Exploration and production activities in Norway

Exploration and production activities in Norway are carried out through subsidiary LOTOS Exploration & Production Norge AS (LOTOS Norge) of Stavanger.

At year-end 2021, LOTOS Norge held interests in 30 licences for exploration, appraisal and production of hydrocarbon reserves in the Norwegian Continental Shelf, compared with 28 licences at the end of 2020. On March 26th 2021, the company was formally awarded three new licences in the Awards in Predefined Areas (APA) 2020 licensing round: PL 1098 (50% interest), PL 1099 (30% interest) and PL 1091 (20% interest). The PL 1098 and PL 1099 licences are located within the new development project NOAKA, and the PL 1091 licence lies in the Sleipner area. In February 2021, under the company shareholders’ resolution, the company relinquished its interest in licence PL 871 in the Heimdal area.

In 2021, LOTOS Norge, operating as part of a consortium, produced natural gas and condensate from fields located in the Heimdal and Sleipner areas. In October 2021, first oil was produced from the Yme field. In 2021, the LOTOS Group’s average hydrocarbon production in Norwegian fields was 11.2 thousand boe/d for the LOTOS interest (22.8% less year on year), which accounted for 64% of its total production volume. As at the end of 2021, the LOTOS Norge’s 2P hydrocarbon reserves in Norway totalled 23.0 million boe (including 15.1 million boe of crude oil and 7.9 million boe of natural gas), which accounted for 33% of the Group’s total 2P reserves.

Besides hydrocarbon production, in 2021 in Norway LOTOS Norge carried out field development work, including on the Yme, NOAKA, Trell/Trine fields, as well as exploration work.

The year 2021 was characterized by high investment activity of exploration and production companies on the Norwegian Shelf. Total investments, including exploration costs, were NOK 174.1 billion (-1.4% year on year). As part of the activities five new fields were brought online, eight PDO plans were submitted for approval, 40 exploration wells were drilled, and 18 new oil and gas fields were discovered. The Norwegian Petroleum Directorate assumes a stable level of investment activity on the Norwegian Continental Shelf over next five years. The average annual level of investments, including exploration costs, is projected at approximately NOK 175.5 billion until 2026.

Despite the high production volumes and high investment activity in the development of new fields, greenhouse gas emissions associated with production activities on the Norwegian Continental Shelf are lower. The target is to reduce CO2 emissions by half by 2030, compared with 2005.

The Norwegian Continental Shelf continues to offer attractive potential resources. According to the estimates of the Norwegian Petroleum Directorate, the total potential resources of the Norwegian Continental Shelf are approximately 15.8 bcm of oil equivalent, of which nearly half has been produced from the fields. A half of the resources, i.e. approximately 8 bcm of oil equivalent, may still be produced. This includes both proved reserves in production fields and fields under development (ca. 2.7 bcm in aggregate), contingent resources in new discoveries (ca. 1.4 bcm), as well as prospective resources identified in exploration licence areas (ca. 3.8 bcm, or 24% of total potential resources).

As at the end of 2021, 36 exploration and production companies were active on the Norwegian Continental Shelf, including: 23 companies as a licence operator, and 13 companies as a non-operator partner. In recent years, the number of active market players has declined due to the ongoing asset consolidation processes (from the record-high number of 56 companies active in 2013). The leading position on the Norwegian Continental Shelf is maintained by Equinor, which is a shareholder in 283 licences and accounts for approximately 33% of the total volume of production from the Norwegian Continental Shelf. LOTOS E&P Norge, with a current daily production volume of 11.2 thousand boe/d and 2P reserves of 23 million boe, holds a 0.3% share in the market.

In summary, the Norwegian Continental Shelf remains an attractive area for E&P companies due to, among other things the high resource prospectivity, still high potential for new oil and gas discoveries, positive trends in cost reduction, improved efficiency and development of new technologies, active market, as well as stable fiscal and regulatory environment.

The LOTOS Group’s key licence assets in Norway include:

• production fields in the Heimdal area: Atla (20% interest held by LOTOS Norge), Skirne (30% interest), Vale (25.8% interest) and Heimdal (5% interest). The field’s 2P recoverable reserves are estimated at 0.4 million boe as at December 31st 2021 (LOTOS Norge’s interest); In 2021, the company’s average production from Heimdal fields was 2.0 thousand boe per day (a decrease of 1.8% year on year);
• Sleipner producing fields, namely Sleipner Vest and Sleipner East, with Gungne and Loke satellite fields (15% interest held by LOTOS Norge). The field’s 2P recoverable reserves are estimated at 9.2 million boe as at December 31st 2021 (LOTOS Norge’s interest); In 2021, the company’s average production from Sleipner fields was 7.0 thousand boe per day (a decrease of 19.8% year on year);
• Utgard producing field (17.36% interest held by LOTOS Norge). Production supported by the Sleipner area infrastructure. The field’s 2P recoverable reserves are estimated at 1.0 million boe as at December 31st 2021 (LOTOS Norge’s interest); The company’s average output in 2021 was 2.1 thousand boe per day (-43.4% year on year). The Utgard field’s reserves and recovery rates are lower than expected due to problems caused by considerable break-through of water into the production wells.
• Yme field at a final stage of development and offshore commissioning (20% interest held by LOTOS Norge). In October 2021, first oil from the Yme field – production started from one well. Currently, the cleaning and testing of three more production wells is underway and rig commissioning continues. The field’s 2P other recoverable reserves are estimated at 12.5 million boe as at December 31st 2021 (LOTOS Norge’s interest); The average production from the Yme field over the next five years is expected to reach approximately 5,000 bbl/day for LOTOS Norge’s interest.
• new NOAKA development project: development of deposits discovered north of the Heimdal hub: Frigg Gamma Delta, Rind, Langfjellet, Liatårnet, Fulla, Frøy (with LOTOS Norge’s average effective interest of 12.3%), as well as Krafla and Askja fields, in which LOTOS holds no interests. The project is at the stage of preparing the field development plan. The total potential of the NOAKA project is more than 500 million boe of recoverable reserves (for the 100% interest), with first oil possible in 2027.
• new Trell/Trine development project: development of discovered fields in the Heimdal area (average effective share of LOTOS Norge: 11.9%). The project is at the stage of preparing the field development plan. Potential resources of the Trell/Trine fields are approximately 2.6 mboe per LOTOS’s interest, with first oil possible in 2025.

In addition to its interests in the fields, LOTOS Norge also holds interests in the Heimdal and Sleipner area gas hubs (5% and 15%, respectively), i.e. the gas and condensate processing and transporting centres. It is worth noting that the Sleipner area is of strategic importance to gas exports from Norway to Central Europe and the United Kingdom.

As of December 31, 2021

Source: the Company