Covid-19 pandemic and weakened Norwegian krone drive cost increases for projects under development, postponing the start-up of some projects
Equinor is the operator of 20 projects under development on the Norwegian continental shelf, or at Norwegian onshore plants. The Covid-19 pandemic and weakened Norwegian krone have negatively impacted some of the projects, but the combined project portfolio is still very resilient.
In the National budget published today, 7 October 2020, the Ministry of Petroleum and Energy presents the status for large-size projects under development, or that have recently come on stream. 9 Equinor-operated projects with approved plans for development and operation (PDO) are included in the list, their capital expenditures totalling slightly more than NOK 220 billion (2020 NOK).
The main reasons for the cost increase in the project portfolio this year is driven by Covid-19 and weakened Norwegian krone.
The Martin Linge, Johan Castberg and Njord projects have experienced the largest changes since the PDOs were submitted and will see postponed start-up and cost increases as a result of increased scope of work, infection control measures and the weak Norwegian krone.
“Equinor has a solid and good project portfolio. 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”, says Geir Tungesvik, acting executive vice president for Technology, Projects & Drilling.
“At the same time, I will emphasize that 2020 has been a very challenging year also for our industry. Together with our suppliers we have worked hard to mitigate the consequences of Covid-19. Safety and infection control measures are our number one priority, and I am impressed by the work that has been done,” says 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.
“We and the suppliers have got a new work situation and are closely monitoring the development of the pandemic. The situation is still unpredictable, and we cannot rule out that Covid-19 may have additional consequences for the progress and costs of our projects,” says Tungesvik.
In addition, a weakened Norwegian krone in the past year has driven cost increases for several of the projects under development. Several large-scale contracts, also with Norwegian suppliers, are priced fully or partly in foreign currency.
Since the PDO in 2012 the costs related to Martin Linge have increased by almost 30 billion 2020 NOK, a 96 percent cost increase. According to the plan from the former operator Total the project would come on stream in 2016. Equinor took over the operatorship and Total’s 51 percent interest in 2018. Start-up is postponed until the summer of 2021.
In March Martin Linge had to demobilize all personnel due to Covid-19, and later remobilized with a limited workforce in accordance with new infection control measures.
Since last year the cost estimate has increased by NOK 3.6 billion. Half of this is estimated to be 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 earlier this autumn.
Exclusive of currency effects the cost estimates for Johan Castberg have declined by NOK 1.5 billion since the PDO. Due to an estimated currency loss of about NOK 4.4 billion the project will still see a total cost increase of NOK 2.8 billion since the PDO was approved in 2018.
Since last year costs have increased by a total of NOK 3.4 billion. The increased costs related to Covid-19 account for about NOK 2.5 billion of this.
The delivery of the FPSO hull is 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.
Johan Castberg is still a project with good profitability. The scheduled production start is postponed until 4th quarter 2023.
The investment estimate for the project has increased by NOK 8.5 billion, an increase of 53 percent 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 NOK 4 billion. 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 175 million barrels of oil equivalent on the Njord and Hyme fields. This corresponds to the reserves produced on the Njord field since start-up in 1997. The upgrading of the Njord A platform takes place at Kværner Stord, whereas the Njord Bravo floating storage and offloading vessel is being upgraded at the Aibel’s yard in Haugesund.
Planned start-up is delayed to 2021.