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2009 11 11 Byrd A Different Approach To Decom Liability

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A candid look at cost risk issues in "turn-key" contracting for hurricane damaged and downed structure removal and well P&A. Provides some review of the history of offshore …

A candid look at cost risk issues in "turn-key" contracting for hurricane damaged and downed structure removal and well P&A. Provides some review of the history of offshore decommissioning and huricane damage in the Gulf of Mexico. Developed and presentated by Robert C. Byrd, Ph.D., P.E.


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  • 1. Taking on Decommissioning Liability: Adifferent approach to project contracting Presented to the P d h 6th North Sea Decommissioning Summit November 2009 Presented by Robert C. Byrd, PhD, PE
  • 2. Presentation Outline• The Gulf of Mexico Some The Gulf of Mexico – Some  Facts & History y• Decommissioning Experience• The Project
  • 3. U.S. Gulf of Mexico• 42 million Acres 42 million Acres• 33,600 miles of pipelines 1,700 miles of new pipelines/year past 5 years 1 700 il f i li / t5• ~ 4,000 producing platforms 1,962 Major, 954 manned• 30% of US Oil Supply – 1.5 MM BOPD• 21% of US Natural Gas – 10 BFPD
  • 4. Active Platforms by Water Depth 3500 3480Number of Active Platforms 3000 2500 P 2000 1500 o 1000 442 500N 47 4 25 0 0 to 200 201 to 400 401 to 800 801 to 1000 Above 1000 Water Depth (Meters)
  • 5. Number of Gulf Of Mexico OCS Platform Installed vs Removed (1942-2008) 250 225 200Number of Platforms 175 150 f 125 100 75 50 25 0 1940 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 Year Installed Removed
  • 6. Number of Gulf Of Mexico OCS Platform Installed vs Removed (2000-2008) 225 200 175Number of Platforms 150 f 125 100 75 50 25 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Year Installed Removed
  • 7. NEWS RELEASE:For R lF Release: M 14 2009 May 14,Proserv Energy Awarded Turnkey GoM Project Client: St Mary Land & Exploration Location: Gulf of Mexico, Vermillion Area Scope of Work: Abandonment and removal of platform, pipelines and wells destroyed during Hurricane Ike. Contract Type: Fixed Price – Turnkey
  • 8. Contract Characteristics:•Proserv offered asset ownership, however the lease hadexpired. Therefore, the Operator retained ownership.•Proserv has risk and responsibilities for planning,project management, and all costs,•Project execution within MMS approved timelines.•No recourse except for non-disclosed information.Objective: Give the operator a risk-free alternative for risk freeremoving non-producing assets, freeing up capital andcredit.
  • 9. Are A we C Crazy? ?The Answer depends on whether or not we know what we’re doing.
  • 10. Our Experience:•More than 20 years in the Gulf of Mexico•Over 400 Decommissioning Projects Completed•Strive for fit-for-purpose decommissioning solutions
  • 11. Decommissioning Cost  Estimating:  Estimating: How good are we?
  • 12. Probability Distribution Function (PDF) Platform Removal Cost Experience Actual vs. Estimated0.8 X <= 0.487 X <= 2.103 10.0% 90.0%0.7 Data Characteristics D t Ch t i ti0.6 Mean = 1.23 Mode = 0.9240.5 Median = 1.120.4 Function=ExtValue(0.92392, 0.52399)0.3 Note: PDF based on approximately 40 projects 0.2 involving approximately 120 structures over a 10 year period.0.101 0 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 Actual / Estimated Cost
