London — Norway's state-controlled Equinor on Oct. 7 announced cost increases and delays to several projects, including major Barents Sea oil project Johan Castberg, citing a weaker Norwegian krone, coronavirus restrictions on activity, and unforeseen increases in the scope of work.
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In a statement, Equinor said the main projects affected were the 400 million-650 million-barrel Johan Castberg field, which is now expected on stream in the fourth quarter of 2023, the Martin Linge oil and gas project, which has suffered a string of technical problems and is now due on stream in the summer of 2021, and the Njord field, which was taken offline in 2016 due to structural problems and is now due on stream sometime next year.
Equinor provided a variety of explanations for the various delays and over-runs, but said "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."
"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," the company's acting head of technology, projects and drilling, Geir Tungesvik, said.
The company or its partners had already signaled delays to the three projects, but Equinor's announcement provides more precision, particularly on the Johan Castberg delay.
It said the estimated cost of Johan Castberg, Martin Linge and the Njord Future redevelopment project had increased by NOK2.8 billion ($300 million), NOK30 billion and NOK8.5 billion respectively. It comes as the company has vowed to rein in capital spending this year to $8.5 billion from $10 billion last year.
Despite these obstacles, Equinor said in July it could bring forward new Norwegian projects, potentially at the expense of overseas spending, to take advantage of temporary tax breaks authorized in response to the coronavirus.
Discovered in 2011-14, Johan Castberg was seen as a poster child for the Norwegian oil industry's expansion into the Barents Sea, but that goal has been somewhat deflated by a shortfall of later discoveries and the costs attached to some projects in the region, as well as poor performance at the one producing Barents Sea oil field, Goliat.
Delivery of the Johan Castberg floating production storage and offloading vessel has been delayed by a year both due to the closure of the fabrication yard in Singapore as a result of the coronavirus, but also problems with welding, which had necessitated repairs, Equinor said. Production from Johan Castberg is expected to peak at 205,000 b/d, with output lasting some 30 years.
The company had already highlighted problems at Martin Linge with the wells drilled by its predecessor as operator, Total, from which Equinor took over as operator in 2018. Equinor said Sept. 8 it had decided to drill three new wells at a cost of around $220 million as those drilled by Total could not be operated safely.
On the Njord redevelopment, which is aimed at extracting another 175 million boe from the Njord and Hyme fields, Equinor said the delay and cost over-run were "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 [storage vessel] upgrading and tie-in work."
Equinor made an overall loss of $251 million in Q2, and its debt gearing ratio rose to 34%, but it was cushioned by a 33% year-on-year jump in domestic oil output to 637,000 b/d, largely due to the start of production from the giant Johan Sverdrup field a year ago. Johan Sverdrup produced 480,000 b/d of crude in July, according to regulator, the Norwegian Petroleum Directorate.