Regulation and Policy

2012 will see an upswing in decommissioning activity in the Gulf of Mexico. DecomWorld explores how service providers and operators can maximize productivity on multiple project campaigns.

By Dan McCue, US correspondent

After a relatively slow year due mainly to a backlog of permit approvals, the Gulf of Mexico abandonment and decommissioning market should heat up in 2012 – baring the unpredictable impacts of a major hurricane during the prime working months or renewed volatility in the price of oil, industry insiders say.

What speculation there is among commercial oil and gas entities along the US Gulf Coast revolves around the magnitude of action. The current consensus is that the market is slow enough that one could literally pick up the phone and s ecure a derrick barge or piece of marine equipment – at a good rate -- if they needed it.

By the same token, the widely held belief among contractors is that they’ll certainly be paying more for equipment and crews if decommissioning work ratchets up as expected.

“It’s just your typical supply and demand situation,” says Win Thornton, Global Managing Consultant – Decommissioning, at Worley Parsons in Houston, Texas.

No silver bullets

So where do the opportunities for cost-savings lay?

According to Thornton, they lay not in new equipment or best practices – aspects of the industry that evolved substantially in the aftermath of Hurricane Katrina in 2005 – but rather in the planning of this season’s decommissioning work, with the emphasis being on working “campaigns” or the stringing together of multiple jobs that require similar equipments and expertise.

“Basically, it’s the idea of organizing your work into a campaign portfolio so that you maximize your opportunities to achieve a reduction in costs,” Thornton says.

“If you work a one-off here and a one-off there, doing a project for BP one month and another for Apache a month-and-a-half after that, you’re missing out on the savings you could have achieved through using the same equipment and subcontractors, reducing your mobilization costs, and capitalizing on the other efficiencies gained from having a crew move from one project to another,” he says.

 “To date the industry has probably decommissioned about 2,000 platforms, and what that experience has shown is that there are no silver bullets out there, there is no technology that’s going to drive your costs down 50 percent,” Thornton continues.

“That’s why the best strategy is to be smart and optimize your project strategy as much as possible,” he adds.

But Thornton, whose long experience in the field includes his having been manager of international decommissioning for Chevron, admits, there’s a certain art to taking the campaign approach.

“At Chevron, because we had enough in-house, we would put our own little mini-campaigns together, and while that worked well for us, in fact because we didn’t expand the net outside of Chevron, we probably only caught about 60 percent of the savings that could have been achieved through a more regional approach,” he says.

“We might have had Apache next door to us or Stone next door to us, but because they were other companies, those synergistic opportunities were missed,” Thornton says. “At the same time, I also know how difficult organizing a campaign can be from an independent’s position.

“I had my own firm, WinMar Consulting Services, that specialized in decommissioning services, and we took a 35 platform portfolio from a half-dozen operators and strung it all together, and man, it was like herding cats,” he says. “Each operator had its own agenda for timing, where they wanted to be in the queue, where you had access, where you might not have access because of other things that were outside of your control. So there are a lot of things that can make putting a campaign difficult.”

Price stability

While any activity taking in a region the size of the Gulf is fraught with unknowns, a factor that’s likely to make such campaign strategizing easier this year is the continued stability in the price of oil. That stability allows decision-makers to better determine what’s economical and what’s not, and to make clearer cut decisions on whether to keep a well producing and make capital investments to keep it going or whether its economics no longer work and it’s time to plan and fund decommissioning.

“When we have erratic price changes, or if say, the price of oil were to drop to $50 a barrel, a lot more wells will be deemed uneconomical and be driven toward decommissioning,” Thornton says. “The problem right now is that everybody’s cash flow is so horrible that they might not necessarily be able to handle that amount of decommissioning right now.

“That’s why having a steady price of oil right now is actually a good thing; it keeps the market chugging along,” he continues. “If we’re lucky, and get a good weather season and continue to see low volatility in the price of hydrocarbons, it would be great for keeping the decommissioning business in a steady state of affairs.”

Regulatory stability

When it comes to the state of Gulf of Mexico oil and gas market in 2012, Thornton, like others, sees mainly stability in the offing.

“Basically, the state of the market is simply one where people are trying to get geared up for business,” he says. “There’s no real big issue that people are buzzing about – there’s no big drive to change regulations or balk at them. I think the biggest ‘want’ along the Gulf Coast is for the agencies to issue the permits on a dependable basis.

“Aside from that, I think the biggest thing happening right now is preparation,” he says. “There’s a strong belief that there’s going to be more decommissioning work, and so you have to be planning with a little bit of line of site; and if you haven’t already got your bids out for your derrick barge, then you might be later in the queue with the vendors than earlier.

“The wild card is hurricanes, and how they impact the work season,” Thornton says. “If you have damage from a hurricane, work resources and manpower are going to be prioritized toward getting production back on like and cleaning up any damage before it goes back to decommissioning. So I think right now, that’s the big wild card, so to speak; how hurricanes impact the region this year and if and how long they’ll drive priorities away from decommissioning.”

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