Why Norway’s giant isn’t worried about oil crisis

Norway’s Equinor sees scope to further reduce development costs at the Johan Sverdrup oilfield in the North Sea, as it looks to maximise the potential of what could be the last giant field to be found off the Nordic country.

Equinor, formerly Statoil, has already cut development costs by 35 billion crowns ($4.1 billion) to 88 billion crowns, thanks to more efficient drilling and smooth execution that meant cash put aside for contingencies has not been used.

“I think there are still some further gains on the cost side,” Margareth Oevrum, Equinor’s executive president for technology, project and drilling, told Reuters.

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.

The project’s first phase is now 80% 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.

During the first stage of development, Sverdrup is expected to produce up to 440,000 barrels of oil equivalents per day (boepd), while the second phase, scheduled to start in 2022, is expected to boost output to 660,000 boepd.

State-controlled Equinor is expected to submit a plan for the field’s second phase, estimated to cost a preliminary 45 billion crowns, later this month.

Even before the crude-market crisis created the perfect climate for Sverdrup, the field was already an unlikely boon for Norway’s oil industry.

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/bbl, 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% 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.