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Covid delays raise fears over project delivery

Impact of virus-related restrictions on work schedules appears to be increasing

The oil and gas production sector’s ability to work around challenges created by precautions against the spread of coronavirus has been impressive thus far, with most companies reporting little or no material impact on their physical operations from the changed work conditions. But, just as risks seem to be growing of further disruption heading into the northern hemisphere winter, cracks in this narrative are beginning to emerge.

Hit by delays

Norway’s Equinor admits that a number of its projects on the Norwegian continental shelf (NCS) are facing both increasing costs and delays in startup. And it says the main driver is Covid-19, alongside a weaker Norwegian krone on the costs side.

“2020 has been a very challenging year also for our industry. Together with our suppliers we have worked hard to mitigate the consequences of Covid-19,” says Geir Tungesvik, Equinor’s acting executive vice-president for technology, projects and drilling. But the firm admits that quarantine rules, occasionally limited mobility for personnel, reduced manpower and social distancing requirements have resulted in lower activity on most construction sites—risking delays, cost increases and, potentially most challenging if additional restrictions kick in, consequences for further work.

“The situation is still unpredictable, and we cannot rule out that Covid-19 may have additional consequences for the progress and costs of our projects” Tungesvik, Equinor

Equinor is, unsurprisingly, “closely monitoring the development of the pandemic”. “The situation is still unpredictable, and we cannot rule out that Covid-19 may have additional consequences for the progress and costs of our projects,” says Tungesvik.

The three NCS projects Equnor highlights as particularly affected are Martin Linge, Johan Castberg and Njord. At Martin Linge, Equinor had to demobilise all personnel in March due to Covid-19, and later remobilised with a limited workforce in accordance with new infection control measures.

Since last year, the project’s cost estimate has increased by NOK3.6bn ($396mn)—with half of this is estimated to be due to Covid-19 infection control measures. And Martin Linge startup is now postponed until the summer of 2021.

Yard pressures

Costs at Johan Castberg have increased by NOK3.4bn, with c.NOK2.5bn attributable to Covid-19. The delivery of the field’s floating production, storage and offloading hull has been delayed by a year, as the yard in Singapore building it has previously been fully shut down and still has a sharply reduced workforce. Scheduled startup is postponed until the fourth quarter of 2023.

For the Njord project, the year-on-year cost blowout is NOK4bn, about half of which is associated with delays connected to Covid-19 mitigation measures and an extended project execution period. Planned startup is delayed to 2021. Again, the impact of delays has the potential to pancake: UK independent Neptune Energy’s NCS Fenja field is dependent on Njord’s arrival, so changes in its schedule have a knock-on effect on its timescales.

And the impact is also being felt across the median line on the UK continental shelf. The Forties pipeline system (FPS) has moved a major three-week maintenance outage from this summer until May-June of next year due to risks that Covid-19 restrictions could lead to a longer-than-planned or even—in a worst-case scenario where rules changed while the work was being carried out—an indefinite shutdown of the infrastructure.

But UK independent Serica Energy would depend on the FPS being available to deliver from its planned Columbus startup. That development is now slated for the second half of 2021, once the FPS is available again.

Serica CEO Mitch Flegg is vigilant but remains hopeful any further Covid-19 impact will be limited. “Serica has assessed the risk of Covid-19 related matters impacting the availability of equipment and/or personnel for the R3 and Columbus projects and has determined that any such risk currently is insufficient to prevent the execution of these projects,” he says.

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