Norway ‘cracking whip’ on field costs

Getty Off Shore Oil Rig08 April 2014, News Wires – Norway’s petroleum agency intends to take a more proactive role in monitioring field development projects off the country to reduce the risk of cost overruns and delays, according to a report.

Among measures set to be implemented by the Norwegian Petroleum Directorate (NPD) is earlier intervention in projects to prevent budget and time slippage, its director Bente Nyland told Reuters.

She warned a lack of operator experience has hit implementation of projects, with 16 out of 22 oil companies working on developing new projects considered to have minimal experience on the Norwegian continental shelf.

This, she said, represents a big risk for the government given Norway’s generous fiscal regime that allows operators to deduct the lion’s share of development costs against tax.

As a result, the directorate will start to get involved earlier and stay involved throughout, Nyland said on the sidelines of a Stavanger conference.

“We may go in earlier and point out when a project takes a wrong turn… and ask for mitigating measures,” she said.

The NPD is also calling for more mature development plans from operators, improved prequalification of contractors and more detail on contracting strategy.

It will also keep a close eye on development plans and require operators to improve their monitoring, which has slipped as more work is outsourced to contractors.

“This regulatory tightening is a signal that we’re watching you. With the tax regime, the state is a big risk taker… so we need to have better control,” Nyland said.

The NPD is taking action following a report published by the agency last year that blamed project cost overruns and delays largely on deficiencies in early-phase engineering, contractor prequalification, contracting strategy and follow-up.

The report highlighted a litany of cost overruns on projects off Norway such as Talisman Energy’s abortive Yme scheme, where the newbuild production unit is being scrapped, and BP’s Valhall field redevelopment.

Costs on Yme had ballooned by 136% to Nkr11.6 billion while the Valhall scheme had seen a 62% rise to Nkr24.9 billion, the report revealed.

The agency found that per-unit development and production costs in Norway have risen tenfold over the past decade, fuelled by spiralling drilling costs as rig dayrates have soared due to high activity levels.

Nyland said: “First and foremost the well costs must be reduced. We believe that much better preparation is needed. Do your homework better.”


– Upstream

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