British energy major
) has incurred a huge cost overrun on its Skarv project off Norway,
which got deferred mainly due to supply hindrances to obtain some
vital equipment and services. The company is now trying hard to
start operations in the field by the end of 2012.
The overrun cost is estimated at over NOK 10 billion ($1.7 billion)
on the original budget of NOK 34 billion. The project is under
pressure due to the elevated expenses associated with production
setback, fixing of vessel charters, engineering services and an
extended yard stay for the floater.
The repetitive weather-related problems such as high waves have
prohibited the set up of risers and thus postponed the
commissioning of the field's floating production, storage and
offloading (FPSO) vessel by over a year to December 2012. The
field's FPSO would be the largest in operation in the Norwegian
Earlier, the project was delayed due to complex and prolonged
repair work that had to be performed on the turret, assembled at
South Korea's Samsung Heavy Industries and supplied by the Dutch
contractor SBM Offshore.
Initially, BP had given the contract to Bluewater, but later
cancelled it as Samsung did not possess the capacity to honor the
order. SBM was finally contracted for engineering of the turret.
SBM has also been criticized over its supply of offshore production
) disturbed Yme project off Norway.
However, BP management has defended SBM and said that the Skarv
development is now moving as scheduled and will start producing in
December, as the last of the field's 13 risers was installed in the
turret this summer.
The Skarv field is estimated to hold oil and condensate reserves of
around 104 million barrels and gas reserves of about 42.1 billion
cubic meters of gas. Initially, BP targets a daily yield rate of
80,000 barrels from the field.
BP, the operator, has a working interest of 23.8% in the Skarv
development. Its partners,
), E.ON Ruhrgas and PGNiG hold 36.2%, 28.1% and 11.9%,
BP holds a Zacks #3 Rank (short-term Neutral rating). Longer term,
we maintain our Underperform recommendation on the stock.
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