Equinor, the Norwegian energy major, announced on Tuesday that the cost of the Johan Castberg oil project in the Barents Sea has risen by nearly 13 billion Norwegian kroner ($1.2 billion) since last year. This increase is primarily attributed to higher costs for building the production vessel, marine operations, drilling, and overall project completion.
Despite the cost increase, Equinor maintains its plan to commence production in the fourth quarter of 2024. However, the total development cost for the project has surged from the initially estimated NOK57 billion in 2017 to NOK80 billion. The rise in project costs accounts for NOK15.5 billion, while currency effects contribute slightly above NOK7 billion to the overall increase.
The Johan Castberg project faced challenges due to infection control measures and reduced access to labor caused by the ongoing coronavirus pandemic. These difficulties affected construction in Singapore, where the hull and living quarters for the production vessel were built. Additionally, the production process at Norwegian yards proved more complex than originally estimated.
According to Geir Tungesvik, Equinor’s executive vice president for projects, drilling & procurement, “Costs are increasing due to a larger than expected scope of work and cost increases in the industry.” However, despite these challenges, Tungesvik emphasizes that the Johan Castberg project remains economically viable. With a breakeven point of approximately $35 per barrel, it is expected to generate substantial revenue and have positive ripple effects within the Barents Sea community for a period of 30 years.
The Johan Castberg field comprises 30 wells that will be connected to a floating production, storage, and offloading vessel. Future exploration activities are planned in the area. Proven volumes of oil are estimated to range between 450 million and 650 million barrels, with the production vessel designed for a daily output of nearly 190,000 barrels.
Partners in this project include Equinor, Var Energi, and Petoro.
