Equinor signals further capex blowout for flagship Barents Sea crude project

Norway's state-controlled Equinor on Sept. 19 signaled the latest in a series of increases in capital expenditure forecasts for its flagship Barents Sea oil project Johan Castberg, up 40% from the original plan, but said startup was on track for Q4 2024, in line with an earlier revised schedule.

Castberg is the second oil field to be developed in the Norwegian Barents Sea after Goliat, a field operated by Var Energi, majority owned by Italy's Eni.

Castberg crude is expected to be of medium gravity, with an API of 31 degrees, heavier than Goliat, and the facilities will be able to handle close to 190,000 b/d. The field lies around 150 km north of Goliat and 240 km north of the mainland.

Together with the impact of the giant Johan Sverdrup field, Castberg is expected to be a major contributor to rising Norwegian oil production in the first half of the current decade.

Equinor said the Castberg development cost was now expected to be NOK80 billion ($7.5 billion), up from NOK57 billion when the project was first submitted for approval. Equinor had already issued a number of warnings on likely cost increases, while the projected startup was earlier put back to Q4 2024, compared with the original plan for startup in 2022.

The project's remote location and features such as heating to prevent ice formation on the exterior of the facilities are among the cost factors involved, however, Equinor noted issues at the fabrication stages in Singapore and the Stord assembly yard in Norway, as well as the impact of the pandemic.

"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.

"The main reason for the rise in the investment estimate from last year is that the workload transferred to Stord has been more comprehensive and complex than estimated. In addition, the project has not progressed as planned. Due to the market cost development, the marine operations, drilling and completion costs have also increased," Equinor added.

Pandemic control measures and reduced access to labor had affected the project in both Singapore and Norway, it added.

"However, Johan Castberg is still a good project with a solid economy," Tungesvik said. "With a breakeven of around $35/b Johan Castberg will provide substantial revenue and ripple effects to the community from the Barents Sea for 30 years."

Barents expansion

Norway's expansion of its oil and gas industry into the Barents Sea has proceeded in fits and starts. In 2022, Equinor put on hold plans for an even more remote oil development, Wisting.

The industry is increasingly focused on ways to commercialize anticipated growth in Barents Sea gas output; currently there is just one producing Barents Sea gas field: Snohvit. Alongside the Barents Blue project, intended to convert gas into ammonia for seaborne export, the industry is increased calls for a gas pipeline connection to the Norwegian Sea.

The Goliat field meanwhile has been in significant decline, with 2022 output at 33,000 b/d, around 50% below the annual peak level.

North Sea benchmark Platts Dated Brent was assessed at $96.24/b on Sept. 18, up $1.10 on the day, and up from $88.55/b at the start of the month. Platts is part of S&P Global Commodity Insights.