Santos (ASX:STO) has put on hold plans for a final investment decision (FID) at its Dorado oil project offshore Western Australia as spiralling costs related to the construction of a floating production storage and offloading (FPSO) unit pose too much risk.
Santos’ partner Carnarvon Energy reported today that the front-end engineering and design (FEED) work is substantially complete and the development is close to FID. However, the main outstanding matter is the finalisation of the engineering procurement and construction (EPC) contract for the FPSO as costs have surged. The proposed project was initially expected to cost US$2 billion. Both companies have been looking to divest shares in the development to help with financing.
“The joint venture has been working with the relevant contractor to ensure the contract is in an acceptable form. This requires the cost environment to be more stable and more certainty around supply chain capacity. Because the FPSO represents more than 50% of the expected project cost, it is important that this work scope is carefully contracted and managed, especially in the current supply chain environment,” Carnarvon Energy said in a statement.
“Given the current regional inflationary pressures and supply chain challenges, the risk of cost escalation is unacceptably high and requires fiscal discipline until this environment shows signs of stabilising,” said Carnarvon Managing Director and CEO, Adrian Cook.
The engineering work for the well-head platform and FPSO is essentially complete, with a robust technical design able to extract the oil and gas from the Dorado field as planned and allowing for further tie-back opportunities such as Pavo, said the junior partner.
The initial development incorporates 10 wells being drilled into the four reservoirs (Caley, Baxter, Crespin and Milne) and the hydrocarbons being produced via a 16-slot WHP to an FPSO. The FPSO has a design capacity to process 100,000 barrels of oil per day, along
with 215 million scf/day of gas injection and storage for around 1 million barrels of oil & condensate.
Singapore’s Sembcorp Marine carried out front-end engineering design (FEED) work for the floating production, storage and offloading (FPSO) facility that will form part of Santos’ Dorado development offshore Australia.
Altera Infrastructure (formerly Teekay Offshore), which is leading the FEED work for the Dorado oil project’s FPSO vessel, hired the Singapore yard.
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