Statoil has submitted its development plan for Johan Castberg – reportedly the largest oil and gas development to be sanctioned this year
Norwegian NOC Statoil has announced a new milestone in its flagship subsea development, Johan Castberg. On December 5 the company confirmed it had submitted a plan for development and operation (PDO) of the project. Holding a 50% share, Statoil will also operate the project on behalf of partners Eni (30%) and Petoro (20%).
Alongside the PDO, the operator announced a raft of engineering and supply contracts, including the delivery of the turret system on the floating production storage and offload vessel (FPSO) that will form the centrepiece of the project.
The Johan Castberg field lies in the Barents Sea, around 100 km north of the Snøhvit field, and about 250 km northwest of Hammerfest. It consists of three discoveries – Skrugard, Havis and Drivis – in licence PL 532 and holds estimated recoverable resources of 450-650 million boe at water depth of 360-390m. Based on those assessments, Statoil says the project is the biggest offshore oil and gas development to be approved in 2017.
With first oil scheduled for 2022, Statoil intends to invest around 49 billion kroner (US$5.85 billion) to bring the project on line. That will be supplemented by operating costs of around 1.15 billion kroner (US$140 million) per year over an anticipated production life of 30 years.
Supplies will come from a helicopter base in Hammerfest and an operations organisation in Harstad.
Despite the field’s considerable resources, Statoil has had to revise its development plan significantly since it was mooted in 2014-15, but claims to have successfully halved its expected costs. “The project was not commercially viable due to high capital expenditures of more than 100 billion kroner [US$12 billion] and a break-even oil price of more than US$80 per barrel. We have been working hard together with our suppliers and partners, changing the concept and finding new solutions in order to realise the development. Today we are delivering a solid PDO for a field with halved capital expenditures and which will be profitable at oil prices of less than US$35 per barrel,” executive vice president for technology, projects and drilling Margareth Øvrum explained.
Subsea, swivels and savings
Key to achieving those cost savings is Statoil’s continued vision of the “subsea factory”, where much of the necessary infrastructure is moved to the seabed.
As part of its December 5 announcement, Statoil also signed contracts for the FPSO topside design and EPC of subsea systems with Aker Solutions. Work on the latter will cover 30 wells with vertical subsea trees, wellheads, control systems, 10 templates and manifolds, two satellite structures and tooling, totalling around 4 billion kroner (US$480 million) – to be booked in Aker’s fourth-quarter orders.
According to the engineering contractor, first deliveries are scheduled for the second quarter of 2019, with final delivery in the first half of 2023.
Meanwhile, the FPSO agreement covers engineering, procurement and management assistance for the detailed design of the Johan Castberg topside, with Statoil exercising an option from a 2013 engineering contract. Work on this has already started and will be carried out by Aker in Norway and India, with a detailed design to be completed in 2019.
"We are able to generate significant project synergies by building on our work from the early stages of the development and playing on our combined strengths in both subsea and floating installations to optimise the overall solution," said Aker Solutions CEO Luis Araujo.
Statoil also has also signed SBM Offshore to deliver the FPSO’s turret mooring system, one of the more complex aspects of the development. “This is a specialised delivery that only a few suppliers internationally have the competence to deliver,” noted Statoil’s head of project development Torger Rød.
This contract is also an exercise of an option following the conclusion of a FEED contract with SBM, and marks a continued relationship between the two; SBM has previously delivered turrets for Statoil’s Norne and Asgard FPSOs.
Although plans for production side are now in place, a final decision on offloading has yet to be reached. In its announcement Statoil highlighted the “significant differences in costs between a concept based on bringing the oil to shore in a pipeline and a concept based on offshore oil offloading,” adding that it would continue to work with the partners to develop a strategy and a timescale. An investment decision on a possible receiving terminal at Veidnes will be made in 2019.
Power also remains a point of interest. While many Norwegian fields are now being brought online on a power-from-shore model – including Johan Sverdrup – the long step-out distance means the method may not be economical in this case. A 2016 update from the operator stated that the cost of full or partial electrification ranged from 4 billion kroner to just above 12 billion kroner [US$1.4 billion]. As a result, it concluded that “costs related to land-based power, including technical challenges, represent a risk to both the timeline and feasibility of the project.”
“We have developed a highly energy-efficient solution involving use of gas turbines for power generation on Johan Castberg. By use of heat recovery we achieve a turbine power efficiency of 64%, which is an outstanding result from use of gas turbines on offshore platforms. The licence partners consider gas-fired power to be the most suitable and socio-economic solution for the development,” Øvrum explained last year.
According to a June 2017 article from Rystad Energy, Statoil appears to be keeping its options open for now: “The plan for Johan Castberg is to use gas turbines for power, but also to be enabled for future electrification if an economical and technical viable solution becomes available.”
The foundations laid at Johan Castberg are likely to play a vital role in future developments in the Barents. Indeed, executive vice president for development and production Norway, Arne Sigve Nylund, noted that Johan Castberg would form “a backbone of the further development of the oil and gas industry in the North…[and] will create new development opportunities.”