Offshore Plug and Abandonment - Part 1

How these activities can pay huge dividends in the current market

Why P&A and why now?

The number of end-of-life platforms and wells is growing in The Gulf of Mexico: “As of February 23, 2015, BSEE data indicates that there are 241 platforms which fit the criteria of idle iron. In addition, there are currently 294 platforms on expired or terminated leases.  Of the 535 platforms eligible for decommissioning, 396 are located in water depths less than 100 feet. Of the 535 platforms, 130 are located in water depths from 100 to 500 feet.”  - BSEE Idle Iron Statistics. 

We are also seeing a declining number of Permanent Abandonments since the price drop of oil: 

Structures Removed on the GOM OCS As of: January 27, 2016
Structure Type Total 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Caissons 999 43 74 101 41 52 60 59 80 57 113 98 99 84 38 0
Platforms 1296 61 70 64 65 46 82 74 129 142 152 147 105 88 70 1

One of the greatest contributing factors to this trend is the current market of reduced oil prices, and a strong pressure to eliminate any expenditure that is not revenue producing. We also know that the typical Plug and Abandonment operation often exceeds the allocation for doing such work. Therefore, most companies, while realizing the inevitable nature of this P&A work, have a hard time justifying the expenditure. However, what if this work could be reliably executed on budget? What if a P&A campaign could be completed with a 20-50% reduction in allocation?  The increase of cash flow would undoubtedly be a game changer.

Some would argue that the only way to reduce long-term cost is through technology development, such as the creation of downhole tools and methods that would eliminate the need for section milling, or rigs altogether. While the research and development of such innovation is critical, this will not be done in the short-term and will not provide a reliable source of cost reduction in this current market slump.

The immediate (and long-term) solution exists in the people and processes, as well as the systems employed to manage them. The system that has proven to provide the most value is one that is focused on an organization’s behaviors; specifically determining the leadership behavior required to plan, execute, and follow-up on work being done. It is also imperative to have a senior leadership component that ensures a cultural change to sustain improvements and foster innovation.

The Problem

P&A has fallen victim to a set of paradigms that are all too familiar in the oil patch: complacency. Waste has been the enemy of any producer since time began. While some industries have made a science out of finding and eliminating waste from their operations (E.g. automotive manufacturing), upstream producers have been slow to adopt Lean methods. Even where TIMWOOD - 7 Wastes method is employed, and waste walks are performed, wastes are not recognized as such. Operators come to the realization that installing “event” type improvements have a diminishing return. In terms of expediting tools and materials, inefficient deck setups, underutilized supply boats/helicopters, trial and error problem solving, standby pay, and overtime, there is a high potential for waste occurrence. So why aren’t they recognized as such?  Often the case is that personnel are unaware of the impact of such wastes, or feel like it is out of their level of control, however, it is more likely that poor planning has allowed these wastes to creep in organically and $100+ barrel prices tend to mask the cost, or the impetus to focus on critical path activities distracts management from ever addressing the root causes of the waste. 

To exacerbate the problem, management has little visibility of these costs.  Using historical performance data does little to identify true capacities.  Additionally, there is little industry benchmarking available.  Cost estimating is typically based on standards derived from historical performance, so when current performance fails to meet the standard, the standard gets changed in the next program, and then performance tends spiral downhill. This is yet another reason why P&A activities are considered risky in a low revenue market.

So how can an organization go about overcoming these obstacles and feel confident about implementing a P&A project to put some of those allocated funds back in the bank after it is complete?  We will outline how to put a solution in place in the second part of this blog.

Brian Eiken has worked for several consulting firms over the last twelve years. He has found that Evolve Partners not only has a vision and Framework for delivering results, but the discipline to be true to the brand and create meaningful work for both our clients and ourselves! We do what we say we will do, for our clients and each other.