The construction phase
An absolute ban on awarding contracts for a field development until the Storting had approved the plans prevailed in the early years of oil operations on the Norwegian continental shelf (NCS). Exemptions from this requirement only began to be given after 1990,[REMOVE]Fotnote: NPD, February 2010, Veiledning til plan for utbygging og drift av en petroleumsforekomst (PUD) og plan for anlegg og drift av innretninger for transport og for utnyttelse av petroleum (PAD). with reference to market conditions (striking while the iron was hot, spare capacity) or to achieving favourable prices.
Developing an offshore field is like laying a giant jigsaw puzzle. Although the Norwegian government prefers as much of the investment as possible to be made in Norway, the companies operate in a global market and accordingly want to place contracts where the combination of costs, delivery times and quality is optimum. Moreover, equipment and materials often originate a considerable distance from the place where they are to be assembled and installed. That makes it crucial to have a good overview and sufficient margins, so that the whole process can be planned and implemented within a short time frame. Throughout its existence, Valhall has experienced both successes and major challenges with the execution of large projects.
Following a meeting between Amoco, the Ministry of Industry and the NPD in late July 1977, the Amoco-Noco group decided to amend the development concept for Valhall.
A three-platform solution was now adopted, with each installation given a specific function – quarters (QP), drilling (DP) and process and compression (PCP). On that basis, the NPD accepted simultaneous drilling and production. But investment also increased substantially. The estimated development cost rose from USD 580.1 million in January to USD 652.7 million by August – a growth of 12.5 per cent.[REMOVE]Fotnote: Kostnadsanalysen norsk kontinentalsokkel , volume I, 239.
According to the new plan, all oil and gas would be processed on the PCP installation. A fourth riser platform was to be placed alongside the Ekofisk tank. This represented the first of four planned development stages. But many years were to pass before the next phase came to be implemented.
A dedicated project team for executing the development is usually established during the maturation phase. But the big resources are not committed until the final plans have been determined. When developing Valhall, operator Amoco Norway Oil Company retained all direct project management in-house and had a staff of about 40 people in Norway for this work.
The Aker and Kværner fabrication groups tried to secure the job of main contractor for the whole project, and made a joint presentation with this aim to the parent company in Chicago. Staged during the summer of 1976, this effort was unsuccessful. But later negotiations led to a discussion about the engineering design work.
The result was the formation of the Valhall Engineering Joint Venture (VEJV), a collaboration comprising personnel drawn from four Norwegian companies:
- A/S Akers Mek Verksted
- Fred Olsen & Co A/S
- Brownaker Offshore A/S
- Kværner Brug A/S
Amoco’s approach to managing the Valhall/Hod projects represented a departure from normal practice at the company, which did not usually conduct technical design work outside the USA. In principle, the project was organised with all contractors directly subordinated to Amoco. The VEJV only had a staff function as consulting engineer to Amoco.[REMOVE]Fotnote: Kostnadsanalysen norsk kontinentalsokkel , volume I, 231.
Amoco’s philosophy was to secure as many fixed-price contracts as possible, which meant that the technical design had to be almost complete before tenders were invited. The goal was that 90 per cent of the design work would be complete at tendering and 95 per cent when the contracts were signed.
An interesting observation was made in the Moe commission’s cost analysis for the NCS, which appeared in 1980 about midway through the construction stage on Valhall: The operator (Amoco) has its own administration at the fabrication sites, which takes decisions on change orders and supervises the construction work.
Management in Norway can take decisions costing up to USD 1 million and the management in London up to USD 5 million. Above that level, the decision must be taken in Houston.
At October 1979, 40 per cent of the contracts by value had been awarded. A list of substantial contracts from Amoco contains about 87 per cent of the contracts awarded by value. The list contains a total of 29 contracts. Of these, only one falls within the limits for a decision by the Oslo office. Of the remaining 28, 15 can be approved by London while the remaining 13 must go to the top (Houston). Assuming that the contracts covering the final 13 per cent by value fall within the Oslo office’s sphere of authority, 12.8 per cent of the contracts by value are determined in Oslo, 12.3 per cent in London and 74.9 per cent in Houston.
This indicates that the office in Norway has limited freedom of action in formal terms. How far this can be regarded as a drawback depends on the communication channels between the above-mentioned organisations.[REMOVE]Fotnote: Kostnadsanalysen norsk kontinentalsokkel , volume I, 232.
The Norwegian government imposed a general requirement on all developments that at least 50 per cent of goods and services had to be purchased from domestic companies. That did not include procurement from foreign suppliers via representatives in Norway. Amoco understood that the authorities wanted as much as possible of the equipment on Valhall to be produced in the country.
Anders Mørland, legal affairs head for Amoco Norway, told Oslo daily VG : “We prefer Norwegian suppliers, providing they’re competitive on price, quality and delivery time. It’s our understanding that this is also the Norwegian government’s attitude.” Work for the oil industry was more than welcome to Norway’s engineering industry after the 1973-74 oil crisis had knocked the bottom out of the shipbuilding sector.
Key: Contracts awarded – Valhall development. Norwegian contracts – Valhall development. Drilling, 5 Construction, 10 Services, 11 Equipment, 16
The contracts (excluding sub-contractors) only just fulfilled the requirement in numerical terms, with 42 of the 79 assignments large and small awarded going to Norwegian companies or international firms with their own subsidiary in Norway. The three largest suppliers after Norway were the USA, the UK and the Netherlands.
