Futuristic floatovers

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1 R E Q U I R E D R E A D I N G F O R T H E G L O B A L O I L & G A S I N D U S T R Y S I N C E AUGUST 2010 Surfing the seismic technology wave Subsea trenching s new leviathans OFFSHORE ENGINEER Futuristic floatovers PLUS: WHY MACONDO COULD BE AS DAMAGING TO OFFSHORE OIL AS CHERNOBYL WAS TO NUCLEAR

2 HORIZON HORROR analysis Gulf s hard lessons inform Helix response plan BP has come under fierce criticism for its response to the Macondo blowout, a months-long saga of top hats, riser insertion tools and other containment efforts that only began collecting a significant portion of the oil spilling into the Gulf several weeks after the event. Russell McCulley talks to Helix Energy services Group chief Owen Kratz about a deepwater blowout contingency plan that could improve response time and restore some faith in the industry s commitment to safety. The blowout that destroyed the Deepwater Horizon rig and killed 11 exposed a major weakness in deepwater oil & gas exploration: despite an impressive ability to find and extract hydrocarbons in staggering water depths, the industry had done little to develop the technology to deal with a catastrophe like Macondo. Beleaguered BP boss Tony Hayward set to resign the h t t p : / / o e. o i l o n l i n e. c o m O F F s H O R E E n G i n E E R a u g u s t

3 We were trying to raise awareness among legislators before they started drafting [regulatory] language, because [Macondo] is not the benchmark you should probably be using. Owen Kratz, Helix CEO post in October in favor of American Bob Dudley more or less acknowledged the industry s shortcomings 10 May, as the company struggled, without much success, to contain the estimated 35,000-60,000b/d gushing from the well in 5000ft water depths. There is an enormous amount of learning going on here, because we are doing it for real, for the first time, Hayward said. And that learning will have, I m certain, profound implications for the industry. In the US, the Obama administration imposed a six-month ban on new deepwater drilling permits pending the results of several investigations into the incident. Few expect the moratorium to be extended in the Gulf of Mexico. But much tighter regulations are almost certain to follow, along with considerably higher liability requirements for operators. Several initiatives are under way that the industry hopes will head off the most onerous new regulations. The American Petroleum Institute, in conjunction with the National Ocean Industries Association and the Independent Petroleum Association of America formed task forces to address deepwater subsea well control issues and oil spill preparedness and response. Similar efforts are under way in other countries: the UK s International Association of Oil & Gas Producers, whose membership includes BP, announced in July the formation of a response group that will study subsea well control and spill response and review offshore safety and liability issues. Also in July, a coalition of four international oil companies unveiled plans to create a rapid response system and pledged $1 billion to cover its initial costs (see panel). A recurring theme raised by the ongoing spill is that the technology exists to drill successfully in deeper and deeper water, but the technology to respond to the release of oil in these environments appears not to have kept pace, NOIA president Randall Luthi said. Luthi, who headed the Minerals Management Service during the second term of George W Bush, said the new task forces would address that Future Helix Producer I contracts would likely include a provision that would temporarily release the vessel in the event of another Gulf of Mexico disaster. 16 O F F s H O R E E n G i n E E R a u g u s t h t t p : / / o e. o i l o n l i n e. c o m

