Johan Sverdrup immune to capex cuts, Woodmac says

On Friday 13th February, Statoil and the field partners reached a final investment decision (FID) for the 2.35 billion barrel Johan Sverdrup oil field in the Norwegian North Sea.

The field, discovered in 2010, is a major success story for Norway, and is the crowning achievement of its successful rejuvenation of exploration in more mature areas.

Commenting on the FID announcement, Malcolm Dickson, Norway Upstream research analyst for Wood Mackenzie says: “The world class Johan Sverdrup oil field has proven immune to the cuts in capital spending, standing out in a barren year for project sanctions.”

According to Wood Mackenzie’s report titled ‘Statoil FID on oil price defying giant– Norway’s Johan Sverdrup’ the field will cost US$31 billion to develop and will produce 600,000 barrels of oil equivalent a day (boe/d) at its peak. Wood Mackenzie’s proprietary valuation of the field is US$11.2 billion with a Brent oil price breakeven of US$41 a barrel and a 23% Internal Rate of Return (IRR).

Dickson remarks: “Johan Sverdrup is unique in the global oil industry. Oil fields of this size are not found in benign regions in shallow water any more. The FID also runs against the trend of most pre-sanction projects being pushed back to drive down costs. This reflects not only the scale but also the quality of the asset. The value proposition is world-class, and it is not only important for the partners and supply chain, but to the whole of Norway.”

As Wood Mackenzie’s report notes, this is a core project for all of the participants. Statoil is fully committed, despite a 10% cut to its 2015 capital budget. By 2020, it will provide over 10% of Statoil’s global oil production and over 5% of oil and gas output. It will also boost returns and cash margin metrics; both key industry benchmarks.

Wood Mackenzie says the field is a company maker for Lundin and Det Norske. The report notes; “Lundin in particular deserves credit for discovering the field in 2010. It will quadruple Lundin’s production and make up 98% of its upstream value by 2020. But project sanction means intense investment for one of the most highly leveraged companies in the sector. It’s also a vital strategic asset for Maersk Oil, as it will mitigate the company’s long-term production decline. It will add 48,700 boe/d of net peak production by 2024 to Maersk, equivalent to 18% of total volumes.

Wood Mackenzie has compiled some facts to illustrate the scale of the Johan Sverdrup field:

– Largest project sanction globally this year;

– Will provide 25% of Norwegian production by 2025;

– Value of US$40 billion for the Norwegian government;

– Will be producing more oil than the UK sector in 2025.

Source: Wood Mackenzie

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