark, with some existing
fields also being further developed, several promising discoveries being
evaluated, and a new field due to start output in 2015.
But as big as it is, the startup of DONG Energy's $2 billion Hejre oil
and gas field -- holding about 170 million barrels of oil equivalent -- will
only serve, says the DEA, to provide a temporary boost to production in
2016. And within seven years or so, Denmark could be a net importer of oil
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"Some time later than 2020. It all depends on the developments in the
next few years," DEA senior official Soren Frederiksen told Platts, although
he refuses to rule out all hope.
"History shows us time and again you can always squeeze more from a
field. And 2020 is so far ahead it's hard to be precise."
Last year Denmark produced around 202,200 b/d of oil, 9% down from about
221,150 b/d in 2011. That latter number was also a stark decline from the
2010 average of just under 245,000 b/d.
More falls are expected, with output seen dropping to around 181,000 b/d
in 2015, according to the DEA's most recent forecast made last year.
A similar situation can be seen for gas where output in 2012 fell 14% to
5.6 billion cubic meters compared with 6.5 Bcm the previous year. The 2011
figure was already a hefty decline on the 2010 total of 7.1 Bcm.
Denmark, the third largest oil producer in western Europe after Norway
and the UK, has been seeing its production levels spiral downward since 2004,
the victim of the inexorable depletion of its mature fields, some of which
have been in production for 20 to 30 years.
Nordic neighbor Norway until recently had a similar view of its
industry. However that view has now been radically altered and the industry
there is undergoing a renaissance following the massive Johan Sverdrup oil
discovery, where recoverable reserves are estimated at 1.7-3.3 billion
That's not the case with Denmark, as the next DEA predictions are likely
"We will not see a big difference in the big picture coming for the next
five years. My expectation is definitely for more of the same," the DEA's
Others are even more blunt. "It's a declining picture. These are quite
old, mature fields," says analyst Erik Bergoo at Danske Bank, referring to
the DUC producer's consortium, dominated by Maersk Oil and Shell and which
produces around 90% of total Danish production.
"I don't think anyone has any big expectations for any huge [new] fields
coming on," he adds.
The bleak picture comes at a time when state-owned producer DONG Energy
has begun a DKr1 billion round of cost cutting and up to DKr10 billion in
asset sales, hit by the plunge in global gas prices which it says will lead
to it posting impairment charges in its 2012 financial results later this
"The company's financial position has worsened due to extensive
investments and unforeseen losses in the gas market in 2012, putting key
ratios under pressure," said DONG Energy CEO Henrik Poulsen in a statement in
Gas prices globally have been hammered in the wake of the US gas
production boom which was opened by technological advances in hydraulic
fracturing of shale rock.
More asset sales could well be announced with the full year results on
Also casting a shadow over the industry is the Siri cluster of fields
offshore Denmark, which returned to production after an extremely extended
shutdown by DONG over platform structural problems.
The DEA's Frederiksen says Siri's repair work remains incomplete,
rendering the fields vulnerable to bad weather shut-ins.
Internally DONG was destabilized last year when it fired long-serving
CEO Anders Eldrup for granting excessively generous contract terms to some
NOT ALL BAD NEWS
Not everything is going sour in Denmark. Maersk Oil says it is still on
course for a 50% increase in output globally to 400,000 b/d of oil
equivalent, up from the current production level of 265,000 boe/d, by 2020.
That, however, is more to do with its activities as a company with
increasingly global reach. Something positive has come out of Denmark,
analysts say, but the benefits are being exported.
"[Maersk] is really growing out and away from a Danish exposure," says
SEB Enskilda analyst Nokolaj Kamedula. "It has used the techniques it gained
in the Danish part of the North Sea to develop elsewhere."
Nor does everyone agree that the Danish oil and gas industry's destiny
at home is bleak. The CEO of another Danish state oil and gas company,
Nordsofonden, told Platts in an interview he remains upbeat about Denmark's
continuing role as a dynamic producer.
"I am confident. We have seen that there are reserves in our licenses,
we have made discoveries in both deep and shallow horizons," Peter Helmer
"Things like that tell me that there will of course be other discoveries
in the future," he said.
Steen said a lot more technical information gathered, including
significant seismic data, since the last exploration licensing round would be
reflected in the applications.
"There's going to be a lot of interest from what I am hearing from the
companies," he said.
Steen also said there was a lot of excitement about an onshore
exploration well for shale gas that is due to start drilling soon in the
northern part of Jutland, with hopes for a significant discovery.
France's Total, which has 80% of the license, is drilling the well, with
Nordsofonden holding the balance and results are expected at the end of the
current year to early next year.
Steen also says that despite its current financial difficulties DONG
will not throttle back on its Danish North Sea developments. "They have
started the Hejre field which is a huge investment, so we have not seen any
sign of DONG cutting down in their sector."
--Patrick McLoughlin, email@example.com
--Edited by Alisdair Bowles, firstname.lastname@example.org