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Costs balloon on Norway projects

A raft of Norwegian field development projects are reported to be facing major cost overruns as the tight supply market takes it toll on budgets.

The catalogue of cost nightmares for operators was laid bare by the Petroleum & Energy Ministry in connection with the draft Budget for 2013 unveiled this week, with Talisman Energy’s stalled Yme scheme the biggest embarrassment with a budget increase of 188%, according to Oilinfo.no.

BP is facing an estimated overrun of Nkr11.5 billion ($2 billion) – or more than 32% - compared with its original budget for the FPSO-based Skarv project.

The increase was attributed by the ministry to, among other things, changes in the design and construction of subsea installations, as well as delays in construction of drilling facilities and longer-than-expected installation time for risers and other equipment.

The UK supermajor is also facing major challenges at its Greater Valhall project where the latest cost estimate shows an 86% increase from the original budget to Nkr46.7 billion.

Expected investments on field facilities alone have soared from Nkr15.5 billion in the development plan to Nkr23.5 billion currently, while integration work on old and new installations has proven more costly than anticipated and drilling costs have increased.

The latest estimate for Eni’s Goliat field in the Barents Sea shows a 20% increase in cost to Nkr37.1 billion, compared with the budgeted figure of Nkr30.9 billion, due to higher prices on equipment and longer lead time on deliveries, as well as engineering challenges on the field’s cylindrical floating production, storage and offloading unit.

Statoil has also seen costs creeping upwards at its ground-breaking Aasgard subsea gas compression project, with a rise of Nkr2 billion on the Nkr15.7 billion budget, with the tight supply chain and changes in the technical concept blamed for the increase.

Det norske oljeselskap has been dealt a costs shock on its Jette development where it is making its debut as an operator as the domestic player faces a Nkr319 million increase after being forced to make changes to the drilling plan due to unforeseen downhole difficulties, taking the budget to Nkr2.9 billion.

BG Group has been another victim of the lack of contractor capacity, with tight supply of subsea installations contributing to a cost rise of Nkr90 million on its Knarr project, which now has a budget of Nkr11.5 billion.   

Meanwhile, Lundin Petroleum has seen a cost hike of Nkr351 million on its Brynhild project as more wells are to be drilled than originally envisaged.