Offshore-platform decommissioning perceptions change

Ron Twachtman
Twachtman Snyder & Byrd Inc.
Houston

• The Versatruss system eliminates the need of large-crane vessels for removing deck structures (Fig. 2 [8,526 bytes]).
• A large-crane vessel removes the deck of a structure prior to the jacket being toppled i place to serve as an artificial reef in the Gulf of Mexico (Fig. 3 [10,029 bytes]).
• Workmen lower explosives for severing a jacket pile (Fig. 4 [11,205 bytes]).

The oil and gas industry has seen a change in the perceptions about decommissioning offshore facilities.

Decommissioning, until recently, was a part of the industry that received little attention. It was a problem that most operators wished would just go away; there appeared to be no benefit to decommissioning.

Planning, detailed engineering, research and development, or other project fundamentals were directed towards developing new fields.

But now, decommissioning projects are being planned ahead of actual field development, and new concepts derived during decommissioning often are used to provide feedback for new development projects.

The current trends and concepts applicable to decommissioning can be summarized as:

• Advanced planning
• Engineered solutions
• Research and development
• Reuse
• Expanded use of offshore reefs
• Deepwater disposal.

Planning the platform decommissioning ahead of time (at least 2 years before production ceases) is key to a safe, environmentally conscious, and efficient decommissioning project.

Decommissioning projects

Decommissioning projects are as common as installations in the Gulf of Mexico. From the first platform to be decommissioned from the Gulf of Mexico/Outer Continental Shelf (GOM/ OCS) waters until now, the issue of removing these structures has burdened platform owners.

A company's annual cost for decommissioning its offshore assets is considerably higher now in comparison to previous years. Currently, operators are troubled by the larger platform sizes, deeper water depths, and greater number of platforms needing to be decommissioned.

In addition, day rates for derrick barges, as shown in Twachtman Snyder & Byrd Inc. in-house data of past and current projects, have continually risen. Since 1993, the average day rate has increased 81% for the three derrick-barge types shown in Fig. 1 [95,667 bytes].

Time and again, advanced planning of offshore-structure decommissioning has proven to be effective in reducing liabilities, assessing an operator's removal and disposal options, and developing ways to recover some expenses through reuse/resale opportunities.

The advanced planning concept consists of the following elements:

• Estimate current abandonment liability
• Estimate sale value
• Solicit candidates looking for producing property
• Advertise availability
• Identify removal/disposal options
• Develop strategy.

The operator must know the removal costs for his platforms. To obtain accurate accrued liabilities, the operator needs to assess current decommissioning expenses.

Anticipated decommissioning costs play a role in valuation of a production facility. At commencement of production, decommissioning effects on net present value may be small, particularly if expected production is substantial. But as assets age, decommissioning liability becomes more significant.

The Financial Accounting Standards Board (FASB) projected that decommissioning costs and their estimation would improve with experience and technology development. Both predictions were correct.

New techniques and innovations provide operators with ways to reduce decommissioning costs, and the industry's accumulated experience now yields more-accurate estimates.

As a result, set-aside funding has become more realistic, financial disclosures are more accurate, and acquisition and divestiture decisions are sounder.

The operator also needs to establish the current market value for the structure, if any. The complete platform might have value for another operator. The deck, jacket, and/or production facilities might be valuable as individual components, while the entire structure might have only scrap value.

In addition, the operator should determine if another company might want to assume the producing property. This is generally done by larger companies selling their marginal fields to smaller companies whose operating cost is less per barrel, thereby, making a profit on the waning lease.

This type of marginal field procurement includes the Panaco Inc. purchase of Zapata leases in the Gulf of Mexico and the Oryx U.K. Energy Co. acquisition of the Conoco U.K. Ltd. and Chevron U.K. marginal fields in the North Sea.

If the operator decides to sell platforms, producing or nonproducing, it needs to determine the best way to advertise the assets for sale. One growing trend is to advertise the platforms, facilities, etc. on the Internet World Wide Web. Twachtman Snyder & Byrd Inc. has created a platform-listing service specifically for this purpose.

Other decommissioning elements that an owner needs to become aware of are the options regarding platform removal and disposal. New technologies such as severing techniques, alternative lifting methods, and reuse are possibilities to be evaluated.

