Costs of Equinor's Johan Castberg Project Rise by $1.2B

Equinor Energy AS said that estimated investment costs for its flagship Johan Castberg project have risen by almost $1.2 billion (NOK 13 billion) since last year to $7.38 billion (NOK 80 billion).

However, the start of production is still slated for the fourth quarter, Equinor said in a news release Tuesday.

The main reason for the increase in the investment estimate from last year is that the workload transferred to Stord has been more comprehensive and complex than estimated, Equinor said. Marine operations, drilling, and completion costs have also increased due to “market cost development”, and “the project has not progressed as planned”, Equinor said.

Johan Castberg is located around 62.1 miles (100 kilometers) north of the Snohvit field in the Barents Sea, with a water depth of 1,181 to 1279.5 feet (360 to 390 meters). The asset is a subsea field with 30 wells distributed on 10 templates and two satellites tied back to a floating production, storage, and offloading vessel (FPSO), according to Equinor. The license owners are Equinor, which operates the field with a 50 percent interest, Var Energi ASA with a 30 percent interest, and Petoro AS with a 20 percent interest.

In 2022, the Johan Castberg FPSO hull, including living quarters, was transported from Singapore to Stord for installation and commissioning. Infection control measures and reduced access to labor in connection with the COVID-19 pandemic affected the project, in Singapore and at Norwegian yards constructing modules for the production facility, Equinor said.

Equinor said that when the project plan for development and operation was submitted in 2017, the cost estimate was $5.26 billion (NOK 57 billion). Project costs have risen by $1.43 billion (NOK 15.5 billion), in addition to a currency effect of just above $0.65 billion (NOK 7 billion).

“Costs are increasing due to a larger than expected scope of work and cost increases in the industry; we take this seriously”, Equinor Executive Vice-President for Projects, Drilling, and Procurement Geir Tungesvik said. “However, Johan Castberg is still a good project with a solid economy. With a breakeven of around USD 35 per barrel, Johan Castberg will provide substantial revenue and ripple effects to the community from the Barents Sea for 30 years”.

The proven volumes in Johan Castberg are estimated at between 450 million and 650 million barrels of oil. The FPSO vessel is designed for a daily production of almost 190,000 barrels, Equinor said, adding that the project will be serviced by a supply and helicopter base in Hammerfest, which is 149 miles (240 kilometers) away, and an operations organization in Harstad.

Every day around 2000 people work on completing the FPSO at Stord, Equinor noted. Johan Castberg is estimated to require 1,700 person-years of work during the operations phase, of which 500 will be in Northern Norway.

Onshore Wind Acquisition in Poland

Meanwhile, Equinor acquired a 26-megawatt onshore wind farm in Poland from the Helios Group, in a bid to expand its broad offering in Poland and deliver on its market-driven power producer strategy, the company said in an earlier news release this month. The Wilko wind farm is located in Wielkopolska province and will be operated by Wento, Equinor’s subsidiary in Poland.

Equinor said the asset will provide immediate production and cash flow, estimating accumulated annual production at 105 gigawatt-hours of power per year, which is equivalent to the electricity consumption of around 50,000 Polish households.

“Equinor’s renewable strategy targets flexible power offering from multi-tech positions in select markets”, Equinor Senior Vice-President of Onshore and Markets for Renewables Olav Kolbeinstveit said. “Through our subsidiary Wento, we have built a strong solar portfolio in Poland. By adding onshore wind to Wento’s portfolio of operated assets, we transform Wento into a multi-tech power producer”.

“Diversification of generation sources and energy supplies is key to successfully decarbonize Poland’s energy system and enhance its energy security”, Equinor Poland Country Manager Michał Jerzy Kołodziejczyk said. “With this deal, we are able to further extend our broad energy offering in Poland, which includes gas supplies through the Baltic Pipe, large-scale offshore wind projects, solar energy, and now also onshore wind”.

To contact the author, email rocky.teodoro@rigzone.com