NPD: NCS development costs down by half since fall 2014

The cost for developing a field on the Norwegian continental shelf has declined by around 45% since autumn 2014, according to the Norwegian Petroleum Directorate.

The decline is the result of simpler development concepts, more efficient drilling, and lower prices for work and equipment.

NPD analyzed eight planned developments that are approaching startup: Utgard, Oda, Zidane, Trestakk, Snilehorn, Johan Castberg, Snorre Expansion, and Johan Sverdrup Phase 2. The investment estimate for those projects now totals about 150 billion kroner, down from 270 billion kroner.

“This is a significant and very welcome reduction,” said Ingrid Solvberg, NPD’s director of development and operations. “The oil companies and the supplier industry have made a tremendous effort in streamlining the activities, and now we can see that these measures are working.”

The biggest savings are a result of “altered development solutions.” The second largest reduction is within “drilling and wells,” where rental rates for drilling rigs have declined and companies are planning wells that can be drilled faster.

In the area of pipelines and cables, NPD said costs have been affected by falling prices for materials and companies choosing different routes.

But Solvberg cautioned against short-term savings at the expense of “long-term value creation on the shelf” and warned against cutting technical staff “as it could impair the capacity for innovation and the ability to find smart solutions.”

NPD has noted tendencies where companies prioritize minimum investment in the development phase, but those decisions could limit subsequent upgrades of the facilities, or make them more expensive.

“We must not put ourselves in a situation where cost cuts reduce the future flexibility on the fields, or have a detrimental impact on our ability and willingness to use technology that can provide better and more efficient resource management,” Solvberg said.

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