Snorre Costs Concern Petoro
Friday 24 March 2017
Statoil and its partners in the Snorre oilfield off Norway are working against the clock to agree on a cost-efficient plan to redevelop this North Sea giant, which has been producing oil since 1992.
Field partner Petoro, a state-owned company, has for years fought for a solution to tap the remaining reserves in the field, where production facilities currently include the Snorre A tension-leg platform and the Snorre B semi-submersible.
The Snorre partners, led by operator Statoil, last year abandoned plans to build a new TLP as the backbone of the Snorre Expansion project, favouring instead a less expensive subsea solution. The revised scheme is expected to cut capital costs by between 30% and 40%, while adding 200 million barrels of oil equivalent to reserves and extending the life of the field to 2040.
“The resources in Snorre are time-sensitive,” a spokesman from the Norwegian Petroleum Directorate said. “It is therefore very important that schedules are met, with a final investment decision and a plan for development and operation (PDO) in autumn 2017.”
Petoro chief executive Grethe Moen stated this week that she remains optimistic about the project, but admitted that Snorre Expansion is sensitive to low oil prices and cost increases. “I wish the project was more robust,” she said, adding that work is being done to further improve the economics.
Snorre Expansion is estimated to cost between Nkr22 billion and Nkr25 billion ($2.6 billion to $2.9 billion) including modifications on the Snorre A TLP, additional subsea installation work and the drilling of 24 new wells.
Statoil recently revealed its break-even price estimates for other Norwegian projects, such as Johan Castberg and Johan Sverdrup 2, but not for the Snorre Expansion.
“We have not disclosed the break-even price for Snorre Expansion publicly,” a Statoil spokesman said. “These days all projects are vulnerable to falling oil prices and cost increases, but we are working systematically to improve the economics in the project and we are also in close dialogue with the authorities.”
UK consultancy Wood Mackenzie says Snorre carries the highest degree of uncertainty amongst the major Statoil projects coming up in the next few years.
“With (Statoil's other) projects having reduced costs by over 40%, we now estimate Snorre Expansion breaks even at just under $50 per barrel (NPV10),” Wood Mackenzie’s Norway research analyst Neivan Boroujerdi stated
“Big progress has been made but, by our estimates, the project still has the highest break-even of Statoil’s project decisions between 2015 and 2017. So while the partners are aiming for project sanction by year-end, it remains to be seen whether further optimisation will be required. This could see project sanction slip into 2018,” he added.
Norwegian consulting firm Rystad Energy believes Statoil will manage to make the project fly, but agrees sanction is more likely next year.
“Snorre Expansion is expected to get PDO approval in 2018. Our break-even price is $48 per barrel, but we expect a reduction to a level towards $40 based on Statoil’s recent cost reductions communicated for new projects,” said Tore Guldbrandsoy, head of Rystad’s Stavanger office.
Finding common ground for development projects on Snorre has always been challenging due to the many different parties involved. Licence holders are Statoil, Petoro, ExxonMobil, Idemitsu, DEA Norge and Point Resources.
The two Snorre floaters do not have sufficient processing capacity for the field's oil, thus necessitating exports to the nearby Gullfaks and Statfjord fields. Statfjord, where ExxonMobil is a partner, is projected to close in 2023.
Sources stated that there are still ongoing commercial discussions about the export of oil from the Snorre Expansion project, but Statoil’s base case is to install a new pipeline to the Kvitebjorn field for further transport to the Mongstad terminal in western Norway.
There are additional factors that could further complicate progress for the new Snorre project. ExxonMobil is reported to be in final negotiations with Point Resources regarding the possible sale of assets in Norway, and there are rumours that Dea has its eye on them. Both of these potential buyers are partners in Snorre.
Also, Norway's government has signalled that it might make tax adjustments to boost oil recovery from large mature oilfields.