17 January 2014, News Wires – A raft of new field development projects off Norway risk delays as rising costs and a recent tax increase take a toll on their commercial viability, according to reports.
The Norwegian Petroleum Directorate (NPD) said this week it expects 13 field development plans to be submitted to the authorities over the next two years , comprising nine in the North Sea, three in the Norwegian Sea and one in the Barents Sea.
NPD director Bente Nyland was reported as saying by Offshore.no this week that she was “reasonably certain” a plan for development and operation of Statoil’s Johan Castberg discovery in the Barents would be submitted in 2014 or 2015, which would make it the first in the region since the PDO for Eni’s Goliat oilfield was approved in 2009.
However, oil companies are increasingly struggling to achieve profitability on their greenfield plans as rising supplier costs hit their cash flow while they face higher outlays to exploit discoveries in more challenging areas as oil prices are expected to fall.
The NPD estimates that costs for operators have more than doubled since 2005 and predicts investment growth off Norway will stop after rising around 2% per annum over the next two years to Nkr180 billion in 2015, following a decade of double-digit increases.
Analyst Trond Omdal of Oslo-based Arctic Securities told Reuters: “We are now seeing delays even on some of the most profitable projects. Oil companies are now taking a second look at most of their planned projects.”
Statoil has postponed a final investment decision on Johan Castberg as it re-evaluates the proposed development concept for the field due to increased costs – believed to have spiralled by as much as 30% beyond an original estimate of around $15 billion – as well as last year’s tax increase and resource uncertainty.
A lack of infrastructure in the remote Barents region, as well as extreme temperatures and the risk of icing, also represent a major challenge for operators and are likely to push projects there further out in time.
“Pretty much all of the projects in the Barents Sea are in danger and I’m reasonably sure that all of the gas projects in the Barents Sea will be put on hold for many years,” analyst John Olaisen at equities brokerage ABG Sundal Collier was quoted as saying by the news wire.
“The reason for this is a combination of gas prices, costs and lack of infrastructure in the Barents Sea
“I don’t think these projects are gone forever, they will just be put on hold for some years.”
The NPD has raised its estimate for undiscovered resources in the Barents by 33% to 8 billion barrels of oil equivalent but the region is believed to be largely gas-prone, with gas considered less economic to exploit due to a lack of export facilities in the region and relatively low European gas prices.
A case in point is Total’s Norvarg gas discovery in the Barents, which is unlikely to be developed anytime soon, especially after a recent appraisal yielded disappointing results.
In the Norwegian Sea, RWE Dea’s plans to develop the Zidane gas find are reported to have been severely hit by the fiscal shift, believed to have reduced the net present value of the project by between 25% and 50% for partners, and submission of the development plan targeted in June is looking increasingly unlikely.
Shell has already put on hold plans to develop the Linnorm gas find in the same region as it works to improve project economics.
However, delays to both Zidane and Linnorm pose a threat to Statoil’s bid to boost gas throughput for the Polarled export pipeline being developed for its Aasta Hansteen project, which has earlier been the subject of doubts over its commerciality.
There is also reported to be a risk that Statoil will delay submission of a development plan for its 50 million-barrel Trestakk in the region this year.
Wintershall has though refuted reports the targeted 2018 start-up of its Maria oilfield project in the Norwegian Sea, which could also wrap in Trestakk, has been delayed indefinitely.
A company spokeswoman informed Upstream the German operator was still on track to submit a development plan for the proposed subsea tieback this year, though a final investment decision has not yet been made.
Concept selection for development of the Johan Sverdrup field in the North Sea, originally due by the end of last year, is also stalled due to disagreements in the Statoil-led licence partnership over plans for electrification from shore and start-up of the field has now been delayed to late 2019 from the end of 2018.
Furthermore, Nyland warned development plans for some of the smaller North Sea finds could slip, with PDOs reportedly due to be submitted over the next few years for Fulla/Krafla, Gullfaks Rimfaksdalen, Tommeliten Alpha, Astero, Mackerel, Alfa Central and Bream.