Offshore staff
FAVERSHAM, UK – Development of the technically challenging Johan Castberg project in the Barents Sea seems against the odds at current oil prices, yet operator Statoil appears to have found a solution.
AnalystDouglas-Westwood (DW) said it appears the project could go forward, leading to first oil in 2022, with Statoil claiming recently that production costs have been nearly halved since the oil slump. The question is how was this achieved?
Construction costs have fallen since the downturn with EPC providers bidding more aggressively for contracts, but reduced contractor rates alone do not make complex projects viable. The solution for Johan Castberg, DW believes, has been a more pragmatic approach to development.
The cost has come down by reducing the number of planned production wells and choosing a single FPSO with no oil export pipeline to shore, lowering the break-even price for the project from around $80/bbl to $45/bbl.
There is an analogy withMad Dog Phase 2 in the Gulf of Mexico, another project that appears, according to DW, to have undergone over-engineering and numerous development plans, with operator BP considering a spar, TLP and a floating production system, with the latter choice then canceled due to inflated costs.
However, thanks to lower supplier costs and a focus on re-engineering BP has managed to make the project commercial, cutting the break-even price from around $110 to $50/bbl.
Keeping costs at a manageable level over the next cycle will be another challenge, DW adds, if the industry reverts to its old ways when the oil price recovers.
05/02/2016
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