Offshore operations present a unique set of environmental conditions and adverse exposure not observed in a land environment.
It is possible to engineer some risks to a very low threshold of probability, but losses and unforeseen events can never be entirely eliminated because of cost considerations, the human factor, and environmental uncertainty.
The purpose of this three-part series is to provide a statistical assessment and comparison of offshore energy losses using the Willis Energy Loss database.
In Part 1, we describe the loss categories and hazard types of offshore operations. Part 2 contains loss statistics and statistical analysis, and Part 3 summarizes the impact of weather on loss statistics.
Introduction
Risk events occur infrequently in the offshore environment but have the potential to generate large losses.
Due to the remoteness of facilities and the challenges presented by a marine environment, drilling and construction projects are major undertakings that require the use of large and expensive marine vessels.
Operating in an offshore environment is always more uncertain and unpredictable than onshore activities. This is due to the influence of numerous independent and uncontrollable variables in the offshore environment, from adverse sea conditions and weather, and availability and performance of equipment, to defects in plans and specifications.
Events result in delay and often significant financial repercussions. Space constraints make it difficult to mitigate hazards by separating equipment, personnel, and hazardous material. Nonroutine operations dramatically increase the number of personnel and level of marine activity, material handling, and other support activities.
Insurance coverage
Offshore oil and gas insurance can be traced to exploration activities in the Gulf of Mexico in the early 1960s.1
The first policies were associated primarily with the control of blowouts. As the costs of drilling escalated with more complex targets and deeper water, it became clear that expenditures following the loss of well control would be substantial.
The London market began to cover the cost to redrill a blowout as a separate policy from control expenditures. Over time, these two coverages merged to provide the basis of the operators extra expense (OEE) coverage. Pollution liability policies resulted in a separate market covering cleanup and containment risks. By the late 1960s, the market expanded to cover the risks of direct physical loss or damage to platforms, rigs, and equipment.
Today, two basic coverages apply to offshore installations.
1. For fixed platforms, pipelines, and subsea developments, the market has developed an “all risks” coverage based on the London Standard Platform form. Areas of coverage include property and casualty (P&C), liability, business interruption, workers compensation, life, and health. P&C coverage is intended to provide postloss financing for any physical property damaged or destroyed.
2. For floating production systems, marine policy forms such as the Institute Time Clauses Hull Port Risks that cover maritime perils such as stranding, collision, and contacts, are in common use.
Insurance claims on time-element coverage are typically categorized as business interruption (BI) from damage to platforms, pipelines, tankers, etc. owned by the assured, and contingent business interruption (CBI), associated with damage to upstream facilities such as processing plants, trunklines, and refineries owned by third parties.
The major factor affecting losses in a hurricane is direct physical damage caused to the platform and time element losses due to business interruption. Repair times depend on the extent of damage, facility location relative to support services, and availability of equipment and contractors to perform the work. Production shut-ins may also be due to damage to onshore facilities such as refineries, terminals, and processing stations.
Energy loss database
The Willis Energy Loss database is a compilation of onshore and offshore loss claims across each segment of the energy supply chain.
The database contains records covering nine regions of the world of insured losses greater than $1 million. The first record of claims data varies with each region, but most start from the early 1970s.
The Willis database partitions the world into nine geographic regions in terms of loss categories and loss types (Table 1).
Third party property losses and sudden and accidental pollution claims are included in the data elements, as are death and injury settlements that formed part of recognized figures, only for major property claims.2
The risk associated with offshore energy is broadly described in five categories: weather perils, marine perils, drilling perils, production perils, and political risks.
Weather perils include environmental factors such as storms, wind, hurricanes, typhoons, lightning, and ice/snow/freezing.
Marine perils include fatigue and corrosion arising from environmental conditions, collision with attendant or passing vessels, foundation failure, subsidence, and mudslides.
Drilling perils include surface and subsurface blowouts. Production perils include fire, explosion, and equipment failure.
Maintenance and construction activities, such as pipelaying, piling operations, and construction defects, are included in the production risk category.
Political risks include war risk, asset confiscation, expropriation or nationalization, and damage caused by labor dispute or by terrorists.
Loss categories
Offshore drilling rigs are classified into two categories: mobile offshore drilling units (MODUs) and fixed units.
Fixed units, also known as platform rigs, are drilling units that are placed upon a platform or other structure. MODUs are classified in terms of bottom-supported (shallow water) rigs and floating (deepwater) rigs.
