Many of Norway's offshore projects have been completed far over budget in the past 5 years, despite a push by operators to reduce development costs.
In September 1998, Norway's Ministry of Petroleum and Energy announced a review of its cost-cutting program, having sensed that project costs were rocketing (OGJ, Sept. 7, 1998, p. 33). The ministry found that Norway's offshore operators expect to spend an extra 26 billion kroner ($3.4 billion) on 35 projects undertaken in recent years. A ministry official told OGJ this represented an average over-spend of 13% on Norwegian projects, but while much of the work came in under budget, there were some huge overruns.
The Âsgard fields development in particular was expected to cost 28.5 billion kroner ($3.73 billion) when operator Statoil AS submitted its development plan, but now the state firm expects the final outlay will be 8.5 billion kroner higher, a record cost overrun in an already expensive development region (see related story, this page).
The official said the ministry's investigators picked out 13 "flagship" projects for detailed examination.
These showed cost overruns of 30 billion kroner, a project average of 27% over budget. The ministry attributed the high costs to drilling and well completion spending in particular. It cited difficulties in handling new technologies and high costs for upgrading drilling rigs to handle increasingly complex operations in deeper water.
The Norwegian operators' Norsok cost-cutting program, based on the U.K.'s successful Cost Reduction in the New Era (Crine) initiative, was intended to reduce project costs by an average 30-50%. The failure to get near this target was seen as a result of a shared ambition to improve that led to overly optimistic estimates of project costs, and a failure to allow for uncertainties in developing complex fields with new technologies.
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