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Talisman says oil platform off Norway to be scrapped

BY KJETIL MALVENES HOVLAND

OSLO -- Talisman Energy said that an unsafe oil platform offshore Norway will be scrapped, without a drop of crude ever being produced, following a $470 million settlement with owner of the facility, SBM Offshore of the Netherlands.

The Yme platform was supposed to begin producing oil in January 2009 but was evacuated last summer after cracks were found in its structure. Talisman said the settlement with SBM paves the way for the removal of the rig and its eventual replacement with another facility to tap the oil reserves in the Yme field.

A representative of Norway' s offshore workers union warned that the settlement could ultimately deprive Norway of billions of kroner in lost tax revenues. The union also called for more checks to verify the safety of the increasing number of oil and gas platforms destined for use in Norway that are being built outside the country.

The Yme platform was built in Abu Dhabi by an SBM contractor.

The initial Yme project cost was estimated at $856 million, but numerous safety problems discovered in the platform upon arrival in Norway led to serious cost overruns and delays. So far, the license partners have invested more than $1.75 billion in Yme, Talisman said.

About half of that was spent on wells and subsea installations that could still be used if the platform were to be replaced, the rest went on the platform, the company said.

"The $470 million payment from SBM Offshore will cover additional work necessary to ensure the safe re-manning and removal" of the platform from the North Sea, said Talisman Norway spokeswoman Grethe Elise Foldnes.

The Yme platform will eventually be dismantled, SBM Offshore said. SBM board member Sietze Hepkema said in a statement, “the agreement would bring an end to a period of significant uncertainty for the company."

The problems with the Yme installation aren' t just a concern for the companies involved, but also for the Norwegian government. Under Norwegian law, oil companies can deduct 78% of their costs from their taxes, meaning Talisman will be able to offset costs related to Yme from future tax payments on other earnings in Norway.

The full cost to in lost tax revenue isn' t known. "The final bill for Yme isn' t settled yet" said Ms. Foldnes.

"The 78% of cost overrun will be charged on the community. These are outrageous costs for the society" said Roy Erling Furre of the Norwegian offshore union SAFE. "The whole story is absolutely shocking and absurd."

The SAFE union said it wants the government to investigate the matter, as did Norway' s Christian Democratic party and the conservative Hoyre party, who are in opposition to the government.

The Norwegian government didn' t respond to requests for comment.

Mr. Furre also said the problems with Yme should prompt further checks on the quality of work conducted at shipyards outside Norway.

"We may need a thorough investigation in order to learn, to find out what went wrong and maybe avoid new developments going wrong" Mr. Furre said. "We have a lot of huge development projects ahead of us."

A number of platform contracts have recently been awarded to foreign shipyards due to heavy cost inflation in Norway. For example, Statoil $1.07 billion Dagny platform contract was awarded to Daewoo Shipbuilding & Marine Engineering Co in February.

Statoil said it would follow up its Asian projects in the engineering phase and with on-site teams just as closely as it would have done if the project was built on a Norwegian yard. Statoil said it didn' t worry about delays, cost overruns or quality issues at Asian shipyards.

"If we were worried about that, we wouldn' t do it" said Statoil spokesman Ole Anders Skauby. Bids from Asian shipyards had been thoroughly considered both on commercial and technical terms. "Price is not the only determining factor" he said.

The Yme field is operated by Talisman with a 60% stake. Grupa Lotos has a 20% ownership stake, Wintershall has a 10% stake and Norske AEDC has a 10% stake.

Dow Jones Newswires

03/12/2013

 

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