By Mikael Holter (Bloomberg) — Right before Norway’s biggest oil project in decades got the go-ahead in 2015, crude prices fell off a cliff. That turned out to be perfect timing.
The crash forced desperate suppliers like platform builders and offshore drillers to cut their prices, allowing Equinor ASA and the other owners of the giant Johan Sverdrup field to trim the project’s cost by as much as 40 percent, or $10 billion. Oil has since recovered, well ahead of startup late next year.
While Norway’s oil-service companies had to slash their fees, Sverdrup’s timing also proved a godsend for them as the sheer size of the project offered a lifeline for an industry suffering its worst crisis in a generation.
“Timing-wise, this turned out very, very well,” Margareth Ovrum, Equinor’s executive vice president for technology, drilling and projects, said Wednesday during a visit to Sverdrup’s first two platforms installed in the North Sea, about 160 kilometers (100 miles) west of Norway’s oil capital, Stavanger.
The project’s first phase is now 80 percent complete, and the field is a hive of activity. After two platforms were lifted onto giant yellow steel frames earlier this year, a heavy-lift crane vessel is busy pounding down one of two remaining frames, which will support the living quarters and processing deck when they’re installed in the spring.
For the time being, the almost 900 people working on everything from welding and wiring to catering are housed in one floating unit and one so-called jack-up, or fixed rig. About 3 kilometers out, visible from the platforms despite the fog and rain, an Odfjell Drilling Ltd. rig is drilling a well that will inject water into the field to push up the crude. Yet another vessel is pulling a barge filled with pipes to be laid on the seabed to take the oil ashore.
“I can’t remember seeing this much activity on a field offshore ever,” said Ovrum, who has worked for Equinor since 1982. “We have capacity of 892, and had three available beds last week.”
The project’s second phase, due to start in 2022, will add another processing platform. Equinor has said it will present a development plan by September. The company has made a habit of timing some announcements for the ONS Conference in its hometown of Stavanger. This year’s event kicks off on Monday.
Even before the crude-market crisis created the perfect climate for Sverdrup, the field was already an unlikely boon for Norway’s oil industry.
Lundin Petroleum AB made the first discovery in 2010 just meters away from the site of a dry well in 1971, in a part of the North Sea that few expected to hide more large finds. The deposit turned out to hold as much as 3.1 billion barrels of crude, making it one of Norway’s five biggest fields.
When Sverdrup reaches maximum production of 660,000 barrels a day by the middle of the next decade, it will make up about 40 percent of the country’s oil output, according to Equinor. The field is expected to push Norway’s crude production to a 10-year high in 2020, and underpin a forecast resurgence in total petroleum output, which is projected to test new records in 2023.
Total investments are now seen at less than 133 billion kroner ($15.7 billion) for the project’s two phases, down from an initial range of 170 billion to 220 billion kroner. Breaking even at less than $20 a barrel, the field promises to be one of the most profitable offshore deposits in Norwegian history.
Equinor, the oil company previously known as Statoil ASA, has made savings both internally and from suppliers. For example, rig contractor Odfjell cut its daily rates by half and drilled twice as fast as anticipated, while Kvaerner ASA built three steel substructures for the platforms at the same nominal price it was charging in 2005.
And yet, the 88 billion kroner that Equinor and partners including Lundin Petroleum and Aker BP are spending on Sverdrup’s first phase alone represent more than half a year’s total investments by oil companies in Norway at current rates. In 2017, Sverdrup accounted for 43 percent of all field-development investment.
Crude’s collapse hit the nation’s oil sector harder than the 2008 financial crisis. About 50,000 jobs were lost in the industry, unemployment rose to 20-year highs, the central bank cut rates to a record low and the government had to make the first-ever withdrawal from its sovereign wealth fund to cover the budget.
If it hadn’t been for Sverdrup, it could have been much worse, Petroleum and Energy Minister Terje Soviknes said in an interview last week. Twice as many jobs could have been lost in the offshore industry and it would have taken more time for the economy to recover, he said.
“We would have had a mega-crisis,” Soviknes said. “Thank god that we had Sverdrup. It rescued us through the oil downturn.”
© 2018 Bloomberg L.P