In bottom-supported units, the rig is in contact with the seafloor during drilling, while a floating rig floats over the site while it drills, held in position by anchors or equipped with thrusters to be dynamically positioned. Both units float when moved from one site to another. Bottom-supported units include jack ups, tenders, submersibles, and barges. Floating units include semisubmersibles and drillships.
Caissons, well protectors, and fixed platforms are widely used throughout the shallow water basins of the world. Caissons and well protectors protect the wellbore from damage, while fixed platforms host the drilling rigs and treatment facilities.
Fixed platforms have an economic water depth limit of about 1,500 ft. Subsea completions and floating production systems are employed in deeper water. In a subsea completion (SC), valves and equipment used to control the fluid are placed on the seafloor and are typically used as an alternative to a satellite platform for recovering reserves beyond the reach of the drillstring, or in deep water in conjunction with a floating production system.
Floating production systems (FPS) are employed in a wide variety of fields throughout the world. An FPS is a production vessel that is connected to a subsea pipeline, while a floating, production, storage, and offloading vessel (FPSO) processes and stores oil on board a vessel prior to being offloaded into shuttle tankers. Production floaters in service or available numbered 188 in 2006.
FPSOs are by far the most common deepwater development system in use worldwide at 115 vessels. There were also 39 production semis, 20 tension leg platforms (TLPs), and 14 spars. Spars and TLPs are popular in the Gulf of Mexico. A floating storage unit (FSU) is essentially a storage tanker into which processed oil is pumped from a fixed platform or semisubmersible. Seven floating storage vessels are installed primarily in Southeast Asia, West Africa, and the North Sea.
Once oil and gas are produced, separated, and treated on an offshore facility, they must eventually be sent to market by pipeline or tanker. Since laying a pipeline is not always feasible or economic, tanker ships are often utilized. A single buoy mooring system (SBM) is a system to which the production is routed and to which a tanker ties up in order to load the produced oil.
Numerous construction and specialized support vessels are involved in the offshore energy industry and may be involved in loss incidents.3 Common vessels include derrick barges, pipelay vessels, pipelay and bury barges, construction support ships, dive support vessels, anchor handling towing supply vessels, platform supply vessels, tugs, and crew boats.
Hazard type
A peril is an event that causes damage, while a hazard is an event that can lead to, or intensify, a peril.
Some perils adhere to the magnitude-frequency rule, which specifies that over a sufficient time small catastrophes will recur frequently and large ones periodically. The frequency-severity rule specifies that the larger the event, the more severe the damage and losses.4 In some cases, the severity of a disaster is independent of the magnitude of the disaster; i.e., a large magnitude event can cause little damage. All perils are not necessarily insurable, but they represent the main types of hazard to which offshore facilities are exposed.
Anchor/jacking/trawl
Anchors are used to hold drilling rigs, floating production units, and various other vessels at station when operations are in process or when heavy weather advances.
Temporary units such as semisubmersibles are typically anchored to the ocean floor through mooring lines, which are designed for low-return storms and may break away during hurricanes. Permanent units such as floating production systems are typically designed for high category storms. Rigs that lose station during severe weather and drag their anchors may damage pipelines.
Blowout
A blowout is a well-related hazard that may occur during exploratory drilling or during production operations. During drilling, if the bit penetrates a high-pressure zone unexpectedly, oil or gas or a mixture of both, may rush into and up the wellbore, dilute the mud, and reduce its pressure. This is called a “kick” and it can lead, if unchecked, to an uncontrollable gusher at the wellhead (a blowout).
A surface blowout is an aboveground uncontrolled flow, while an underground blowout is a belowground uncontrolled flow. Surface blowouts cause large volumes of oil and gas to be released in and around the platform, creating significant potential for loss or damage to the facility by fire, explosion, or cratering. Surface blowouts have received the most attention over the last half-century (Kuwait, Piper Alpha, Ixtoc, Santa Barbara), but underground blowouts are actually more common.
Blowouts occur primarily during exploratory drilling, although there is also risk of a blowout during production, since maintenance activities require reentering wells for workover, sidetracking, or deepening. The first exploration well in an area will be drilled very carefully because the geologic formations are untested and the risk of overpressure may result in a blowout. After a few wells are drilled, the stratigraphic layers where overpressures can be expected are known, and drilling can proceed faster and safer.
Capsize/collapse
Rigs, platforms, and floating production systems may capsize during heavy weather.
Failure of primary structural components such as main braces, jacket legs, deck legs, and piles often lead units to list or capsize.
