Det norske has been notified by the Norwegian Ministry of Petroleum and Energy that the work commitment in production license 364, which includes the Froy-field, has been fulfilled. Consequently the licensees have received a 10-year extension of the license period to 2019.
The Froy Plan for Development and Operation (PDO) was submitted by the license on September 12. 2008. Submission of the PDO was part of the work commitment and a prerequisite for the license extension.
Det norske believes that the changed market conditions provide an opportunity to improve the Froy project economics by reducing development costs, and secure a larger resource base for the Froy field centre. The license partners in cooperation with the Froy project turn-key contractor have started a process with the aim of reducing development and operating costs.
Three exploration wells are planned drilled in the vicinity of Froy in 2009. Storklakken in PL 460, where Det norske is operator and holds a 40 percent interest, and East Frigg Gamma Delta in PL 442, where StatoilHydro is operator and Det norske is a 20 percent partner. Both these wells have been sanctioned by the license partners. Moreover, discussions are ongoing with operator Total in PL 102 for a possible exploration well in a prospect adjacent to Froy.
Three discoveries have been made in tie-back distance from the Froy-field. The Froy partners will actively seek cooperation with relevant license groups to explore and mature the possibilities for tie-back of adjacent discoveries to Froy and thereby securing a better utilization of the Froy field centre.
So far costs have accrued for subsurface, contract and engineering work in relation to the maturing of the Froy development , and the license will make use of this work when final contracts are to be signed. As construction has not yet commenced, there is no major loss from delaying the development. Further, the Lease and Operating contract for the field installation implies that the license will not pay any tariff to the Lease and Operating-contractor before production has started, making the project economics robust with respect to a later start up of Froy. The costs accrued to date for work performed by the contractor amounts to approximately 17 million Euros. These costs will be included in the rates for the Lease and Operating contract.
The PL 364 license partners have decided to undertake the cost cutting exercise, assess the results of planned exploration wells and in parallel mature the basis for tie-in of third party production, before the Ministry is requested to make the final decision on the Froy PDO. As a result of this, it is likely that Froy production start will be deferred from 2012 to 2013.
Partners in production license 364 are Det norske oljeselskap ASA (operator) with a 50% interest and Premier Oil Norge AS with 50%.
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