London headquartered oilfield services firm Petrofac says its loss on the west of Shetland Laggan Tormore project is to reach US$360 million in 2014-2015 amid delays and industrial action.
Petrofac's work on the project, a 125km subsea tie-back to shore of the Laggan and Tormore gas condensate fields, due on stream in 3Q this year, comprises engineering, procurement, supply, construction and commissioning of the Shetland Gas Plant - the onshore receiving facility for the project.
Petrofac took on the work under an £800 million lump sum contract with operator Total. In 2014, costs had already overrun, to a tune of $230 million. Today, Petrofac said in 2015 it would suffer an additional $130 million cost overrun, amounting in total to a $360 million loss on the project.
The firm has blamed further bad weather on Shetland, north of Scotland, industrial action by workers, which has delayed final construction and commissioning ramp up work. This has meant the firm will have to increase man-hours to get the project complete. In addition, the firm says it has suffered from "low manpower productivity," more rectification and reinstatement work than expected, and sub-contractors failing to deliver in line with agreed scopes, which meant Petrofac had to take on more construction responsibility than it would normally.
To get the project complete, the firm has flown in key staff from its Sharjah-based onshore construction team and "changed a number of elements of our working practices to drive the project through to completion."
Ayman Asfari, Petrofac's group CEO, says: "Our lack of experience of operating a direct construction model in a wholly new geography for our onshore engineering and construction business, particularly in a location where labour costs are much higher and productivity much lower than we are used to, has cost us dearly.
"We have already affirmed that we will no longer take construction risk on large lump-sum projects within the UK to avoid a similar experience to Laggan Tormore moving forward."
Wood Group PSN was recently contracted by Total for commissioning work on the Shetland Gas Plant.
Laggan was discovered in 1986 and Tormore in 2007. Development approval was obtained in early 2010 and first production of gas and condensate is due this year.
The Laggan Tormore subsea infrastructure comprises two 143km, 18in import flowlines, with a 500 MMscf/d peak gas rate. The subsea infrastructure will be used to tie-in future fields, including Edradour.
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