New cost estimate and timing for first oil from North Sea project amid supply chain challenges

New cost estimate and timing for first oil from North Sea project

As supply chain challenges take their toll globally, Norway’s oil and gas company Vår Energi has run into delays for the first oil from a project located in the North Sea off Norway. As a result, the Norwegian player has changed its cost estimate for this project.

Jotun FPSO; Source: Vår Energi

Vår Energi is currently working on extending the lifetime of the Balder field through the Balder X project, aiming to extend production from the Balder hub beyond 2045. To this end, the company has four ongoing projects, including Balder FPU life extension through a vessel upgrade and drilling new wells on the Ringhorne III and Ringhorne IV projects. The firm’s plan for the Balder field also entails an upgrade of the FPSO Jotun and the drilling of 14 new production wells along with one water injection well. In addition, the firm is considering drilling new exploration wells in the area.

In August 2022, the Norwegian player took steps to take over new operatorship in the Balder area thanks to deals for two licences, including two existing discoveries, to increase the firm’s acreage positions in the North Sea off Norway. As explained at the time, these licenses would be worked as part of the further development of the greater Balder area.

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In an update on the progress of the Balder X development, Vår Energi provided a revised cost estimate for the project on Monday, reflecting the increased scope of work, the continued impact of global supply chain challenges, Covid-19 and schedule change. However, the firm confirmed that the production target of more than 350,000 boed by the end of 2025 was still unaffected by the revision. According to the Norwegian player, the Balder X project – comprising Balder Future and the Ringhorne Phase IV drilling projects – is set to support the development of new nearby discoveries by upgrading existing infrastructure and drilling new wells.

Vår Energi says that a baseline project review has identified additional gross investment requirements of $1.2 billion (NOK 11.5 billion), bringing the total estimated gross project cost to $4.3 billion (NOK 40.7 billion). The company underlines that the first oil from Balder X is now expected in the third quarter of 2024, compared to the previous timeline in late 2023. While the main production impact from the revised schedule is expected in 2024, the Norwegian player elaborates that this is partly mitigated by a faster ramp-up of production as more Balder Future production wells are expected to be ready for start-up. Additionally, the company expects the majority of incremental capital expenditure to be incurred in 2024.    

Commenting on this, Torger Rød, CEO of Vår Energi, remarked: “We are committed to the safe execution of the remaining project scope to complete the refurbishment of the Jotun FPSO as efficiently as possible. Balder X remains a highly profitable project which is expected to increase the Balder hub gross production to over 70,000 barrels of oil equivalents per day at peak with an attractive break-even price.”

Vår Energi also points out that the new cost estimate and schedule change are mainly related to Balder Future, with increased scope and additional engineering and construction work on the Jotun FPSO lifetime extension. The company underscores that external factors – including Covid-19, challenging weather conditions for drilling and offshore activities, and commodity and services price inflation – have to “some extent” impacted the overall project. For the Norwegian firm, the key focus areas are to ensure progress and cost control for the remaining part of the project, as Balder X is expected to unlock an estimated 143 million barrels of recoverable reserves.

After the Jotun FPSO is reinstalled and connected to the Balder Future production wells, it will tie in the new Ringhorne wells, while the King and Prince discoveries – announced in 2021 and estimated to hold additional 60-135 million barrels of oil – are being considered for tie-ins to the Jotun FPSO. The company is also evaluating new exploration prospects in the highly prolific Balder area. 

“The Balder Hub will remain a significant contributor to the long-term value creation from the Norwegian Continental Shelf. Balder is part of the first production license awarded in Norway and has since 1999 produced approximately 500 million barrels of oil and gas equivalents, contributing to European energy supply security and to the development of the Norwegian society. We see a potential to increase the production from the greater Balder area up towards 1 billion barrels based on planned projects, recent discoveries and adding risked exploration resources,” added Rød.

The Balder field is situated in production license PL 001, which was acquired in 1965 and the Balder X project is reusing existing infrastructure to reduce the development footprint and enable a potential future retirement of production assets which may reduce annual CO2 emission ~100,000-ton per year. The license owners are Vår Energi (operator with 90 per cent interest) and Mime Petroleum (10 per cent).

Regarding Vår Energi’s recent developments, it is worth noting that the Norwegian firm unveiled a simplified organisational structure along with management team changes in June 2022 to take full advantage of future growth opportunities.

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This new organisational structure entails the establishment of two new business areas – Technology, Drilling and Subsurface and Project Development and Supply Chain Management – to provide expertise, projects, and products across the firm.