FPSO delay pushes North Sea project’s costs up by $400 million and bumps first oil to 2025

As the delay in finishing the upgrade works on its floating production, storage, and offloading (FPSO) vessel comes to light, Norway’s oil and gas player Vår Energi has made changes to the schedule for the start-up of an oil field life extension project in the Norwegian sector of the North Sea, moving it to the second quarter of 2025.

The Norwegian player and its contractors have made inroads in developing the Balder X project, as illustrated by the completion of all development wells, which Seadrill recently confirmed. Vår Energi hired the offshore drilling firm’s West Phoenix rig in December 2019 for operations at the Balder field, as part of the Balder Future re-development project in the North Sea.

This re-development is part of the Balder X project, targeting the recovery of around 200 million barrels of additional reserves from the Balder-Ringhorne area in the North Sea, where the Norwegian player is working to prolong the production lifetime to 2045. Vår Energi is the operator (90%) of the Balder area with Kistos Energy (Norway) as its partner (10%).

Given that all development wells have been completed and all subsea production systems are installed, the company plans to complete the remaining scope of work on the FPSO Jotun fully onshore, enabling the first oil within the second quarter of next year.

The revision of the production start date is said to have a limited impact on the company’s 2024 production and no material impact on guided capital costs. As Vår Energi’s production target for 2025 remains unchanged, the firm is on track to reach around 400 kboepd by the end of next year.

Nick Walker, CEO of Vår Energi, commented: “A key consideration has been to limit the carryover work into the offshore installation and start-up phase as much as possible. Together with our suppliers we have made every effort to complete the final work on the Jotun FPSO at the Rosenberg yard to enable field installation before the winter weather period.

“However, despite recent good progress, some onshore completion and commissioning work required prior to sail-away remains. Although achieving first oil by end of the fourth quarter 2024 is no longer possible this has limited impact on 2024 production and our guidance of 280-300 kboepd for the year is maintained.”

The FPSO Jotun is envisioned as an area host, enabling future growth opportunities. While the capex estimate increased by approximately $340 million (about NOK 3.6 billion) net pre-tax to Vår Energi a few months ago, the cost basis for the project has been updated once again to reflect a sail-away in the spring of 2025.

The latest delay represents an additional project cost of around $400 million gross pre-tax (about NOK 4.27 billion) with approximately 75% to be incurred in 2025. The Norwegian firm’s capital spend guidance for 2024 is revised down from  $2.7-2.9 billion to around $2.6 billion, reflecting other cost reductions and a favorable NOK exchange rate.

The Balder X project is expected to secure production from the Balder area beyond 2045, unlocking gross proved plus probable (2P) reserves of around 150 million barrels of oil equivalent (mmboe) with gross peak production of 80 kboepd.

According to Vår Energi, progress is being made in developing Balder Phase V, including the spudding of six production wells to utilize the remaining subsea template well slots to capture gross 2P reserves of more than 30 mmboe. These wells are slated to be drilled in the first half of 2025 and completed in 2026.

The company is also working on maturing the Balder Phase VI project to add new subsea facilities and wells, with an expected investment decision planned in the first half of 2025. The operator believes significant additional resource upside to be present in the area, thus, further exploration drilling and tie-back development phases are also being planned.

With the acquisition of Neptune Energy’s Norwegian oil and gas business in the bag, Vår Energi recently expanded its portfolio with new assets.