  • 13. PDF of Well P&A Cost Experience Actual vs. Estimated1.414 X <= 0.765 X <= 2.600 10.0% 90.0%1.2 Data Characteristics Mean: 1.394 1 Mode: 0.998 Median: 1.2340.808 InvGauss(0.89492, 1.86797) Shift=+0.499240.6 Note: PDF based on approximately 40 projects PDF based on approximately 40 projects  involving approximately 200 wells over a0.4 10 year period.0.2 0 0.5 1 1.5 2 2.5 3 3.5 Actual Cost / Estimated Cost
  • 14. Historical Offshore Platform Decommissioning Cost in the Gulf of Mexico 1800 1600 1400 1200 ost($)/Gross Ton 1000 s 800 600 Decom CostCo Polynomial Trend Line 400 200 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Year
  • 15. What b t H i Wh t about Hurricane Damage?We’ve h d lot fW ’ had a l t of practice. ti
  • 16. Hurricane Damage SummaryYear Hurricane # Platforms Effected / Pipeline #Damaged / #Destroyed Incidents1992 Andrew 700 /65 / 22 4802002 Lily 800 /17 / 2 1202004 Ivan 150 / 31 / 7 1682005 Katrina & 3,050 / 52 /115 542 Rita2008 Gustav G t & 2,127 2 127 /135 /54 9 Ike
  • 17. What Changes After Hurricane Damage? D ?Answer:     Everything, except  the Regulations (maybe?) g ( y )
  • 18. Typical Hurricane Katrina Damage
  • 19. Hurricane Katrina Damage (cont.)
  • 20. 2008 Hurricane Ike Damaged Platforms
  • 21. 2008 Hurricane Ike Damaged Platforms
  • 22. Why give a firm price for aHurricane Damage (Insurance) Project? Because we can!
  • 23. Vermilion 281 A– Before A
  • 24. The Platform – After
  • 25. Scope of Work• The 4 wells will be P&A’ed using rig‐less techniques.• A waiver not to Pig the pipelines was received from  A waiver not to Pig the pipelines was received from the MMS p gg g, pp• In‐lieu of pigging, the pipeline will be flushed with  seawater only• The two pipelines will be abandoned in place• The deck and equipment will be recovered to the  surface, sent to shore and recycled.
  • 26. Well P&A  Ensco 87Well P&A – Ensco 87
  • 27. Scope of Work• Proserv is pursuing donating the jacket to an  established artificial reef site with the Louisiana  Artificial Reef Program (LARP). A tifi i l R f P (LARP)• If the reef plan is not pursued or accepted by the  LARP then:  LARP then: ‐The jacket will be recovered to the surface, sent to shore  and recycled. y ‐A 1,320 radius from the center of the platform will be  cleared of debris
  • 28. Deliverable• Completion Reports as required by MMS Completion Reports as required by MMS ‐Pipeline Abandonment ‐Well APM Well APM ‐Platform Removal ‐Site Clearance and Verification Sit Cl d V ifi ti• Well access and debris removal will be  completed once the trees are on the wells. l d h h ll
  • 29. Schedule• Planning – May• Permitting – May / June Permitting – May / June• Equipment & Materials – May / June• Pipeline Abandonment – July• Debris Removal / Access to wells – August +• Well P&A – September ‐ November• Deck / Jacket Removal – Deck / Jacket Removal – November• Site Clearance & Verification ‐ December
  • 30. Cost• Turnkey• Milestone payments• Exclusions l i ‐ Well Control Issues  (pollution) ( ll i )
  • 31. Cumulative Distribution Function of Total Project Cost 1 P90 =  1.08 Contract $0.8 P60 =  Contract $0.6 P50 =  0.98 Contract $0.40.2 P10 =  0.92 Contract $ P10 = 0 92 Contract $ 0
  • 32. St. Mary’s Project Summary Mary s• Fairly distributes Risk/Reward. Fairly distributes Risk/Reward• Offers the Operator financial certainty.• Contract is at a competitive price. C i ii i• Offers the Contractor an opportunity to  improve returns for a job well done.• A Win – Win Contract.
  • 33. Conclusions• C t t Contractors and Operators benefit from years  dO t b fit f of experience.• Gulf of Mexico conditions allow for accurate  calculation of cost and risk.• Labor and resource availability is predicable.• Regulatory regime efficient and predicable. g y g p
  • 34. Questions?