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Petroleum

Norway's Offshore Oil and Gas Investments Exceeded Budgets by 13% Over Five-Year Period

Strategic Insights

— 1 min read

Norwegian offshore oil and gas investments significantly over-ran their budgets from 1994 to 1998, as per a government-commissioned industry report. Despite the industry's efforts to reduce costs, the initiative launched six years ago, Norsok, failed to achieve its goal of reducing project times and costs by 40-50%. The report highlights the oil companies' growing disadvantage as the industry prepares for lower oil prices and further consolidation. The cost over-runs have been substantial, with 13 offshore oil and gas projects exceeding their estimates by an average of NKr30bn or 27%.

Key Takeaways:

  • The oil industry spent NKr26bn, or 13 per cent, more than their original budgets from 1994 to 1998.
  • Only a few oil companies spent less than expected, while the majority over-ran their budgets.
  • The Norsok initiative, launched six years ago, failed to achieve its goal of reducing project times and costs by 40-50%.
  • Thirteen offshore oil and gas projects exceeded their estimates by an average of NKr30bn or 27 per cent.
  • The most expensive project was Statoil's development of Aasgard, with costs ballooning by NKr8.5bn, or 30 per cent over its original estimates.
  • Norsk Hydro spent NKr3.6bn, or 45 per cent more, on its Visund field.
  • Drilling and well completion costs were responsible for the biggest cost over-runs on Norwegian offshore projects.
  • Oil companies over-ran their drilling budgets by NKr10bn in the five years, partly due to new technology and the need to upgrade rigs to handle complex drilling operations.

Statistics:

  • NKr26bn: total amount spent over budget by offshore oil and gas investments.
  • 13 per cent: percentage increase of budget over-runs.
  • NKr30bn: average cost over-run for 13 offshore oil and gas projects.
  • 27 per cent: average percentage increase of cost over-runs for 13 offshore oil and gas projects.
  • NKr8.5bn: cost over-run for Statoil's development of Aasgard.
  • NKr3.6bn: cost over-run for Norsk Hydro's Visund field.

Sources:

  • Financial Times (5 March 1999)

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