Norwegian state-owned energy giant Equinor has revised the cost estimate for its Johan Castberg project in the Barents Sea due to the rise in cost within the industry. However, the production start-up remains slated for the fourth quarter of 2024.
According to Equinor, infection control measures and reduced access to labour in connection with the Covid-19 pandemic affected the Johan Castberg project, both in Singapore, where the hull and living quarters for the production vessel were constructed, and at Norwegian yards, constructing modules for the production facility. When the plan for development and operation (PDO) was submitted in 2017, the cost estimate was NOK 57 billion (close to $5.3 billion).
As the investment estimate increased by almost NOK 13 billion (over $1.2 billion) since last year, the Johan Castberg partnership – consisting of Equinor, Vår Energi, and Petoro – has updated the project cost estimate, which is now NOK 80 billion (almost $7.4 billion). The Norwegian giant explains that the project costs have risen by NOK 15.5 billion (more than $1.4 billion), in addition to a currency effect of just above NOK 7 billion (over $647 million).
Equinor underlines that the main reason for the rise in the investment estimate from last year is that the workload transferred to Stord has been more comprehensive and complex than estimated. In addition, the project has not progressed as planned. Due to the market cost development the marine operations, drilling, and completion costs have also risen. The Johan Castberg hull, including living quarters, was transported from Singapore to Stord for installation and commissioning in 2022.
Geir Tungesvik, Equinor’s executive vice president for Projects, Drilling & Procurement, commented: “Costs are increasing due to a larger than expected scope of work and cost increases in the industry, we take this seriously. However, Johan Castberg is still a good project with a solid economy. With a breakeven of around $35 per barrel, Johan Castberg will provide substantial revenue and ripple effects to the community from the Barents Sea for 30 years.”
Moreover, the proven volumes in Johan Castberg are estimated at between 450 and 650 million barrels of oil. The FPSO is designed for a daily production of close to 190,000 barrels. Around 2,000 people work on completing the FPSO at Stord every day. Equinor believes that Johan Castberg will provide jobs, ripple effects, and revenue to the community for 30 years in the operations phase. This project is estimated to require 1,700 person-years of work during the operations phase, of which 500 will be in Northern Norway.
The Johan Castberg field is located around 100 km north of the Snøhvit field in the Barents Sea, 150 km from Goliat, and almost 240 km from Melkøya in Hammerfest. The water depth at the site is 360-390 metres. This is a subsea field with 30 wells distributed on 10 templates and two satellites tied back to the FPSO.
Equinor outlines that the Johan Castberg field development provides an important infrastructure in a new oil province in the Barents Sea, as two more discoveries were made in 2022 that are being considered for tie-back to Johan Castberg, and plans are made for further exploration in the vicinity in the years ahead.
The operation of Johan Castberg will be serviced by a supply and helicopter base in Hammerfest and an operations organisation in Harstad. Previously, the start-up of this project was expected in the fourth quarter of 2022, but this was bumped to 4Q 2024 due to delays and cost overruns.
Read the latest issue of the OGV Energy magazine HERE