New Major Overpasses in the Barents Sea and North Sea – E24

The state budget that arrived on Wednesday also publishes updated figures for the projects on the Norwegian platform.

Budget documents show that the oil industry has made new billions on the Norwegian shelf over the past year (all figures in 2020 crowns).

Of the 16 projects that are under construction on the Norwegian shelf, 14 have become more expensive and 2 have become cheaper than estimates in last year’s state budget. In short, the total price has increased by 13.2 billion since last year.

Of the six projects that arrived were completed after August last year, one (Utgard) has become cheaper, while the rest have increased. In total, the price of these has increased by 1,160 million.

Excesses ensure that there is less profit for the Treasury and companies, but it also ensures that more money is spent on a number of large and small Norwegian supplier companies.

Here is a review of the most important changes:

• The Martin Linge field will cost an additional NOK 3.56 billion more. The price has now roughly doubled from the original estimate as the bill has risen from 31.0 to 60.8 billion kronor.

The field for which Equinor assumed operator responsibility for Total has had major problems and is long overdue. The start of production has been postponed again, this time until 2021.

• Njord Future to Equinor will be another 3.99 billion more expensive. The field also had a glut last year and the total price has now increased by 8.54 billion, from 16.1 to 24.7 billion.

Njord Future is an upgrade project where you upgrade and repair the platform (Njord A) and the storage ship (Njord B) in the field, so that the service life of the field can be extended. The start of production has been postponed until the end of 2021.

The project has become much more expensive than expected because the upgrade work has been more extensive than planned. The new overshoot “is mainly due to the extended implementation of the project and therefore the delayed start,” the ministry writes, adding that half of the additional bill comes from measures related to the crown.

• Johan Castberg’s field in the Barents Sea is in full swing. Costs are expected to increase by NOK 3.36 billion. Therefore, the price increases to a total of NOK 53.4 billion.

Of the 3.36 billion, 2.5 billion are due to the corona pandemic, according to the ministry. The excess is six percent and is due to a large drop in the currency thanks to a weakened Norwegian krone. The start of production has been postponed from 2022 to 2023.

• At the same time, the Snorre expansion project will be NOK 566 million cheaper. Now the total cost is expected to be NOK 1.14 billion lower, so the price is expected to end at NOK 19.5 billion

All these projects are led by Equinor as operator. Currently the company has a total of 20 development projects.

There is also another field that stands out with a billion dollars, namely Yme. The scandal-ridden field was originally built by Talisman, but the rig was so bad that it had to be scrapped.

Therefore, 14 billion went to the sink.

Recently, Repsol and its partner Okea have started a reconstruction, but now it is much more expensive:

• The Yme project is now estimated at NOK 11.1 billion. This is an increase of NOK 1.68 billion over last year and the total excess is now NOK 2.30 billion

See the overview of the other projects at the bottom of the box!

20 percent buffer

The Ministry of Oil and Energy points out that oil projects have a margin of uncertainty of plus / minus 20 percent.

“16 of the 22 projects that are currently in development, or that have entered production after August 1, 2019, have cost estimates that are within the range of uncertainty,” the ministry writes.

In total, investments in fields under construction are estimated at a total of NOK 302 billion. This is an increase from the 258 billion estimated in the development plans.

In addition, 122 billion will be invested in fields that came into production after August 1, 2019, which in development plans should cost 155 billion.

The Ministry notes that they have calculated the present value of the projects, that is, the present value of future income from projects at seven percent interest, at NOK 1.304 billion before tax.

Smell assessments

Debate has raged over the Johan Castberg field, which is Equinor’s first self-developed oil field in the Barents Sea and the second oil field in the region, after the Goliath field for Vår Energi.

The Ministry of Petroleum and Energy notes that they initially reduced costs through, among other things, improvements to well drilling facilities and submarines.

In total, the estimated investment has been reduced by 1,540 million, according to the ministry. But the cost reductions have been offset by a large foreign exchange loss of NOK 4.38 billion, thanks to a weaker krona.

In March this year, E24 was able to report that the production ship’s hull was severely delayed from the Sembcorp shipyard in Singapore, for both crown and other reasons. Subsequently, welding defects have also been discovered.

Production at Johan Castberg was scheduled to begin in late 2022, but Equinor confirmed this summer that the start date was postponed until late 2023.

In an interview with the E24 podcast in late September, Equinor CEO Eldar Sætre said that the balance price in the Johan Castberg field is still below $ 35 per barrel, that is, including the delay in the Singapore shipyard and welding problems.

The equilibrium price, the price of oil needed for the project to increase, was previously above $ 80, but it fell to less than $ 35 during the previous oil brake, and before the project got the green light.

In a press release Wednesday, Equinor writes that the project still has “good profitability.” The company writes that Castberg, Linge and Njord will have “a delayed start and increased costs as a result of increased workload, infection control measures and a weak Norwegian krone”:

– Equinor has a solid and good portfolio of projects. We have delivered phase 1 of Johan Sverdrup and Utgard ahead of schedule and under budget. Major developments such as Johan Sverdrup’s Phase 2 and Snorre Expansion Project are still at the original level and we have recently submitted a PDO for the sub-electrification of Sleipner, Northern Lights and Breidablikk, says Geir Tungesvik, Interim Executive Vice President of Technology. , projects and drilling.

– At the same time, I want to emphasize that 2020 has also been a very demanding year for our industry. Together with our suppliers, we have worked hard to reduce the consequences of Covid-19. Security and infection control measures always come first and I’m impressed with the work that has been done, says Tungesvik.

Martin Linge was supposed to start in 2016, now it will be 2021

Although Johan Castberg is somewhat retarded and somewhat more expensive, relatively speaking, there is little that compares to Martin Linge.

The North Sea oil field has become one of the biggest scandals in Norwegian oil history. Since the development plan was delivered in 2012, costs have doubled.

Actually, the field was supposed to go live in 2016. Kvaerner had delivered the platform chassis at the agreed time, but the Samsung shipyard in Korea did not have the platform ready.

Under Total’s leadership, the project was affected by a serious fatal accident at the Samsung shipyard in South Korea in 2017, and the Norwegian Oil Safety Authority in Norway also discovered major technical errors. Among other things, the rig was revealed to be “dusting.”

Equinor has been a partner in the field the entire time, but in 2017 they reached an agreement with French Total to take over the operation and assets. Thus, Equinor took control. The deal went into effect in 2018, and while Equinor has tried to clean up, it has proven to be a demanding job.

Equinor first thought they might have a start-up in 2019, but this was postponed to 2020. Now the start-up has been postponed to 2021.

This comes after it became clear on September 8 that a billion must be spent on drilling new gas wells, because the old wells Total drilled proved not to be safe enough.

Equinor claims that costs have increased by $ 3.6 billion from last year. It is estimated that half comes from infection control measures. The rest comes because more money has to be spent on drilling the wells mentioned and other work on the platform.

Okea increases its investment budget

The Okea oil company was founded by, among others, oil founder Erik Haugane and Center Party leader and former Minister of State Ola Borten Moe.

The company is a small new competitor on the Norwegian platform and is the operator of the Draugen field. Yme development is very important to the company and constitutes an important part of the investments.

After the new invasion of Yme, the company writes in a stock exchange announcement which are now adjusting their investment budget for 2020 by NOK 100 million between NOK 1.0 and 1.1 billion.

“A significant portion of the estimated investment increase since the ‘development plan’ was delivered was reflected in the company’s previous guidance. As a result of the updates, Okea continues to increase its investment guidance for 2020,” the company writes. .