Guide

How to assess a new discovery

When the Norwegian Offshore Directorate announces a new discovery, it usually gives a range in million Sm³ of oil equivalent. Here is how to get from that figure to a view of what the discovery might be worth.

Updated 29 Sep 2026 · about 5 min read · Written by OESA

Read the announcement

When an exploration well is finished, the Norwegian Offshore Directorate publishes a short note on the result. It usually states:

which well and production licence it concerns, and who the operator is,
what the well set out to test (the target, usually a particular rock formation),
what was proven, for example how many metres of oil or gas column and how good the reservoir rock is,
what data was collected,
and for discoveries: a preliminary estimate of recoverable volumes, given as a range in million Sm³ of oil equivalent, and whether the licensees will consider development.

The latest wells and discoveries are listed under New wells and discoveries on the analysis page.

Volumes: a range, not a number

The range in the announcement shows the uncertainty. The low end may be too small to develop, the high end is not certain. Do not treat the midpoint as the answer.

The estimate covers recoverable volumes, what is expected to be produced, not everything in the reservoir.
1 million Sm³ o.e. is about 6.29 million barrels of oil equivalent.
Oil and gas are worth different amounts and need different infrastructure. Gas needs capacity in an export pipeline.
A new discovery is a contingent resource until there is a development decision. See the resource classes.

Location and infrastructure

Most discoveries being considered for development today are small and are developed as satellites tied back to a field that is already producing. The questions that decide a lot are therefore:

How far is it to the nearest platform or production ship, and does it have spare capacity to receive and process more?
How long will the host field keep producing? If it shuts down before the discovery is produced, the numbers change.
How deep is the reservoir, and at what pressure and temperature? That decides how expensive the wells are.
How good is the reservoir rock? Poorer rock means more wells for the same production.

On the globe on the analysis page you can see the discovery together with nearby facilities and pipelines, using the wells layer.

From volumes to cash flow

The value of a discovery is the cash flow it produces over time:

Revenue: each year's production multiplied by the price.
Investments (capex): wells, subsea equipment, pipelines and modifications on the host platform. They come before production starts.
Operating costs (opex) and tariffs for using other companies' pipelines and plants.
Decommissioning of the equipment when production ends.
Tax, see below.

Production usually rises to a plateau and then declines. When the revenue arrives matters almost as much as how large it is.

Net present value and a worked example

Net present value (NPV) converts all future cash flows into value today: each cash flow is divided by (1 + r)^t, where r is the discount rate and t the number of years ahead. If the sum is positive, the project is profitable at that rate.

Hypothetical example. The numbers are chosen to show the method and are not taken from a real discovery.

A project costs 100 today and gives 30 in net cash flow every year for five years. At a 10 % discount rate:

NPV = −100 + 30/1.1 + 30/1.1² + 30/1.1³ + 30/1.1⁴ + 30/1.1⁵ ≈ −100 + 113.7 = 13.7

If the cash flows start two years later, each must be discounted two more years: 113.7 / 1.1² ≈ 94.0, and the NPV becomes about −6.0. Same volume and same price, but the delay makes the project unprofitable at this rate.

Breakeven

The breakeven price is the oil or gas price that gives an NPV of zero. It depends on the discount rate, the costs and the production profile. Companies report breakevens with different definitions: some include costs already spent, such as exploration, others look only at costs from now on, and the discount rates vary. Only compare breakevens calculated the same way.

Petroleum tax

Companies on the Norwegian shelf pay 22 % ordinary corporate tax and a special tax of 71.8 %. The ordinary tax is deductible in the special tax base, so the combined rate is 78 %. In the special tax, investments are deducted in the year they are incurred; in the corporate tax they are depreciated over six years. A company without taxable profit has the tax value of its loss in the special tax paid out the following year (norskpetroleum.no, read 29 Sep 2026).

The system is meant to be neutral: a project that is profitable before tax should also be profitable after tax. The state therefore takes a large share of both the profit and the costs.

What does the discovery mean for the company?

A company with 20 % of the licence gets 20 % of the value and pays 20 % of the costs. Set the share against the size of the company: a discovery that means little to a large company can mean a lot to a small one. The OESA company pages show the stakes on the shelf for the listed oil and gas companies. This is not investment advice.

Checklist

Is it oil, gas or both?
How wide is the range, and is the low end large enough to develop?
How far is it to infrastructure with spare capacity, and how long will it be there?
Who are the operator and licensees, and what do they say about their plans?
What does the price need to be for it to pay off, and how quickly can production start?

Sources

Discoveries – norskpetroleum.no
Resource classification – norskpetroleum.no
Petroleum tax – norskpetroleum.no – tax rates and deduction rules, read 29 Sep 2026
News on well results – Norwegian Offshore Directorate (in Norwegian)
FactPages: wellbores and discoveries – Norwegian Offshore Directorate

The guides are written by OESA students to explain concepts and how things fit together. They are not investment advice. Figures that are not definitions carry a source and a date; if you find an error, let us know at styret@oesa.no.