Statoil and its partners are still working hard to get the planned Snorre 2040 project off the ground despite soaring costs that threaten to scupper the increased recovery scheme off Norway, according to chief executive Helge Lund.
Upstream reported last week the proposed $6.7 billion scheme to extract more resources from the giant field using a new tension-leg platform is at risk amid apparent dissension among the partners over its economic viability, with no alternative plan on the table.
However, operator Statoil is under pressure to deliver a workable solution from state-run partner Petoro - the holder of the state’s stake in the project - as well as the Norwegian Petroleum Directorate in line with government policy to maximise exploitation of resources from existing fields.
Petoro believes the field’s resource potential is higher than the original estimate of 240 million barrels and there are fears that hundreds of millions of barrels in untapped reserves could be lost if the project is ultimately scrapped.
However, Lund reaffirmed the field partners’ intention to bring the increased recovery project to fruition at a briefing at the ONS conference in Stavanger on Monday.
“The partners must work together to find the best possible concept for Snorre 2040,” he said.
Industry body Norwegian Oil & Gas is calling for improved fiscal terms for such projects in next year’s Budget after a punitive tax hike last year that has eroded their economic viability.
Research firm Wood Mackenzie said in a newly released analysis that fiscal incentives will be needed to carry investments in such incremental projects.
However, Lund would not be drawn on whether he expected tax breaks to be unveiled in the next Budget to make the Snorre 2040 scheme viable, although he led an industry chorus of protest last year on the tax increase.
“This is up to the government. We focus on improving the economics in the project,” he said.
Commenting on the issue of spiralling costs for oil and gas companies, Lund said it would not be enough for the industry to simply adapt to the high cost level.
"Our competitiveness is under pressure. Not long ago, $100 per barrel oil would have called for champagne. Now it calls for concern", Lund said at the ONS conference.
According to Lund, structural changes are necessary for the industry. "We need a proactive approach (to)deal with the underlying causes for the high cost level", he said.
Statoil has initiated a wide-ranging cost-cutting programme in an effort to deal with increasingly high costs. Lund said the industry's technical requirements is a cost driver.
Lund used the example of the cost for a 100 MW gas turbine to exemplify his concerns about overall industry cost pressures.
"For the land-based industry, it requires 5000 man hours to deliver such a turbine. Because of the technical demands in the offshore industry,(however,) 37,000 man hours are required for the same turbine delivered to an oil company".
He said this illustrates that there is an underlying complexity in the industry that has to be addressed.