Loadings caused by wave inundation of the deck are usually the primary cause of damage to the integrity of a structure. Inundation of the deck increases the horizontal load and overturning moment, resulting in the potential failure of structural members and collapse. Bottom current loading or foundation failure may also lead to failure because of soil instability and mud slide conditions.
Collision
The risk of a ship colliding with an offshore platform depends upon a number of factors, such as the proximity of the platform to shipping lanes, the frequency of traffic, and weather conditions.
Infrastructure located in/near high-frequency, rough weather shipping lanes has a greater probability of collision than isolated infrastructure. The potential for loss or damage will depend upon the speed at which the vessel is traveling, its size, and the nature of its cargo.
The impact between a vessel and a platform may result in structural failure and the failure of wellhead or pipeline risers. A collision between an LNG carrier and a platform, or an oil tanker and a LNG regasification facility, could have devastating consequences if fire or explosion result. Grounded ships frequently spill the material they are transporting.
In the Gulf of Mexico and North Sea, several incidents in recent years have occurred during severe weather where drilling rigs and FPSOs have broken adrift from their mooring in high density infrastructure regions, contributing to the failure of pipelines.
Corrosion
Corrosion refers to the deterioration of a solid body through interaction with its environment.
Steel units in a saltwater environment are especially susceptible to corrosion and are normally evaluated in terms of three zones: the splash zone, the submerged zone, and the atmospheric zone.
The “splash zone” is that portion of the structure which, due to the action of tides, seas, and winds, is intermittently wetted by seawater. The “submerged zone” refers to that portion of the structure that extends downward from the splash zone, including surfaces below the mud line. The “atmospheric zone” extends upward from the splash zone and is exposed, to varying degrees, to salt spray, sun, dew, and chemical spillage.
Each of the three zones of a platform is exposed to a different corrosive environment, which varies with structure and site-specific factors.
Design/workmanship
In the early years of offshore development, structural integrity was largely the responsibility of the designers, who worked to a variety of standards drawn from coastal and onshore engineering experience.
Structural engineers followed deterministic construction practices and dealt with uncertainty not by quantifying it but by incorporating explicit factors of safety in design procedures.4-6 Safety factors/design margins are intended to account for a wide range of unknowns, including construction loads and stresses, changes in loading assumptions, and uncertainties in environmental loads.7
Probabilistic methods began to be applied in the late 1960s, and in the 1970s hazard analysis was applied for critical industrial installations such as nuclear facilities, petrochemical plants, and liquefied natural gas plants.8 Movement of offshore construction into deeper waters of the Gulf of Mexico and other frontier areas led to increasingly severe environmental loadings and more complex design requirements. The latest edition of the API Recommended Practice 2A uses consequence-based design.
In the US, operators design their structures to satisfy API RP 2A guidelines and federal regulations. The Minerals Management Service (MMS), the federal agency responsible for regulating the offshore industry, will generally accept the risk of losing a structure where there is no threat to life or the environment.
Owners may be willing to accept the risk on less important structures (such as caissons and well protectors), but monetary considerations usually dictate increased capacity for structures with a high production rate, facilities that serve as a transportation or processing hub, and deepwater structures.
From an economic perspective, for a given probability of an extreme weather event, the investment required to avoid damage must exceed some fraction of the cost to repair the damage. A tradeoff exists that attempts to balance the potential costs of damage and disruption due to a catastrophic weather event against the benefits of a more robust (but expensive) design.
Earthquakes and tsunamis
Earthquakes represent a peril to any structure fixed to the seabed in proximity to a fault line or active tectonic region.
Earthquakes impose severe dynamic loadings, and since the timing of their occurrence cannot be predicted (unlike hurricanes or severe storms, for example), evacuation of personnel is impractical. Safety considerations thus require critical attention, since a structure might collapse and lead to a blowout, or shock forces may create electrical disturbances in equipment leading to fire or explosion.
The offshore regions of the world most affected by earthquake are those in the Pacific Basin, and include the active offshore producing regions of California, Chile, Malaysia, Indonesia, and New Zealand.
Tsunamis (tidal waves) are caused by the energy released as a result of an undersea earthquake. The effect of a tsunami depends on several factors. In shallow water, depending on the height of the swell, a tsunami could be devastating if the platform is not built sufficiently above the mean sea level. In deep water, the effect of a tsunami is expected to be less severe because platforms are built higher to avoid wave forces.
In all recorded incidents to date, the impact of tsunamis on offshore infrastructure has been negligible.