4 Spill muddies capital cost projections The Macondo oil spill could drive down the costs to build and maintain upstream oil & gas facilities just as costs were beginning to recover from last year s plunge, according to recent IHS Cera data. Upstream capital costs fell 9% in 1Q 2009 after a long period of escalation and remained down for the year, but showed signs of an upward trend in 1Q Analyses for 3Q Q 2010 showed costs poised to begin an ascent back to pre-recession levels after a precipitous fall last year, said IHS Cera chairman Daniel Yergin. However, the onset of the Gulf of Mexico oil spill adds a level of uncertainty to future forecasts owing to the moratorium and liability limits and as companies struggle to assess the full implications. The company said its Upstream Capital Costs Index dropped 0.3% in 1H 2010, while its Upstream Operating Costs Index rose 2% in the same period. Upstream capital costs at mid-year 2010 were at early 2007 levels, but the relatively flat trajectory over the past several months masked volatility in the markets that make up the index. Steel, for example, rose 3% from 3Q 2009 to 1Q 2010 after falling nearly 40% the previous year. Yards and fabrication costs rose 4%, after falling 13% in the previous six months, on increased orders for offshore platforms and offshore construction. Labor costs and fees for project engineering and management registered increases of 3% and 2%, respectively. Russell McCulley analysis question and others. The initiatives will help industry present a unified front that could be an important influence on future regulatory policy. But the studies could take some time. Unfortunately, legislators are drawing up law changes now, says Kratz. The US Department of the Interior wants a clear response plan before it issues further permits, he says. Helix, as much as any company, has had the opportunity to absorb the lessons from Macondo: the company was involved in the response effort on a number of fronts early on, most prominently with the mobilization of the Helix Producer I, Q4000 and Express vessels. The Q4000 multiservice vessel was deployed in early May and served a central role in the failed top kill operation; the vessel began flaring oil & gas from the well after BP installed a collection system to the choke line on the blowout preventer. The Express has been on site at the Mississippi Canyon block 252 spill to conduct subsea construction operations. And the ship-shaped floating production unit Helix Producer I was pulled off the Green Canyon block 237 Phoenix field in June and began collecting and flaring hydrocarbons from the BOP s kill valve a month later. These studies are talking a broader approach, Kratz says of the industry initiatives. Since we re out there and installed a lot of this equipment, we decided to put together what we could offer now to drillers and producers to satisfy the permitting requirement for fast response. Kratz and other Helix officials spent part of the summer in Washington DC, where they met with Gulf Coast lawmakers to discuss offshore contingency plans. We were trying to raise awareness among legislators before they started drafting [regulatory] language, because [Macondo] is not A four-month ordeal In mid-july, BP successfully replaced the lower marine riser cap atop the failed blowout preventer that had been capturing about 12,000b/d of the estimated 35,000-60,000b/d leaking from the Macondo well with a sealing capping stack, completely shutting in the flow for the first time since shortly after the 20 April explosion. The capping stack essentially a second BOP was being readied for a dual riser system that would connect to the Q4000 and Toisa Pisces vessels, boosting the entire containment and processing system to 80,000b/d capacity. But well integrity tests begun shortly after the stack was installed showed gradually building pressure, which coupled with extensive seismic, visual and acoustic monitoring, convinced engineers that the wellbore was intact and could be shut in while BP continued work on a pair of relief wells. At press time, BP had redeployed vessels and the Development Driller III and II rigs to the site after a July tropical storm interrupted operations. The company planned to install the final casing run in the first relief well, being drilled by the Development Driller III, which had reached a total depth of 17,864ft, less than 100ft shy of its intercept target with the Macondo well. Once the casing had been cemented, BP said it would attempt a static kill through the original BOP s kill line, filling the upper portion of the well with heavy fluids. National incident commander Admiral Thad Allen said engineers believed the measure would succeed where the earlier top kill, using the same valve, had not, and chalked the top kill s failure up to the amount of mud that had been allowed to escape through the damaged riser, which at the time was still attached to the LMRP. Once the static kill was complete, BP was to resume work on the relief well. BP planned to intercept and fill the annulus first, then bore into the well pipe if necessary to permanently plug the well. The storm set back operations by about a week; BP hoped to have the nightmare well plugged by mid-august. The spill s long-term effects on the Gulf of Mexico coastline and ecosystem were harder to gauge. In late July, with no oil having been released for two weeks and some dissipation attributed to tropical storm Bonnie, officials reported a markedly improved Gulf surface and less oil washing up on beaches. But reports of large subsea plumes of oil cast uncertainty on how long, and to what extent, Macondo oil would continue to plague the region. Russell McCulley the benchmark you should probably be using, Kratz says. We re not trying to pass judgment on what did or didn t happen out there. We just wanted legislators to be aware of the difference between trying to respond in an ad hoc fashion after the incident and having a plan, and equipment, in place. What we re telling them is, the technology does exist. We could prefabricate this equipment to be ready, with procedures already written and approved by the joint industry initiatives and vetted by the government agencies, and then put under the auspices of the Coast Guard. Then if it happens again, the equipment and personnel are ready, their instructions are clear. Everybody knows their job, and they go out and do it. The BP disaster exposed a major shortcoming in preparedness: contingency plans were drawn up specifically to deal with oil spills, and based on regulations laid out in the post-exxon Valdez 1990 Oil Pollution Act. I think this incident has highlighted that blowouts are a different kettle of fish, Kratz says. Current regulations say the initial action during a spill is to shut off the source of pollution, he says. Unfortunately, that s probably not the most prudent thing to try on a blowout, because you ve obviously got integrity issues in the casing or somewhere in the well. Attempts to kill a wild well in deepwater could make matters worse, he says. So the first response, in our mind, should be focused on collecting the oil, without restricting flow and increasing pressure inside the well. The Macondo response h t t p : / / o e. o i l o n l i n e. c o m O F F s H O R E E n G i n E E R a u g u s t

