Changing Priorities Alter Danish Energy Giant's Contracts in North Sea

The shifting energy market prompted state-owned Danish energy giant DONG Energy to readjust North Sea project priorities in late March. DONG and its partner, Bayerngas Norway, terminated the EPC contract with Technip France and Daewoo Shipbuilding and Marine Engineering to develop the estimated $2.2-billion Hejre oil-and-gas platform in the North Sea off the coast of Denmark. But DONG also awarded ABB a $250-million contract to connect its North Sea wind farm to the U.K. power grid.

The energy firms say they no longer have confidence in the supplier consortium to deliver the Hejre platform and are holding the Technip-Daewoo group in material breach of its contract, estimated at $560 million by one South Korea publication. The consortium has not been able to meet platform design and construction within an acceptable cost and schedule timeframe, said Ulrik Frohike, a DONG spokesman, on April 4. “We’ve experienced engineering design errors leading to substantial rework and unprecedented weight growth of the topside,” he added.

Frohike said the weight increase has made the offshore hookup and commissioning program more complex, costly and unpredictable. He declined to discuss further details due to potential litigation.

In a statement to Reuters, Technip said it disagreed with DONG’s statement and “will defend the interest of our consortium, while completing our contractual obligations.” The firm took a one-time charge last July and said the project is less than 1% of current backlog.

The company in February said the Hejre project “continues to be in a challenging situation” and that “first oil in 2017 is no longer the likely scenario.”

Work on the project will stop, and the firms will begin to assess alternatives to develop the oil-and-gas field. “We will now take a step back to jointly evaluate the best way forward,” David Cook, DONG executive vice president, said in a statement.

Separately, DONG’s March 31 award to ABB will enable construction of a 220-kV high-voltage cable system to grid-connect the 1.2-gigawatt Hornsea Project One wind farm. ABB will supply the alternating-current submarine cable system, which will transmit power about 75 miles from the wind farm to the U.K. coast.

“Hornsea Project One is record-breaking in terms of scale of energy production, physical size and distance from shore,” said Duncan Clark, DONG Energy program director. The wind-farm connection will be commissioned in 2019.

Mary B. Powers has reported on engineering and construction issues in the global energy and environmental sectors for more than 30 years from Washington, D.C. and Birmingham, Ala. She formerly wrote for the Platt's group of energy sector publications under McGraw Hill and S&P Global that included Inside Energy and Megawatt Daily, and was state editor for the Lexington, Ky., Herald Leader. Mary has a master’s degree in journalism from The American University.

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