Equinor's (EQNR) Johan Castberg Cost Estimate Rises NOK 13BN
Equinor ASA, EQNR the Norwegian energy giant, announced that it has revised the cost estimate for its ambitious Johan Castberg subsea oilfield project in the Arctic Barents Sea. The estimate has seen an increase of nearly NOK 13 billion compared with the previous year’s level, attributed to a combination of unforeseen scope expansion and industry-wide cost increases.
The overall project development cost is NOK 80 billion at present, up from NOK 67 billion projected last year and NOK 57 billion initial estimate in 2017. Despite this adjustment, the plan for production commencement in the fourth quarter of 2024 remains unchanged.
Geir Tungesvik, Equinor’s executive vice president for Projects, Drilling & Procurement, addressed the cost escalation, attributing it to a larger-than-expected scope of work and industry-wide cost inflation. The project's complexity and workload, especially during the transfer to Stord, have surpassed initial estimations. Additionally, unforeseen delays have contributed to the rise in expenses. Market dynamics have also led to increased costs in marine operations, drilling and completion.
However, he emphasized that the project boasts a breakeven point of approximately USD 35 per barrel, which indicates that even with the adjusted costs, the project is poised to generate substantial revenues.
The Johan Castberg subsea field project holds estimated proven volumes of oil, ranging between 450 and 650 million barrels. The vessel's design allows for a daily production capacity of nearly 190,000 barrels. Currently, a dedicated workforce of approximately 2000 individuals is diligently working on completing the Floating Production Storage and Offloading vessel at Stord.
As the project enters its operational phase, it is anticipated to create employment opportunities, generate economic ripple effects and contribute revenues to the community for three decades. The phase is projected to require approximately 1700 person-years of work, with 500 of those in Northern Norway.
Zacks Rank & Key Picks
Equinor currently carries a Zack Rank #3 (Hold).
Some better-ranked players in the energy sector are USA Compression Partners, LP USAC and Helix Energy Solutions Group, Inc. HLX, currently sporting a Zacks Rank #1 (Strong Buy), and Core Laboratories Inc CLB, carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
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