5 OE s analysis of current rig market data is updated monthly using statistics provided by Rigzone.com Rig market Worldwide utilization for the mobile offshore drilling fleet is tracking at 76%, near the top of a 74%-76% band that it has traversed over the past 11 months. On an annual basis, global utilization is down nearly two percentage points compared to levels achieved a year ago. All three rig types have improved slightly versus the prior month, with semisubs gaining over two percentage points month-to-month. The North Sea is home to 75 mobile offshore units. Barriers to entry are high due to the region s harsh environment and regulatory frameworks which collectively ring fence this market. In turn, these conditions lead to utilization that is higher and typically less volatile than the rest of the world. Overall utilization currently stands at 88% in the North Sea. Stratifying the North Sea market by rig type we see that 50% of the rigs in the region are jackups, 50% are semisubs. There is one drillship operating in the region which is currently drilling. Utilization for the remaining rig types is roughly 87% for jackups (15 percentage points higher than the global average) and 89% for semisubs (also favorable compared the global average). Supply and demand dynamics will likely hold steady with the region an unlikely recipient of most rigs that might be displaced by the regulatory aftermath stemming from the oil spill in the Gulf of Mexico. North Sea rig utilization 100% 95% 90% 85% 80% 75% 70% 65% Drillship Jackup semis semi Jackup 05/09 06/09 07/09 08/09 09/09 10/09 11/09 12/09 01/10 02/10 03/10 04/10 05/10 06/10 was an ad hoc, reactionary process, Kratz says. There was no readiness, there was no plan, there were no assets identified. Through trial and error, however, the case did prove that some systems could effectively contain a subsea spill, even one the size of the Macondo gusher. What we re looking at is, based on what we know is out there, is a system we can put together with forethought and planning that we know will work, and that s always available and ready to be mobilized on a moment s notice, he says. Helix s proposal centers around the Helix Producer I, which was designed to work with a side-mounted disconnectable riser system and has the capacity to process 45,000b/d and 80mmcf/d. The design was meant to make the FPU easy to move from field to field and quick to disconnect in the event of a hurricane; the same traits mean it could be taken off a field and redeployed to a deepwater Gulf spill site in a matter of days. The plan would also include a purpose-built riser that could be connected in high seas one problem with the Macondo response was the time spent waiting for proper weather conditions to install some of the equipment used there and a capping system similar to the stack that in July brought the Macondo flow under control. The containment cap would connect via an 8in flowline to a manifold with multiple takeoffs, offering expandability and a number of options for capturing and processing the runaway hydrocarbons. Helix would stock a sufficient amount of flexible pipe at its Ingleside, The technology to respond to the release of oil in these environments appears not to have kept pace. Randall Luthi, noia Texas, facilities, along with various parts and adapters, some of which likely could be salvaged from the Macondo operation. In all, Kratz says, equipment for the contingency plan would run $10-20 million, a sum that, he says, some operators have signaled a willingness to cover. Future Helix Producer I contracts would likely include a provision that would temporarily release the vessel in the event of a disaster. It s not like the industry has to pay for a vessel to be on standby; the industry just needs on-call availability, Kratz says. And Helix Producer I can be made available on the day that she s called. Pipe for the riser, along with subsea hardware, could be transported with any available vessel and installed in about three days. Once you have the initial collection system installed, you would go into a diagnostics phase on the well itself, and if diagnostics show you could shut it off, you shut it off, he says; if the well can t be safely shut in, relief well drilling would begin and oil & gas capture would continue. It s basically what BP has arrived at here, but instead of a reactionary, ad hoc response, we re saying, next time we ll know exactly what we need. Such a plan would also allow federal authorities to seize control of operations early, better insuring a uniform response. A lot of people have called for the Coast Guard to take over (at Macondo), but they say they don t have the capability, Kratz says. With this, they would. Retired US Coast Guard Admiral Thad Allen, who was appointed command of Macondo response operations, says that federal officials investigating the incident will be looking closely at the containment methods employed during the response. All that really becomes substantial and consequential in that investigation, he says. Among the likely outcomes of the investigation, he says, is greater Coast Guard scrutiny of offshore rig response plans. Helix s plan could give operators a leg up in what look to be challenging times ahead, Kratz says. There s been a lot of collaboration here between a lot of contractors, but they ve been making do with what they could find. Now that they ve been through it, it will be pretty easy for them to identify what will be needed if it ever happens again, he says. It s not something we can build a business around, he adds. We re just trying to be part of the solution. OE 18 O F F s H O R E E n G i n E E R a u g u s t h t t p : / / o e. o i l o n l i n e. c o m