Wells worst on cost

February 4, 1999, 10:00 CET

Drilling and well completion account for the biggest cost overruns in Norwegian offshore projects, both for Statoil and other operators.

This finding comes from the report of the government commission of inquiry into development investment by Norway's oil and gas industry from 1994-98.

Statoil projects during the period include Norne and Åsgard in the Norwegian Sea, the first phase of the Gullfaks satellites in the North Sea, and the expansion of the Kårstø gas treatment complex north of Stavanger.

While surface installations account for 40 per cent of the cost increase on Åsgard, drilling and subsea installations were responsible for the remaining 60 per cent.

Both Norne and the Gullfaks satellites experienced cost overruns related to drilling. For instance, three wells have been added to those originally planned on Norne to enhance production and revenues.

Drilling costs in the satellites project rose because long and complex wells were pursued from a floating rig. This type of operation is demanding, and the industry had limited experience with such work when the project kicked off.

Advanced wells incorporating new technological solutions, introduced to recover as much oil and gas as possible, are more expensive to drill and complete than conventional wells.

They have also made it necessary to renew the rig fleet to ensure that these vessels are better adapted to the latest requirements.

"Although we've achieved substantial results, our shared ambitions to achieve improvements have led to over-optimistic investment estimates," says Statoil executive vice president Terje Vareberg.

"These calculations failed to take adequate account of uncertainties associated with new technology and modes of working.

"The inquiry report provides a good basis for further improvement efforts, both by operators and in the supplies industry."

Statoil has already initiated a number of measures to prevent future cost overruns in its development projects. These include ensuring proper quality work in the early phase and avoiding changes in execution.

The group plans to identify possible uncertainties and to ensure that these will be taken into account when decisions are made.

Other measures being adopted by Statoil include updating and developing its databases and working methods, and ensuring that experience is transferred.

The group will continue efforts to improve contractual forms in cooperation with the Federation of Norwegian Engineering Industries and other Norwegian operator companies, so that everyone can achieve better results.