The Norwegian contracts were also reasonably well distributed between the various delivery categories.[REMOVE]Fotnote: The North Sea Platform Guide, 1985, 688.
The QP was built in 1979-80 and taken into use in July 1981. It had a total of 208 berths. The main contractor was Netherlands Offshore Company (NOC), taken over later in 1979 by McDermott. Stord Verft north of Stavanger built the steel jacket, while Franco-Norwegian UIE/Sterkoder was responsible for the deck. Vigor at Orkanger near Trondheim fabricated and hooked up the modules.[REMOVE]Fotnote: Kostnadsanalysen norsk kontinentalsokkel , volume II, 275–276.
he DP was installed on Valhall in 1981 midway between the QP and PCP. Aker Verdal near Trondheim built the jacket and module support frame, the drilling rig and modules came from Kristiansands Mekaniske Verksted, and the bridge linking it with the QP was fabricated by Kværner Egersund.[REMOVE]Fotnote: Rasen, Bjørn (2007): LF6A. Valhall at 25 … and it’s only the beginning , 87.
The PCP was also installed in 1981. McDermott Norge had the main contract for the whole platform and was responsible for negotiations with sub-contractors. A Norwegian joint venture won the engineering design contract for the topsides in September 1977, with fabrication taking place at four yards in Norway. This platform came on stream on 1 June 1982, and was designed to produce 168 000 barrels of oil and 10 million standard cubic metres of gas per day.
The Ekofisk 2/4 G (Ekofisk RP) riser platform. In the PDO approved by the NPD in August 1978, Amoco had assumed that the existing Ekofisk 2/4 R riser platform could serve as the destination for the pipelines from Valhall.
However, this structure could not be used and a new platform had to be installed. That was approved by the NPD, and Ekofisk operator Phillips agreed to run it for a fee.[REMOVE]Fotnote: Kostnadsanalysen norsk kontinentalsokkel , volume II, 275–276. Ekofisk 2/4 G was installed in 1981 and became operational the following year. Two 20-inch pipelines, each 36.8 kilometres long, were laid to carry oil and gas respectively from the PCP. After arrival at the Ekofisk centre, the oil was piped on to Teesside in the UK and the gas to Emden in Germany.[REMOVE]Fotnote: Ekofisk industrial heritage website.
Installation on the field
The North Sea showed its inhospitable side in the autumn and winter of 1981, when the various platform components were due to be towed out for installation on the field.
Storms were recorded on Ekofisk on 11 October, 5, 13 and 24 November and 21 December. But three were more powerful than the others – those on 11 October, 5 November and 24 November. The last of these was particularly bad, and may have reached hurricane strength. While the strongest wind was measured at 10.00 on the day as 31.9 metres per second, the lower limit for a hurricane is 32.6 m/s. Measured wave heights were 11.5 metres.[REMOVE]Fotnote: Jostein Mamen, researcher, Norwegian Meteorological Institute.
The QP jacket had been positioned in March 1980. Installation of the module support frame and modules began almost exactly a year later, and the work was completed in four months.
Next in line was the DP, installed in early April. The component with the furthest to travel, the steel jacket for the PCP fabricated at McDermott’s Morgan City yard in Louisiana, also had the most dramatic time of it. While being towed across the Atlantic in early 1981, the barge carrying the big structure and its three tugs ran into a powerful winter storm and the towline parted. However, the barge and its cargo were saved and, after final adjustments at Stord Verft, the jacket could be positioned on the field in late April.
Everything was ready on 17 December 1981 to start drilling from the DP, using the first enclosed derrick in the North Sea.[REMOVE]Fotnote: The North Sea Platform Guide, 1985, 688. But the initial A1 and A2 wells took much longer than expected. While some wells had nevertheless been completed by October, their output was less than a third of the amount set by the process specialists as the lower limit for starting production. They felt a certain minimum flow was needed to get pumps and processes to function more or less optimally. All the same, the valve on the A1 Xmas tree was opened at 08.30 on 1 October 1982.
Valhall was delivered to operator Amoco on the same day, 17 years after the production licence for block 2/8 was awarded. It had cost 21 million work-hours and NOK 6 billion in money of the day (about NOK 10 billion in 2013 value). The original estimate in the 1977 PDO had been a little over NOK 3 billion in 1977 value (including wells). But now the field was ready to come on stream.[REMOVE]Fotnote: Rasen, Bjørn (2007): LF6A. Valhall at 25 … and it’s only the beginning , 76.
Amoco’s message for this event could be summed up roughly as follows:
Amoco-Noco will probably produce oil from this field at least until 2000 and perhaps longer. Because of the special reservoir conditions, the group is seeking to obtain more and better information on the reservoir and its reserves. Further development could be relevant. The field will in any event be important for the Norwegian economy and oil activity for many years.[REMOVE]Fotnote: Rasen, Bjørn (2007): LF6A. Valhall at 25 … and it’s only the beginning , 77.
Moe, Johannes (1979): Kostnadsanalysen norsk kontinentalsokkel.
Rasen, Bjørn (2007): LF6A. Valhall at 25 … and it’s only the beginning .
Myklebust, Alf Terje, Bergen (1994): 75 år på Kjøtteinen: 1919-1994: jubileumsbok for Aker Stord , 209.