Increased Costs and Delayed Start for Snohvit

Statoil's board of directors and its partners in the Sn°hvit license have been informed about the new investment estimate of NOK 58.3 billion, an increase of NOK 7 billion in relation to the investment estimate that was communicated earlier. Gas production is expected to begin on June 1, 2007 and regular gas deliveries are scheduled to start on December 1, 2007. This is eight months later than previously indicated.

"The Sn°hvit project has struggled with problems from the outset, mainly because the project was not sufficiently mature when it was sanctioned in 2001," says chief executive Helge Lund. "The new review of costs and progress has revealed that control of the project has been insufficient and we have not managed to correct the imbalances in the project quickly enough."

Statoil is now initiating measures to ensure that this important project is concluded in a safe and effective manner.

In addition to several direct measures in the project, some changes are being made with regard to management and organization. Responsibility for the project has been transferred to the Technology & Projects business area which is headed by executive vice president Margareth ěvrum. At the same time, Odd Mosbergvik has taken over as project director. Mr. Mosbergvik is one of Statoil's most experienced project managers with long experience from the NCS and major international projects. The project team has also been strengthened to secure the necessary leadership capacity.

The reasons why the investment estimate is now being increased include:

  • Delayed engineering
  • Quality flaws and delays to modules from continental Europe which in turn led to transfer of work to Melk°ya
  • Underestimation of the scope of work, particularly within the electrical discipline
  • Extra work at Melk°ya which prolongs project execution and raises costs in the final stage

"The new review shows that considerably more work remains to be done at Melk°ya than was previously estimated," Mr. Lund says. "The large amount of work remaining is surprising, but I feel confident that the measures we are now initiating will mean that the project will be concluded in accordance with the revised plans."

Mr. Lund has taken the initiative to have an independent review carried out of this entire demanding project in order to draw experience from this. It will be carried out after the project is completed so as not to interfere with the finalization process.

Statoil is working actively to secure alternative sources of supply for the gas customers in Spain and the USA until Sn°hvit production is up and running.

"Sn°hvit is a pioneering project," Mr. Lund continues. "It is Europe's first and the world's most northern LNG plant. "It gives Statoil access to the US gas market and it opens up the Barents Sea as a new oil and gas province. The project's strategic importance to Statoil remains in place."

Mr. Lund also points out that even after the new cost and progress estimates, Sn°hvit is still a profitable project.

The revised estimates for Sn°hvit will affect Statoil's production in 2007. No basis has been found for adjusting the 2007 targets. However, a new plan review will be carried out this autumn and changes, if any, will be communicated in connection with that.

The licensees in Sn°hvit are: Statoil with 33.53 per cent, Petoro (30 per cent), Total (18.4 per cent), Gaz de France (12 per cent), Amerada Hess (3.26 per cent) and RWE Dea (2.81 per cent).


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