Norway's oil output is seen falling in 2011 and throughout the coming decade if no new big finds are made soon - an unlikely prospect given recent discoveries and political reluctance to open up environmentally-sensitive areas.

More modest finds are turning the Nordic country into an attractive place for small firms, such as Wintershall , BG or Lundin, rather than majors such as ExxonMobil or BP out hunting "elephant" fields.

Norwegian authorities will release their annual forecasts for the output of the world's fifth-largest exporter on Thursday, expected to show that oil production will fall for the 10th year in a row, while gas output will continue to rise.

Estimates for undiscovered resources are also likely to be revised down due to disappointing discovery results last year and a warning in November by Norway that undiscovered gas estimates would likely be brought down this week.

"At the moment the outlook is pretty poor," said John Olaisen, an analyst at broker Carnegie in Oslo.

Olaisen anticipated 2011 production for oil, NGL (natural gas liquids) and condensate to fall 5% year-on-year from 2.15 to 2.04 million barrels of oil equivalent (boe).

"Exploration results over the last two to four years have been extremely poor. Production issues have been rising and decline rates have been higher than they have been."

Oil firms scouting the Barents and Norwegian Seas have hit dry wells or smaller-than-expected fields, most recently in August with Royal Dutch Shell's Gro find, which Norway had hoped would serve as a new gas hub.

What would help, analysts said, would be if Norway opened up new areas for exploration.

One promising region lies off the Lofoten and Vesteraalen islands north of the Arctic Circle which may hold some 1.3 billion boe but is also the spawning ground for the world's largest cod stocks.

The region is unlikely to be opened up soon, analysts said, as it remains at the centre of a political row that could bring down the Labor-led coalition in power, with smaller partners the Socialist Left and the Centre Party against drilling.

"The BP oil spill has not helped (either)," said Amrita Sen, an analyst at Barclays Capital, who agrees with the NPD's 6-7% estimated fall in Norway's oil output in 2010.

Another promising area is a Barent Sea region as big as half of Germany, which Russia and Norway agreed to delineate in April.

"The area is extremely interesting but it is many years down the road," said Olaisen.

Some Positive Prospects
Despite the challenges, the Nordic kingdom still offers some attractive oil prospects.

A 2009 NPD forecast suggested there were 20.8 billion boe yet to be found off Norway - more than the proven oil reserves of Brazil (12.9 bln) and Azerbaijan (7.0 bln) put together.

Norway is also many years behind Britain in terms of maturity, said Geoff Gillies, an analyst at Wood Mackenzie.

"If you look at the North Sea as a whole, the view is that Norway is where the big undiscovered reserves lie," he said.

Gillies added there were plenty of profitable small fields in mature areas as the infrastructure was already in place and the geology was well understood.

"Some of these fields can deliver twice the returns (than those in frontier areas)," he said, adding that tax incentives introduced in 2005 to stimulate exploration have been very attractive to investors.

If a firm hits a dry well, for instance, it can write off the costs of the operation.

"Companies are still looking to keep countries that are politically and fiscally stable in their portfolio. So it remains very interesting to be in Norway."