Fire/lightning/explosion
Hydrocarbons are processed at high temperature and pressure and create an ever-present danger of fire and explosion.
The type of fire and heat flux will depend on the fuel being released, its state, and in the case of liquids, conditions such as pressure and velocity. The size of the fire will depend on the release rate and ventilation conditions, inventory, and surroundings, and the degree to which a fire will spread depends upon the effectiveness of the safety apparatus.
Regulatory authorities have strict fire prevention rules, and platforms are equipped with leak detection systems, sensors, fire-fighting equipment, and emergency shutdown systems. Fire prevention is a top priority, and offshore operators regularly practice fire and evacuation exercises.
In harsh climate areas such as the North Sea, topside facilities are usually totally enclosed, which may allow gas from a leak to accumulate in a confined location leading to a vapor cloud explosion.
Heavy weather
The predominant patterns of ocean winds are their circulation around the permanent high-pressure areas that cover the ocean, clockwise in the northern hemisphere, counterclockwise in the southern hemisphere.
When energy flows become concentrated and are released, forces are created that disrupt physical conditions, geography, and weather. The violent storms are known as tropical cyclones in the Indian Ocean, Arabian Sea, and off Australia; as hurricanes in the Atlantic and South Pacific; and as typhoons in the western Pacific.9
In harsh environments such as the North Sea, severe storms with high winds and rough seas occur throughout the year with wave heights reaching 100 ft or more. The Gulf of Mexico and South China seas are relatively calm for most of the year but will experience seasonal windstorms of ferocious intensity with wave heights reaching 70-90 ft. Environmental conditions in West Africa are benign throughout the year.
Ice/snow/freeze/icebergs
Hydrocarbon producing regions that border the Arctic and Antarctic circles (e.g., Cook Inlet in Alaska, the Beaufort Sea, Nova Scotia) as well as operations in the north Caspian are subject to severe ice, freezing conditions, and drifting icebergs.
Specialized man-made islands have been used to withstand the large lateral loads involved with pack ice, while off Nova Scotia drifting icebergs are constantly monitored, and contingency planning involves marine vessels ready to tow drifting icebergs away from the danger zone.
Leg punch-through
A jack-up drilling rig is a barge with legs that can be lowered or raised.
Once in position, the legs are lowered, hoisting the drilling platform above the water. Jack-up rigs are either mat-supported, with the jacket legs attached to a submerged mat, or independent-leg, where the individual legs are driven down independently into the ocean floor.
As the legs of a jack up are driven down into the ocean floor, a leg may punch through, bend, or collapse. During extreme weather, the legs of jack-up rigs may break, the unit collapse, or the legs may shear, and the barge set adrift.
Mechanical failure
Mechanical failures are often due to corrosion and fatigue.
Fatigue is structure weakening due to the constant stress exerted on the installation over its life. Frequent storms magnify fatigue effects and “use up” a structure’s fatigue life.
Visual inspection with divers or remote controlled vehicles are capable of finding parted, buckled, and missing braces and legs, typically the result of overloads from collisions and storms; cracks at tubular joints; corrosion pitting; and loss of weld metal on structures with incomplete cathodic protection.
Regular maintenance is required to avoid component breakdown and to provide early detection. Most fixed platforms have a high degree of structural redundancy, and in the Gulf of Mexico are evacuated in the event of potential extreme loading (i.e., with the approach of a hurricane). In the North Sea, logistical complexities and environmental factors are such that crews usually ride out the storm.
Piling operations
Conventional platforms in moderate water depths consist of jackets with piling installed in each jacket leg.
As the water depth or the environmental forces increase, or the soil conditions at the site worsen, the number or size of the piles that provide lateral support and fix the jacket to the seabed increase. The number and size of pilings required are related to the magnitude of gravity and environmental loads and the characteristics of the foundation soils at the site.
In most offshore structures, piles are large diameter, thick-walled steel pipe ranging from 3-7 ft (1-2 m) in diameter and in lengths from 130-1,000 ft (40-300 m).3
Additional piling may be added to the structure through sleeves (called “skirt piling”) framed into the bottom of the jacket. Pilings are driven with high-energy impact hammers, and if the pile encounters a boulder or rock during the operation, damage can result.
Pipelaying/trenching
Building an offshore pipeline is a complex operation that may require hundreds or thousands of individual steel joints of pipe welded together on board a lay barge and then laid on the seafloor in a continuous process.
