Statoil Increases Snohvit Cost Framework
The cost framework for Statoil's Snohvit project in the Barents Sea has been increased by NOK 5.8 billion, from NOK 39.5 billion to a total of NOK 45.3 billion. This project continues to provide a satisfactory profitability for the group at a gas price which corresponds to an oil price of US $14.50 (in 2000 money) per barrel over the field's whole producing life.
"We have conducted a detailed review of the development project," says Statoil chief executive Olav Fjell. "That work has reduced uncertainty over costs and project execution, giving us now a good basis for implementing the development in accordance with updated plans."
Snohvit is the first development in Europe based on liquefied natural gas (LNG). It involves the use of innovative technology, and its facilities will be large and complex. Following the project review, Statoil has already strengthened supervision of work on the gas treatment and liquefaction plant at Melkoya outside Hammerfest in northern Norway. This reinforcement focuses both on its own organization and in relation to the main contractor, Linde. "The main reason for the cost increase is that the plant's capacity was increased by 30 percent at an early stage," says Egil Gjesteland, project director for Snohvit. "At the same time, the consequences of such an expansion in a large gas liquefaction facility were underestimated." The change has resulted in a substantial rise in the weight of the land plant.
In addition, costs rose because the start of construction work was delayed by discussions with the Efta Surveillance Authority (ESA) over the tax regime for the project.
Statoil has a 22.29 percent interest in Snohvit. The NOK 5.8 billion cost increase accordingly corresponds to a nominal value per share, after tax, of NOK 0.04 for the group.