After assessing the decommissioning cost, sale value, removal/disposal options, etc., the operator must develop a cogent strategy for decommissioning the platform in a safe, environmentally friendly, and cost-effective manner.

Planning the actions ahead of time allows an operator to reduce decommissioning costs and maximize the value of the asset by considering the opportunities discussed previously. Above all, planning is the key for a successful decommissioning project.

Advanced planning has reduced decommissioning costs in a variety of locales around the globe. Esso Norge's Odin platform removal, a project implemented by a joint venture between Aker Maritime and Saipem U.K., is the largest North Sea platform yet to be abandoned and the first to qualify under IMO (International Maritime Organization) guidelines for options other than complete removal.¹

Esso determined the platform decommissioning cost ahead of time and sought ways to reduce this cost through contracting strategies, removal/disposal options, and reuse alternatives.

Esso felt that the end result was a success, and the goal is to reuse 96-97% of the platform by weight.¹ Saipem said the removal of Odin-type platforms was technically and economically feasible with existing equipment and facilities, while the actual removal cost proved lower than some past estimates.¹

Because of the significant costs associated with removing large North Sea platforms, operators in that region (such as Shell Exploration & Production Co. and Amoco U.K.) have been planning the decommissioning of their properties for some time. Companies with interests in the Gulf of Mexico and California are also using advanced planning to reduce decommissioning costs and recover some expenditures.

Engineered solutions

Larger facilities in the Gulf of Mexico and most of the facilities in the North Sea and California do not lend themselves to conventional decommissioning methods without heavy financial penalties.

Approaching these removals with heavy-lift crane vessels and traditional marine equipment will be difficult at best and almost impossible in some cases.

This has created the need for engineered solutions that bring the costs back into line and in some cases simply allow decommissioning contractors to perform their work more effectively.

The Versatruss system (Fig. 2 [8,526 bytes]), an example of an applied engineering solution, was successfully demonstrated last summer by Amoco in the Gulf of Mexico.

Versatruss is an alternative lifting system that eliminates the need for an expensive crane vessel. It uses cargo barges fitted with "A" frames to lift decks and jackets.

Toppling jackets in permitted artificial-reef sites is also a common practice in the Gulf of Mexico. After removal and placement of the deck (Fig. 3 [10,029 bytes]) on a cargo barge and severing of the jacket piles (Fig. 4 [11,205 bytes]), the jacket is pulled over by a derrick barge or a pull barge.

Toppling can be regarded as a total-disposal solution for a jacket and stands out as an attractive option for many operators planning to decommission redundant installations in or near designated reef sites.

Several companies are developing computerized engineering methods to find ways in which platforms can be toppled in place with explosive devices. The research and design of reliable explosive charges and the application of numerical analysis for the toppling process will further enhance the viability of this option.

Other related work under way is to develop external flotation devices that allow jackets to be refloated without the services of a crane vessel. Several buoyancy and flotation systems possibly can be used for removing the complete installation or for removing the deck and jacket as separate components.

These systems all rely, to some extent, on identical principles. During the final cutting of the supporting structure, the buoyancy systems are installed to support the structure being removed.

Further deballasting and maneuvering moves the load clear of obstructions. Then the load can be prepared for transport prior to towing it to a suitable final destination.

Cost-effective flotation may someday broaden the disposal options available in such areas as offshore California.

Research, development

Because of an estimated $5.5 billion cost to plug old wells, remove platforms, and clean-up sites, operators are constantly seeking more cost-effective ways to remove platforms safely and in an environmentally responsible manner.

In addition to refining external flotation devices and creating new lifting techniques, current trends include research into explosive devices that improve existing methods for severing piles and conductors.

Explosives have come under scrutiny since 1986 when 53 dead turtles washed ashore after 12 platforms were removed. A "Turtle Watch" program has since required observers from the National Marine Fisheries Service (NMFS) to survey the area for 48 hr before setting off explosives.

If turtles are spotted, use of explosives must be delayed until the turtles are removed. Since the program went into effect, no turtles have been reported killed after an explosion. Still, the problem of fish kill remains.

Demex, an explosive contractor, believes it is possible to achieve a customer's goals with devices that require less explosives to sever the target.

The company is developing a device that will contain a maximum of 5 lb of explosive material compared to the 50-lb limit currently allowed by regulations.