The pipeline has to achieve the correct trajectory as it passes through the water and settles on the seabed to prevent breaking or buckling. Pipelines are empty when installed and are subject to high hydrostatic pressure during installation.
Various methods of pipelaying have been employed and are selected based on expected environmental conditions, availability and cost of equipment, length and size of line, and constraints of adjacent lines and structures. Pipeline damage may occur in installation during severe sea states when the barge is subjected to dynamic surge.
Trenches are frequently dug after the pipe is laid to protect it. Burial of pipelines in deep water to reduce loss due to anchor drag is usually not cost effective, but for key trunklines where the potential loss of revenue due to shut-in is factored in may favor burial.
Stuck drillstem
A well penetrates many different types of rock formations until total depth is achieved, and as the well continues deeper into the earth, the operating environment becomes more hostile (temperatures and pressures increase, rock formation becomes harder, etc.) and drilling becomes more difficult.
A stuck drillstem occurs when the drillstring is stuck in the hole, usually by “doglegs” or an inappropriate mud program, and cannot be removed. Stuck pipe is one of several categories of drilling problems that include sloughing shale, lost circulation, formation damage, and embrittlement.
Subsidence and landslide
Subsidence is a common phenomenon in the oil and gas fields of the Louisiana coastal plain, but it has been encountered on relatively few offshore fields, with the most notable exception being Ekofisk field in the North Sea.
As a hydrocarbon reservoir is depleted, the seabed may drop, creating a gap between the sea level and the lower portions of the structure. The structure subsequently becomes more susceptible to damage by extreme wave heights and may develop foundation weakness.
An underwater landslide (mud slide) refers to the downward movement of seafloor material en masse. Mud slides can result in damage to structures that are embedded in or in the path of the mudslide, and pose a serious threat to pipelines, flowlines, and structures where soils are soft and sediment unstable.
Only a few continental margins around the world possess the right combination of high sedimentation rates, unconsolidated soils, shelf configuration, and frequent storms/earthquakes for mud slides to be prevalent.
Landslide damage in the Gulf of Mexico has been identified in hurricanes Betsy, Camille, and Georges, but was particularly destructive during Hurricane Ivan. Other major river deltas where mud slides have been observed include: Yellow River (China), Yukon River (North Bering Sea), and Klamath River (California).
Wind and storms
Northern Hemisphere windstorm events form between July and October, with peak activity occurring in August and September.
The peak season for Southern Hemisphere events is in February and March.
The typhoons of the Western Pacific occur from May to December.
North Atlantic hurricanes can have a storm diameter ranging from 100-800 miles, with an eye of 10-40 miles, and can last anywhere from 5-15 days.
Most Atlantic hurricanes follow a westerly path and veer northward, but the specific path depends on atmospheric conditions that exist at the time of the event.
Western Pacific typhoons have diameters that range from 100-1,000 miles. The patterns of hurricane activity can be observed from history and explained by the physics and climatology of hurricane formation and motion. Tropical cyclones form regularly, but the number achieving hurricane strength is relatively small, and the actual number making landfall is smaller still.
High wind speed, high wave height, and landslides are the main weather-related threats to offshore infrastructure. Platform damage may be due to the failure of structural components, such as main braces, jacket legs, and piles, or displacement of deck equipment, such as quarters modules and drilling rigs.
Piping and connections between storage and process units, derricks, construction cranes and heliports are particularly vulnerable to wind-induced failure. If storm waves inundate the structure, this may result in structural fatigue and damage, flooding of equipment (compressors, electrical lines, pumps, etc.), flowline and riser rupture, and storage tank destruction.
Next: Offshore loss statistics and statistical analysis.
The authors
Mark J. Kaiser ([email protected]) is research professor and director, research and development at the Center for Energy Studies at Louisiana State University, Baton Rouge. His primary research interests are related to policy issues, modeling, and econometric studies in the energy industry. Before joining LSU in 2001, he held appointments at Auburn University, the American University of Armenia, and Wichita State University. He has a PhD in industrial engineering and operations research from Purdue University.
Allan G. Pulsipher is the executive director and Marathon Oil Co. professor at the Center for Energy Studies at Louisiana State University. Prior to joining LSU in 1980, he served as chief economist for the Congressional Monitored Retrievable Storage Review Commission, chief economist at the Tennessee Valley Authority, a program officer with the Ford Foundation’s division of resources and the environment, and on the faculties of Southern Illinois University and Texas A&M University. He has a PhD in economics from Tulane University.
