INTERVIEW: Energy crisis spurs renewed Danish upstream interest: Noreco CEO

Denmark is signaling openness to new oil and gas investment despite plans to end upstream production by 2050, with gas a particular focus amid Europe's energy crisis, the head of Noreco, a partner in the country's top production consortium, has said.

Noreco, an Oslo-listed company founded in 2006, is looking for new opportunities and particularly undeveloped Danish gas discoveries as the Danish Underground Consortium, led by TotalEnergies, completes its flagship redevelopment of the Tyra field, CEO Euan Shirlaw told Platts in an interview.

Denmark has fallen into distant third place among North Sea oil producers in recent years, with output of around 65,000 b/d in 2021, and gas production of 1.3 Bcm, and has joined a number of other countries in plotting an eventual end to the industry.

A 2021 Subsoil Act set a 2050 end-point for production and put an immediate stop to new license rounds, as the country prioritizes renewables, with plans for new artificial "energy islands" to host wind facilities.

But Shirlaw, who became Noreco CEO in May, said Denmark's stance was "slightly more nuanced," with existing producers still able to apply for licenses if they see an opportunity, and cuts in Russian supply boosting support for upstream projects.

The 2050 cut-off is in some ways welcome as it provides "clear goal posts" and could prompt the DUC to seek an extension of its production concession, which expires in 2042 and accounts for about 90% of Danish upstream production, he said.

Noreco holds a 36.8% stake in the DUC, which it acquired from Shell in 2019 on the strength of its technical capability, something Shirlaw said enabled the company to provide "legitimate challenge" as a counter-part to the operator, TotalEnergies.

Russian supply cuts following the Ukraine invasion are now pushing domestic resources to the "top of the merit order" in Denmark, he said.

The authorities "recognize that the oil and gas industry is an extremely important part of the Danish industrial landscape. There are some strong reasons why Denmark is probably taking a more supportive stance to try to again accelerate and maximize production from Denmark," Shirlaw said.

"Denmark recognizes the fact that given they are part of the EU they have a responsibility to the other member countries and can be an important contributor of energy security. If they are able to produce oil and gas pretty close to the coast of Germany, there's probably a... good reason for doing that," he said.

"When we say there's a ban on exploration ... If you are already a participant in the country and you identify a license you don't currently own and you want to drill a well there, you can apply to the Danish Energy Agency to do it," he said, adding Noreco was "actively" looking at new acreage, including outside the DUC licenses.

Gas prioritization

The DUC's production is expected to almost double to some 140,000 b/d of oil equivalent once its main project, the Tyra redevelopment, starts up in mid-2023; the field was taken offline in 2019 due to subsidence of the chalk reservoir. Noreco's DUC stake gives it around 200 million boe of proved and probable (2P) reserves, plus the same again in contingent resources.

The restart is also expected to lift the share of gas in DUC production from 25% to 45%, likely making Denmark a net gas exporter, supplying EU neighbors such as Germany and the Netherlands, Shirlaw said. The country is also a key supply route to Sweden.

The final Tyra module to be brought in, a processing unit, is due to leave Indonesia in Q3 2022 following COVID-related delays.

Looking ahead, Shirlaw predicted Denmark would start boosting gas supply by injecting less gas back into fields as a means of maintaining pressure levels, something Norway has started doing in the wake of Europe's energy crisis.

Shirlaw voiced skepticism about emulating Norway's drive to connect North Sea platforms and facilities to low-carbon energy sources, but noted Denmark is pursuing a carbon capture and storage project, Bifrost, which is intended to start operating in 2027 with 3 million mt/year of capacity and the potential to expand to 16 million mt/year.

"There is very much a push to ensure that things like CCS, electrification are considered," Shirlaw said, noting that Denmark faces "exactly the same" issues as the UK when it comes to the expense of retrofitting aging offshore facilities with low-carbon power supply.

While Noreco might not take on a major new project in the near term, "where we see there being the potential for add-on volumes that are consistent with everybody's overall objective [of EU energy security], we're going to do as much as we can to progress that," he said.