Equinor’s Johan Castberg oil project now two years behind schedule

In addition to previous delays due to issues with the quality of welding, Equinor has experienced further delays and cost overruns on its operated Johan Castberg project in the Barents Sea due to the impact of the Covid-19 pandemic on the construction of the FPSO for the project.

The Johan Castberg field lies in the Barents Sea, 240 kilometres north-west of Hammerfest. With proven volumes estimated at between 400 and 650 million barrels of oil, it will be developed with an FPSO with additional subsea solutions, including 18 horizontal production wells and 12 injection wells. The oil will be offloaded to shuttle tankers and transported to the market and the field is expected to be producing for more than 30 years.

Under its development plan, filed in December 2017 and approved in June 2018, the Johan Castberg project was supposed to come on stream in the fourth quarter of 2022. However, the project has faced several issues during its development, which have now pushed back its first oil date two years, to 2024.

As reported by the Norwegian giant this week, the start-up of the Johan Castberg project is now scheduled for the fourth quarter of 2024. Equinor revealed the Covid-19 pandemic as the main cause of the delay, which has particularly impacted the construction of the FPSO vessel both in Singapore and in Norwegian yards.

Namely, the yard in Singapore has been shut down for long periods and still has reduced access to manpower due to entry restrictions associated with Covid-19. As a result, the hull will be transported to Stord in the first quarter of 2022 for processing module installation and commissioning, instead of in late 2021 as previously expected.

Previously, the Johan Castberg project has also faced challenges due to the quality of welding in Sembcorp Marine’s yard in Singapore where the FPSO hull is currently being built under a contract from November 2017. These welding defects required extensive repair work and, under the contract, the costs related to the repair are covered by Sembcorp Marine.

The issues with welding quality were identified last year, prompting an investigation by the Norwegian offshore safety regulator, the Petroleum Safety Authority (PSA), as well as by Equinor’s in-house team. The safety regulator completed its investigation in mid-2021, identifying serious breaches of the regulations and issued Equinor with an order to improve them. Equinor has now confirmed they will be rectified before the Johan Castberg FPSO hull leaves the yard.

This resulted in a one-year delay for the project start-up, but it was not the end of Equinor’s troubles with the development as the Covid-19 impact has further postponed the project. On the other hand, marine operations and drilling have been less impacted by Covid-19.

Furthermore, since the plan for the Johan Castberg project has been filed, the cost estimate has increased by NOK 1.9 billion. According to the plan for development, capital expenditures for the project were initially supposed to be NOK 49 billion.

In addition, Equinor said that there is an estimated cost increase of near NOK 6 billion due to weakened Norwegian krone compared to the currency expectations at the time of sanction, a total cost increase of 15 per cent since the plan for the development and operation. However, Equinor has emphasised that the project is profitable and still has a break-even price below $35 per barrel.

Reuters reported on Tuesday that the last year’s cost estimate was NOK 53.4 billion and that the project’s total cost is now NOK 59.1 billion.