Such a device will have an immediate effect on satisfying government requirements, greatly lessen the effect of explosions on the marine environment, and eliminate costs associated with NMFS observers.

Within the next few years, it is probable that an entirely new range of products and services will be developed.

Regulatory agencies, in addition to addressing concerns about the effects of explosives, are rethinking the time allowed for companies to haul away all the pieces of a platform.

To reduce deepwater structure decommissioning, operators want to be allowed to dispose of the structures by sinking them and turning them into artificial reefs. This practice has worked well for marine life in shallow waters.

Reuse

Although newer techniques have furnished alternative ways to reduce decommissioning expenditures, the costs for decommissioning services and equipment are currently increasing. In addition, the cost for fabricating new structures is also increasing.

This higher environment has created a need for operators to seek additional ways to reduce liabilities and lower costs to first production.

One current trend for offsetting rising costs is to reuse a portion or all of the offshore facility. Both the buyers and sellers of reused structures benefit from the reuse.

The party disposing of the platform can recover a substantial portion of costs accrued during a decommissioning operation, while the purchaser can lower his field-development expenses and accelerate his schedule to first production.

As fabricating costs of new offshore facilities rise, the price per ton of used platform components, as of July 1997, has grown accordingly. Twachtman Snyder & Byrd Inc. estimates 1994 and 1997 price per ton as follows:

• Piling: 1994-$900; 1997-$1,500
• Deck: 1994-$2,500; 1997-$ 4,500
• Jacket: 1994-$2,000; 1997-$3,000.

These climbing prices improve the attractiveness of buying an existing structure instead of fabricating a new one. Even though 1997 prices are higher than in 1994, used components remain about 50-75% lower in price than new components. Reuse, therefore, is a viable alternative.

Unocal Corp.'s Spirit 76 unit has reported that it recently sold one of its facilities for $1.4 million and that the current market allows equipment in decent shape to be readily sold.²

Total Abandonment Services has seen higher utilization rates at construction yards not only increasing costs but also making it difficult to complete a platform on schedule. According to them, this is causing many operators to evaluate refurbished facilities rather building new ones.²

Pre-existing facilities can reduce both the schedule and money invested in a field-development program.

Although reuse has been primarily used in the Gulf of Mexico, many operators are considering this option for other locations, such as the North Sea, West Africa, and Southeast Asia.

Partial reuse of platforms, such as converting a section of an eight-pile structure into a four pile, has been done, and these types of modifications expand the potential for reuse.

Another possibility for facility reuse is the use of old platforms for other functions besides oil and gas production. Some conceptual applications investigated are the conversion of offshore structures into fish farms, prisons, or even military outposts.

Artificial reefs made from decommissioned oil and gas structures have been popular with sports fishermen and divers in the Gulf of Mexico. The Louisiana and Texas artificial reef programs have attracted a great deal of attention in areas as diverse as California, Mexico, and Thailand.

A recent decommissioning workshop sponsored by the U.S. Minerals Management Service (MMS) and the California State Land Commission in Ventura, Calif., debated the pros and cons of a reef program off the West Coast.

While the jury is still out, it seems clear to many observers that some form of artificial reef is practical, and it may eventually happen.

While the Californians debated, a group from Baja California was actively promoting its area as a reef location. It is convinced that it will improve fishing and promote tourism.

Reefs will no doubt be an increasingly important part of decommissioning planning in the foreseeable future.

Deepwater disposal

One of the more interesting aspects of the discussion and presentations made at the California workshop was the attention given to very deepwater (greater than 7,000 ft) for disposal of structural material.

While many in the industry might have thought this was a dead issue after Shell U.K. Exploration & Production Co.'s Brent spar incident, both the MMS and the U.S. State Department made clear statements that it would be allowed under the right circumstances.

At the request of industry representatives at the workshop, Maureen Waters of the U.S. State Department provided a thorough explanation of the process and requirements for gaining approval.

It should be noted that the workshop's technical panel, co-chaired by Twachtman Snyder & Byrd Inc. principal Robert Byrd, made the point that disposing of large structures, which may exceed 20,000 tons in dry weight, in deepwater is not a simple process. Such disposal would probably require developing new technology such as external flotation devices described previously.

References

1. Offshore Engineer, September 1997, pp. 59-60.
2. Houston Chronicle, July 30, 1997.

The Author