Noreco Provides Update on the Tyra Redevelopment Project

Source: www.gulfoilandgas.com 8/3/2022, Location: Europe

Norwegian Energy Company ASA (“Noreco” or the “Company”) has today published an update on the Tyra Redevelopment Project (“Tyra II” or the “Project”) with the first gas date being revised by the operator of the Danish Underground Consortium (the “DUC), TotalEnergies, to Winter 2023 / 2024.

The revision has been driven by global supply chain challenges that have impacted the extent to which fabrication work on the process module (the “TEG”) has been completed in the yard in Batam. While the sail-away of the TEG will be a positive milestone that marks the end of Tyra II’s onshore fabrication phase, it will depart with additional work required to be completed offshore in order to achieve first gas. Additionally, the operator of the Project has revised its plan for the ongoing hook-up and commissioning phase (“HUC”).

Based on the strength of Noreco’s underlying business, with three producing hubs that are significantly cash generative in the current environment, the Company is fully funded based on current estimates and with a capital structure that continues to be set to deliver Tyra II based on the revised forecasts.

Process Module: TEG

Seven out of eight modules are already installed offshore and the TEG has been the only remaining module where onshore fabrication is still ongoing. With load-out of the process module beginning this week, the module will leave McDermott’s yard in Batam in an incomplete state with approximately 580,000 hours of remaining work, where the operator expects approximately 165,000 hours are required to reach first gas. The Carry-Over work is mainly caused by the overall performance at the yard where overhang from COVID-19 has challenged the quality and progress, and the operator’s efforts in mitigating actions have proved not to be sufficiently effective. The sail away of the module remains on schedule and is expected in early September where the TEG will be transported directly to the Tyra field by heavy lift vessel GPO Emerald followed by a lift and installation by Heerema’s Sleipinir.

Offshore Hook-Up and Commissioning

Although TotalEnergies has focused on optimising the ongoing offshore activities at the Tyra field, progress is below the original plan and will be further impacted by the carry-over scope of the arriving TEG. As such, offshore productivity assumptions have been revisited with several identified areas of potential improvements and learnings which should have an overall positive effect on the Offshore Hook-Up and Commissioning performance going forward.

Revised Start-Up of Tyra II

The final stage of the yard fabrication is now complete with seven out of eight modules in place. As a result, TotalEnergies has revised the planning towards first gas according to the status of TEG at sail away. The operator has concluded that time schedule of the original planned work scope is no longer achievable and the probabilistic range of first gas dates for Tyra II is as follows:

- P10: October 2023

- P50: December 2023

- P90: March 2024

Budget

As a result of the schedule change, the expenditure budget for Tyra II is expected to rise. While the operator is in the process of preparing a formal budget for approval by the DUC partnership, TotalEnergies have indicated that they expect a gross budget to first gas of c. DKK 24.0 billion and to Project completion of DKK 25.7 billion. Net to Noreco, the remaining expenditure to reach first gas is approximately USD 300 million which implies a net increase to first gas of approximately USD 120 million compared to previous budget. The increase in budget is mainly related to higher expected costs on the hook-up & commissioning and project management.

Noreco's Robust Underlying Business Model

The Company has in H1 2022 delivered strong results and is in a robust financial position. The cash generation from Dan, Gorm and Halfdan is significant and during Q2 2022 the Company delivered revenues of USD 265 million and EBITDA of USD 167 million. This is mainly a result of high operational performance of all the three hubs and a favourable commodity price environment. Noreco remains fully funded to deliver Tyra based on current estimates, with significant headroom under the financial covenants of the Company’s debt instruments. With the remaining work of the Tyra Redevelopment Project being carried out locally at the Tyra field in Denmark by the operator, Noreco expects a higher transparency of the Project’s performance and intends to update the market on a regular basis on relevant progress and milestones.

Marianne Eide, Noreco’s Chief Operating Officer commented: “Today’s news on a revised scheduled for Tyra is disappointing, however we are now entering the last stage of the Tyra Re-development with a good definition of the work scope remaining to achieve first gas. We now have a robust plan built on experience from the initial nine months of offshore hook-up and commissioning and we expect to add more than 500 offshore workers. The complexity of the operations at Tyra will increase and safe operations is our main priority. The imminent sail-away of the TEG module from Batam is a significant milestone for Tyra II with the onshore fabrication process complete. By Q4 2022, all eight modules will have been installed offshore and, importantly, remaining activity to first gas will be fully within the direct control of TotalEnergies. In parallel with delivering Tyra we are working to increase gas production from our producing assets in the DUC. We have seen positive gains from the Halfdan stimulation campaign and for the upcoming infill wells we are prioritising gas rich targets”

Euan Shirlaw, Chief Executive Officer of Noreco said: “Noreco fully recognises economic, strategic and political importance of achieving Tyra first gas. Our focus will remain on ensuring that the revised project plan, as recently communicated to us by the operator, is secured; we are committed to making an active contribution as we seek to improve offshore HUC performance and expedite first gas from Tyra II. Our underlying business with the producing Halfdan, Dan and Gorm hubs continues to perform strongly and the extent to which this translates into the generation of meaningful profitability and cashflow was demonstrated in our Q2 2022 results. Against the current market backdrop, we are actively pursuing short-cycle investment opportunities that will enable us to produce more in the near-term. The combination of strong recent results and a positive outlook ensures we remain fully funded despite the expected cost increase for the Project. Our stable and robust capital structure continues to be set to take whatever actions are available to achieve the earliest start-up for Tyra II”


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