Snorre; Source: Equinor

Equinor projects see delays, increased costs due to COVID, weak NOK

Norwegian energy major Equinor has seen its costs for projects under development rise due to the Covid-19 pandemic and weakened Norwegian krone, even postponing the start-up of some projects.

Snorre; Source: Equinor

Equinor operates 20 projects under development on the Norwegian continental shelf, or at Norwegian onshore plants.

In the National budget published today, 7 October 2020, the Ministry of Petroleum and Energy presented the status for large-size projects under development, or that have recently come on stream.

Nine Equinor-operated projects with approved plans for development and operation (PDO) are included in the list with capital expenditures totalling just above NOK 220 billion ($23.6 billion).

According to Equinor, Martin Linge, Johan Castberg, and Njord projects 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.

Geir Tungesvik
Geir Tungesvik

Geir Tungesvik, acting EVP for technology, projects, and drilling, said: “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.

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”.

Equinor stated on Wednesday that quarantine rules, occasionally limited mobility for personnel, reduced manpower, and social distancing requirements resulted in lower activity on most construction sites. This caused 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”, Tungesvik added.

Covid-19 pandemic and reduced oil demand also forced Equinor to reduce its exploration staff by 30 per cent.

Martin Linge

Since the PDO in 2012 the costs related to Martin Linge have increased by almost 30 billion NOK ($3.2 billion), a 96 per cent 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 per cent interest in 2018. Start-up is postponed until the summer of 2021.

Martin Linge; Source: Equinor
Martin Linge; Source: Equinor

In March, Martin Linge had to demobilize all personnel due to Covid-19, and later remobilized with a limited workforce per new infection control measures.

Since last year, the cost estimate has increased by NOK 3.6 billion ($386 million). 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.

Johan Castberg

The cost estimates for Johan Castberg have declined by NOK 1.5 billion ($160 million) 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.

Johan Castberg subsea equipment; Source: Equinor
Johan Castberg subsea equipment; Source: Equinor

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 the fourth quarter of 2023.

Njord Future

The investment estimate for the project has increased by NOK 8.5 billion ($911 million), an increase of 53 per cent 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.

Njord A; Source: Equinor
Njord A; Source: Equinor

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.