Covid, weak krone hit Norwegian offshore projects with delays, cost overruns

Operator of 20 projects under development on the NCS, or at Norwegian onshore plants, Equinor said its combined portfolio remained ‘very resilient’ despite the negative impacts of the Covid-19 pandemic and weakened Norwegian krone.

The news follows a status update on several large projects by the Ministry of Petroleum and Energy as part of Norway’s National budget published on 7 October. Nine Equinor-operated projects with approved plans for development and operation (PDO) are included in the list, with capex totalling more than Nkr220Bn (US$23.7Bn).

Those projects facing the greatest delays and cost overruns from the weak krone and Covid-19 mitigation measures are the Martin Linge, Johan Castberg and Njord.

Since the PDO in 2012, estimated costs related to Martin Linge have almost doubled, increasing by almost Nkr30Bn (US$3.2Bn) – a 96% jump. Equinor took over the operatorship and Total’s 51% interest in the project in 2018. Start-up has now been postponed until mid-2021 – a five-year delay from Total’s original plan.

Equinor reported that Martin Linge had to demobilise all personnel due to Covid-19 in March, and later remobilised with a smaller workforce in accordance with virus mitigation measures.

Since last year, the cost estimate has increased by Nkr3.6Bn (US$386M) – half due to Covid-19 infection control measures. Add to this increased scope of work on the platform and the drilling of up to three new wells, as reported by Equinor in Q3 2020.

Exclusive of currency effects, the cost estimates for Johan Castberg actually declined by Nkr1.5Bn (US$160M) since the PDO in 2018. But due to an estimated currency loss of about Nkr4.4Bn (US473M) the project will still see a total cost increase of Nkr2.8Bn (US$300M).

Since 2019, costs have jumped by Nkr3.4Bn (US$365M) – about Nkr2.5Bn (US$269M) of which is related to Covid-19 measures.

Equinor reported that delivery of the FPSO hull for John Castberg from Singapore’s Sembcorp Marine has also been delayed by one year. The yard in Singapore has been fully shut down and still has a sharply reduced workforce. Work to repair welds on the hull is underway.

Production start for Johan Castberg has been postponed until Q4 2023.

The investment estimate for the project has increased by Nkr8.5Bn (US$913M), an increase of 53% since the PDO in 2017. The increase is largely due to the work on the Njord A platform’s life extension being more extensive than expected, and the increased scope of the Njord Bravo upgrading and tie-in work.

Since last year, the investment estimate has increased by almost Nkr4Bn (US$430M). About half of this is associated with delays in connection with Covid-19 measures and extended project execution period.

The Njord Future project will recover expected remaining resources totalling 175M barrels of oil equivalent (boe) on the Njord and Hyme fields. This corresponds to the reserves produced on the Njord field since start-up in 1997. The upgrade of the Njord A platform will be performed at Kværner Stord, while the Njord Bravo FPSO is being upgraded at the Aibel’s yard in Haugesund.

Planned start-up is delayed to 2021.

Equinor acting executive vice president for technology, projects & drilling Geir Tungesvik emphasised that Equinor has a solid portfolio but that 2020 has been a “challenging year.”

“We have delivered Johan Sverdrup phase 1 and Utgard ahead of schedule and under budget. Large-size developments such as Johan Sverdrup phase 2 and Snorre Expansion Project are still on the original schedule, and we recently submitted the PDOs for Sleipner partial electrification, Northern Lights and Breidablikk," said Mr Tungesvik.

Quarantine rules, occasionally limited mobility for personnel, reduced manpower and social distancing requirements have resulted in lower activity on most construction sites. This causes delays, cost increases and consequences for further work. As a result of this the start-up of some projects will also be postponed, said Equinor in a press statement.