Aker promises to deliver FPSO for MA by end-June

Vol 11, PW 25 (01 May 08) People & Policy

Aker Floating Production, a subsidiary of Norwegian engineering giant Aker Kvaerner, has again put back the delivery date of its Aker Smart 1 FPSO for Reliance"™s MA deepwater development at KG-DWN-98/3, amid reports of escalating costs at the Jurong Shipyard in Singapore where it is under construction.

PETROWATCH learns that in the first week of March, Aker Floating chief executive Svein Olsen visited Mumbai for talks with Reliance in an effort to raise an additional $100m towards the cost of the FPSO but returned to Oslo disappointed and empty-handed. Contacted by this report, Olsen declines to confirm the visit to Reliance, but admits: "œThere"™s no such thing as a turnkey contract for FPSO construction these days.

It"™s very difficult to get shipyards to give a fixed price. We are in a sellers market."‌ When Aker signed a Letter of Intent (LoI) for Aker Smart 1 with Reliance in January 2007, it estimated the cost of FPSO construction would be $615m.

But in Aker"™s Q3 report for 2007, the figure rose to $650m and in its Q4 report for 2007 the figure rose again to $714m. "œThis isn"™t the last of the (cost) escalation,"‌ reports a source.

"œIt could go much higher."‌ In a worst-case scenario, some predict parent Aker Kvaerner, which owns 51% of Aker Floating, might have to bail out its subsidiary with "Ś©rescue"™ money. "œReliance is under no obligation to pay any more,"‌ adds a source.

"œIt has a firm contract in place."‌ Costs aside, what impact is this having on first oil production from the MA field "œWe are determined to deliver Aker Smart 1 by end-June this year,"‌ stresses Olsen. "œThere have been some bumpy roads along the way but we are over the worst."‌ Aker originally promised FPSO delivery by February 2008, but later revised this to end-March.

Can it meet the latest deadline Some are not so sure. "œDelivery could be in June, July, August or September,"‌ we hear.

"œAker is having terrible problems with this contract."‌ Reliance last month confirmed that the Field Development Plan for MA has at last been endorsed by the DGH. In a statement released on April 24, Reliance said approval by the Management Committee for KG-DWN-98/3, which includes a DGH representative, paves the way for first oil production of 40,000 b/d and gas production of up to 10m cm/d, which it added, with characteristic vagueness, "œis likely to commence in the second half of 2008."‌