Norwegian energy companies Equinor, Aker BP and Vår Energi are facing notable cost increases at their offshore oil and gas projects. These budget revisions are mainly attributed to imported inflation, delays in project schedules and exchange rate fluctuations. The recent Norwegian government budget highlighted these financial challenges, revealing that all three companies have adjusted their cost forecasts upwards for several key projects.
Project Status and Cost Details
Equinor, Norway’s energy sector leader, has revealed that its Johan Castberg project in the Barents Sea, initially estimated at 49 billion crowns in 2018, has seen costs increase by 76% to now reach 86 billion crowns (around 8 .08 billion USD). This increase is due to delays and complications encountered in Norwegian shipyards, as well as currency effects. In 2024, costs increased by another 2.2 billion crowns compared to the previous year. Project management issues, including the increased complexity of the construction phase, the impact of infection control measures and reduced labor availability during the pandemic, contributed to this budget drift.
Aker BP, meanwhile, saw its costs for the Yggdrasil project, Norway’s largest oil and gas development since Johan Sverdrup started in 2019, rise from 120.2 billion crowns to 134.4 billion crowns. This increase is mainly due to a depreciation of the Norwegian krone, leading to inflation in the costs of imported equipment. Despite these financial challenges, the project remains on track for production scheduled for 2027.
Vår Energi, for its part, is facing the biggest budgetary drift with its Balder Future project. Initially approved at 19.6 billion crowns in 2019, the cost of the project is now estimated at 52.2 billion crowns, more than double its original estimate. This project also suffered from significant delays, with start-up pushed back until the second quarter of 2025.
Analysis of the Reasons for Additional Costs
The main reasons for additional costs include supply chain issues and increased project complexity. Additional labor costs and installation complexity particularly impacted the Johan Castberg project. The COVID-19 pandemic has also slowed work at Singapore yards, where several key modules are coming from. Additionally, a weakened Norwegian krone has generated imported inflation on equipment and services, especially for large-scale projects requiring specific parts from abroad.
Aker BP also faces legal challenges related to the Energy Ministry’s approval of the Yggdrasil project, due to opposition from environmental groups concerned about the project’s impact on the environment. These factors combined have contributed to increased costs and delays in project completion.
Strategic and Economic Consequences
Project cost increases could have significant impacts on companies’ profit margins, especially in a context of volatile energy prices. Production delays also affect long-term project profitability. However, Equinor highlighted that the Johan Castberg project remains profitable with a break-even point around USD 35 per barrel, well below current market levels.
These budget increases can also influence companies’ future investment decisions and affect their competitiveness in the international market. Delays in project schedules can result in a loss of confidence among investors and business partners, which could make it more difficult to finance future projects.
Perspectives and Challenges
Despite these challenges, Equinor, Aker BP and Vår Energi are continuing their investments, banking on additional discoveries and a gradual ramp-up of existing infrastructure. However, pressure from environmental groups and cost uncertainties increase risks, particularly for projects like Yggdrasil which risk being delayed if legal challenges are successful. These developments reflect the increasing difficulty of carrying out offshore extraction projects in increasingly hostile regions, where infrastructure costs and delays can quickly erode expected profitability.
