Pilots on the Norwegian continental shelf; from a contractual and decision making standpoint

Abstract

This thesis consists of two different parts which investigates two different things, but with the same topicality in focus. The superior aim of the thesis is to enlighten potential project stoppers with regards to technology development on the Norwegian continental shelf. This is done by investigating the balance between input and output in three different pilot project contracts in the first part, while the second part investigates potential problems related to decision strategies in the operating companies, both with regards to internal conditions and external regulations. To retain information on the latter, two different operators have answered a questionnaire. The investigation has been done in light of the increased number of pilots reported delayed or postponed to the Norwegian government during recent years. The development of enhanced technology is vital to secure increased recovery rate on the Norwegian shelf in a time where many fields are either in, or approaching tail production. The information extracted from the comparison of the contracts seems to point in the direction that logically enough increased risk consumption and majority towards funding percentage leads to better contractual terms with regards to ownership of technology developed within the contract. The result also reveals that different operators might use different contractual terms, but this might also be due to the maturity of the technology being tested. It is further believed that contractors should be careful of claiming too many rights towards ownership of the technology and also denying paying license fees, if the technology initially has been developed by contractor. This should be taken into account regardless of if the operator finds themselves in a position of superior bargaining power. Such a situation might lead contractors to see technology development as less profitable and therefore decrease their willingness to invest in such developments. If this occurs, the operators will lose an important source towards enhanced technology. Furthermore the contracts do not seem to take into account the contractors’ costs due to development prior to the contractual agreement. Such developments can be costly and time consuming, as shown by example in the text. To what degree this is considered by the contracts is however not easy to investigate fully, without access to contractors’ profit margins within the specific contracts. Decision strategies with regards to technology development are examined by answers towards a questionnaire. The questionnaire has been answered by two different operators. The answers, among other things, reveal that human capabilities and personality in form of company “champions” might have a significant impact on decisions towards development/pilot projects. According to the questionnaire operators does not regard ownership to the technology being developed as very important, and states that the right to use the products is an area they focus much more on, in Pilots on the Norwegian continental shelf; from a contractual and decision making standpoint 2011 comparison. Furthermore it is revealed that operators to a large extent use net present value calculations as part of their decision basis, and that they in general would like to see profits from their investments within a two year period. As net present value calculations favor profits in the near future, this can to some extent point towards a rather short time horizon with regards to investments. The oil companies also reveal that they preferably would like to defend investments in new technology on a specific license alone, but also state that effect on multiple fields are taken into account, where necessary. Profitability calculations on multiple fields they however state to be more difficult and thus can be interpreted to be, if not a project stopper, at least an obstacle on the way to initiation of a project. Furthermore the oil companies have rejected two potential problems suggested by the thesis to be of problematic importance towards development/pilot projects. These are the voting rules within the licenses and the free-passenger problem.