Norway's Equinor works on third Sverdrup oil project to maintain output: CFO

Norway's Equinor is looking at a Johan Sverdrup Phase 3 project to keep production at the giant field at current high levels around 755,000 b/d, it confirmed July 26, as the company takes on more shipping capacity to handle additional oil volumes.

The state-controlled company reported a 12% year-on-year rise in its Norwegian oil output in Q2 to 645,000 b/d on the back of the ramp-up of the second development phase at Johan Sverdrup, which started up in December 2022. Its production also increased off Brazil and in the US Gulf of Mexico, resulting in a 15% rise in overall oil output to 1.01 million b/d.

Sverdrup, which first came on stream in 2019, now accounts for around a quarter of all oil produced in the otherwise declining North Sea region.The crude, which is relatively heavy and sulfurous, has met with exceptional demand due to sanctions on Russia and its Urals crude. Platts, part of S&P Global Commodity Insights, assessed Sverdrup crude at a $2.59/b premium to North Sea Dated Brent on July 25.

Equinor had already talked about a potential Sverdrup Phase 3 and the new comments from Chief Financial Officer Torgrim Reitan confirm that intention.

In May, Equinor said successful tests on the Phase 2 facilities meant it could keep Sverdrup production close to 755,000 b/d for an undetermined period.

"The recent capacity increase is very important and we will be looking for how to maintain production on that level for longer," Reitain told investors July 26. "We are already thinking about Johan Sverdrup Phase 3. It is not sanctioned, of course, but the whole purpose of that is to capitalize on the existing infrastructure and to prolong this plateau of 755,000 b/d. Clearly a priority ... to prolong that as long as we can," he said.

In August 2022, Equinor's vice president for Norwegian upstream, Kjetil Hove, said the mooted Phase 3 would aim to increase recovery rates, rather than access new reserves. Sverdrup reserves are estimated by Equinor at 2.7 billion barrels, while the Norwegian Petroleum Directorate's latest estimate is that some 22% of the original oil reserves have been produced. The intention is "with increased oil recovery efforts, to drill more wells and increase the reserve base," Hove told S&P Global Commodity Insights Aug. 30.

Cost inflation

Equinor drew attention to rising industry and supply chain costs, linked to increases in the company's growing oil shipment volumes. He said cost increases have softened since Q1 2023, but an appreciating Norwegian krone would make inflation more evident.

Equinor's adjusted operating and administrative expenses were up 15% on the year. The cost inrease is "particularly related to shipping costs, because we have taken on more capacity and that has enabled us to make more money on the liquids side," Reitan said, without detailing the volumes.

The company stuck by its guidance of a 3% increase in its oil and gas production globally in 2023, but acknowledged this was at "risk" following gas-related outages in Norway that curbed Q2 output by 70,000 b/d of oil equivalent.

Despite higher oil output, Equinor's overall production rose by just 1% on the year to 1.86 million boe/d due to problems at its Hammerfest LNG plant and the Shell-operated Nyhamna processing plant.

Its sale last year of its small stake in the ConocoPhillips-operated Ekofisk area also impacted volumes.

Overseas projects

Reitain reiterated Equinor is close to final approval for the UK West of Shetland Rosebank oil project, which has been criticized by environmental campaigners. "We are awaiting final conclusion on a couple of topics and final approval from the regulators, but we are of a clear expectation that this will move forward," he said. "This is going ahead but there are some final clarifications needed."

Elsewhere, he reiterated Equinor's belief in the 300 million-barrel Bay du Nord project off eastern Canada with BP following the postponement of a final investment decision for up to three years in May.

He described Bay du Nord as "another very nice and good project" and said: "There's no mystery to it other than we do think we can make it better by redesigning it and taking it out of a very heated market now, and placing it in a time where it will work better."

"I do believe it will happen," he added.

Equinor's earnings reflected sharply lower oil and gas prices compared with elevated levels in Q2 2022, although overall the company remains cash-rich, with negative debt. Its average realized oil price globally was down 34% at $70.30/b.