Var Energi Invests Additional $1.2B In Balder X Project
Var Energi has revised the cost estimate for the Balder X development project and identified the need for an additional investment of $1.2 billion.
The investment revision reflects the increased scope of work, continued impact of global supply chain challenges, Covid-19, and schedule change. However, the company’s production target of more than 350,000 boed by the end of 2025 remains unaffected.
Balder X, which comprises Balder Future and the Ringhorne Phase IV drilling projects, is set to extend production from the Balder Hub to 2045 and support the development of new nearby discoveries by upgrading existing infrastructure and drilling of new wells. A baseline project review has identified additional gross investment requirements of $1.2 billion, bringing the total estimated gross project cost to $4.3 billion. First oil from Balder X is now expected in the third quarter of 2024, compared to previously late in 2023.
The revision will not impact the 2022 capex guidance and the company maintains its dividend guidance for 2022 and long-term dividend policy. The main production impact from the revised schedule is expected in 2024, however partly mitigated by a faster ramp-up of production as more Balder Future production wells are expected to be ready for start-up. Vår Energi added that it also expects most of the incremental capital expenditure to be incurred in 2024.
“We are committed to the safe execution of the remaining project scope to complete the refurbishment of the Jotun FPSO as efficiently as possible. Balder X remains a highly profitable project which is expected to increase the Balder Hub gross production to over 70,000 barrels of oil equivalents per day at peak with an attractive break-even price,” Torger Rød, CEO of Vår Energi, said.
The new cost estimate and schedule change are mainly related to Balder Future, with increased scope and additional engineering and construction work on the Jotun FPSO lifetime extension. External factors including Covid-19, challenging weather conditions for drilling and offshore activities, and commodity and services price inflation have to some extent impacted the overall project. Key focus areas are to ensure progress and cost control for the remaining part of the project.
Balder X is expected to unlock an estimated 143 million barrels of recoverable reserves. Once the Jotun FPSO is re-installed and connected to the Balder Future production wells, it will tie in the new Ringhorne wells. Furthermore, the King and Prince discoveries announced in 2021, estimated to hold additional 60-135 million barrels of oil, are being considered for tie-ins to the Jotun FPSO as well. Vår Energi is also evaluating new exploration prospects in the highly prolific Balder area.
“The Balder Hub will remain a significant contributor to the long-term value creation from the Norwegian Continental Shelf. Balder is part of the first production license awarded in Norway and has since 1999 produced approximately 500 million barrels of oil and gas equivalents, contributing to European energy supply security and the development of Norwegian society. We see a potential to increase the production from the greater Balder area up towards 1 billion barrels based on planned projects, recent discoveries, and adding risked exploration resources,” Rød added.
The revised cost estimate and schedule will be included in Norway’s National Budget for 2023 to be published on October 6, 2022.
As for the project, the Balder field is in production license PL 001 – the very first license on the Norwegian Continental Shelf (NCS) – acquired in 1965. The Balder X project aims to extend production to 2045 and consists of four ongoing projects – the Balder FPU life extension and upgrade, drilling new wells on Ringhorne III/IV and Balder Future, Jotun FPSO lifetime extension, and drilling 14 new production wells and one water injection well. Vår Energi holds a 90 percent stake in the project while Mime Petroleum holds the remaining 10 percent.
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