Statoil Raises Johan Sverdrup Output Plan

Statoil

By MarEx 2016-08-29 03:29:15

Norwegian oil major Statoil said on Monday it had cut development costs by about 20 percent for the first stage of its giant Johan Sverdrup oil field, while sharply raising the expected output.

The initial phase of the North Sea's largest oil discovery in more than three decades is now expected to cost 99 billion Norwegian crowns ($11.96 billion), down from an original forecast of 123 billion crowns, Statoil said.

Output from the first stage has now been estimated at 440,000 barrels of oil per day, well above the 315,000-380,000 barrels per day the company predicted earlier. 

The improvements made for the Johan Sverdrup full-field development are mainly a result of optimization and simplification of the development concept for future phases, in close cooperation with the supplier industry. Statoil has also focused on removing bottlenecks in the facilities to expand processing capacity on the Johan Sverdrup field center. 

"We are now seeing the results of good cooperation between Statoil, its partners and suppliers. We are strongly reducing investment costs, and we are increasing the process capacity, resource estimate and value of the field," Statoil Chief Executive Eldar Saetre said in a statement.

"Johan Sverdrup is a world-class project, and we want to create high value for the owners and society for generations," he added.

The overall cost of Sverdrup, including the second stage of the development, was lowered to a range of 140 billion crowns to 170 billion crowns from 170 billion-220 billion crowns previously.

“We will continue our improvement effort, and Statoil and its partners have decided to spend more time on this work until project pre-sanction and a final investment decision has been reached for future phases. At the same time we want to stay on schedule for full-field production start and for establishing an area solution for land-based power by 2022, as per conditions stated in the approved PDO for phase 1,” says Margareth Øvrum, executive vice president for Technology, Projects & Drilling in Statoil.

When fully developed, the field is expected to have a production capacity of 660,000 barrels of oil per day, an increase from the 550,000-650,000 barrels per day seen initially.

Statoil is the operator of the field with a stake of slightly more than 40 percent.

Sweden's Lundin holds 22.6 percent, Norway's state-owned Petoro 17.36 percent, Norwegian firm Det norske 11.57 percent and Denmark's Maersk 8.44 percent.

Development costs cut by nearly half at other fields

The price tag for developing a field on the Norwegian shelf has declined by an average of more than 40 per cent since the autumn of 2014, according to the Norwegian Petroleum Directorate's (NDP) analysis of eight planned developments that are approaching start-up.

The decline is a result of a combination of simpler development concepts and more efficient drilling. Lower prices for work and equipment are also a contributing factor.

The investment estimates for the Utgard, Oda, Zidane, Trestakk, Snilehorn, Johan Castberg, Snorre Expansion and Johan Sverdrup Phase 2 projects have fallen from about NOK 270 to 150 billion, according to the operating companies' own calculations. The downward adjustments have been made in connection with various decision phases in project implementation.

"This is a significant and very welcome reduction", says the NPD's Director of development and operations, Ingrid Sølvberg.

"The oil companies and the supplier industry have made a tremendous effort in streamlining the activities, and now we can see that these measures are working."

The biggest savings on these eight projects are a result of altered development solutions. The second largest reduction is within drilling and wells, which on average accounts for around 30 per cent of the overall field development costs. This is due to the decline in rental rates for drilling rigs, and also that the companies are planning wells that can be drilled faster. The actual drilling operation has also become more efficient, so that the price per metre of well will be much lower than before.

Investments in pipelines and cables are also expected to decline significantly. This is a result of falling prices for materials, and choosing different routes. Simplified development solutions and less costly materials will yield more reasonably priced modifications and adaptations of facilities where the oil and gas from new developments will be taken in and processed.

Despite the positive development in the cost scenario, Sølvberg cautions against short-term savings at the expense of long-term value creation on the shelf. She also warns against cutting staff in important technical environments, as it could impair the capacity for innovation and the ability to find smart solutions.
    
The NPD has noted tendencies where companies prioritise minimum investment in the development phase, but that could limit subsequent upgrades of the facilities, or make them more expensive.

"We must not put ourselves in a situation where cost cuts reduce the future flexibility on the fields, or have a detrimental impact on our ability and willingness to use technology that can provide better and more efficient resource management," says the development director.