A Decade of Decommissioning and Abandonment Part One, 2009-2013

Business Intelligence for the Offshore Oil & Gas Industry

Business Intelligence for the Offshore Oil & Gas Industry

A Decade of
Decommissioning
and Abandonment
Part One, 2009-2013

Decommissioning &
Abandonment Summit
20-21 February 2018
Omni Hotel, Houston, Texas
Written by James Bourne of behalf of DecomWorld
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20-21 February Omni Hotel, Houston, Texas Click here to pre-order the conference brochure
 A Decade of Decommissioning and Abandonment Part One, 2009-2013
Decommissioning &
Abandonment Summit
20-21 February 2018
Omni Hotel, Houston, Texas
Click here to pre-order the
conference brochure
Business Intelligence for the Offshore Oil & Gas Industry
Overview
The inaugural DecomWorld Decommissioning & Abandonment summits
were set against the backdrop of recent hurricanes in the Gulf of Mexico
(GoM) that had left a trail of destruction and an indelible mark on the wider
oil and gas industry, notably the decommissioning part of it. Operators faced
seismic challenges, as the significant damage wrought by the elements --
in the 10 years to 2011, 183 platforms in the GoM were destroyed and 839
pipelines compromised due to hurricane activity forced new regulatory
regimes, upended project economics and paved the way for new technologies
designed to deal with the mammoth decommissioning tasks. All these issues
figured prominently at DecomWorld summits, as leading industry players
outlined the next steps forwards and gave tantalizing glimpses into the new
thinking needed to cope with Idle Iron Notice to Lessees (NTL) and other
challenges. The following contributions touch on the major issues as seen
from the prism of 2009-2013, as the industry grappled with a brave new
world.
Addressing the damage caused by major hurricanes
Hurricane activity in the 2005-2008 period caused extensive damage to
platforms and associated infrastructure. Hurricanes Katrina and Rita in 2005
destroyed 113 platforms and damaged 457 pipelines. Hurricanes Ike and
Gustav three years later affected 2,100 of the 3,800 OCS platforms in the GoM.
The legacy continued to be felt five years down the line. In 2012-2013 alone,
27 hurricane-destroyed structures were decommissioned.
The early DecomWorld summits were framed by this troubling backdrop. As
the recent Storm Harvey has demonstrated, tropical storms and hurricanes
regularly challenge and endanger energy infrastructure throughout the GoM.
As Gary Siems, Decommissioning Manager at Stone Energy noted at the 2010
summit, hurricanes like Katrina and Rita were once considered to be 100-
year events. But having been followed soon after by other hurricane events,
these could no longer be regarded as freak one-off events. This calculation
had changed forever the outlook on idle iron. People may have thought we
have had two 100-year events in successive years and were done with that.
Wrong again. Three years later Gustav and Ike toppled another 61 platforms
and 372 wells, said Siems.
This came as a shock to the industry, yet proved to be game changers
for GoM operators. Not only was the industry to see a sharp increase in
decommissioning costs of abandoned wells to remove submerged structures,
it would also witness insurance costs increase ten-fold, Siems estimated.
The impact of Hurricanes Katrina, Rita and Ivan, and then later Gustav and
Ike, reinforced the message to operators of offshore structures that it was no
longer acceptable to leave these idle, given the devastating impact of the
storms.
 A Decade of Decommissioning and Abandonment Part One, 2009-2013
Business Intelligence for the Offshore Oil & Gas Industry

BJ Kruse, head of OSTS at Minerals Management Service (MMS) GoM Region,

told the March 2009 summit that the destruction from recent hurricanes
showed many of the facilities and wells that were lost actually had little or
no future utility. Further, he said, the industry had little real idea of the cost of
removing toppled structures and wells. This he estimated was in the range of
10-15 times more than normal abandonment and removal expenses.
The early summits were peppered with insights into the full scale of the
losses left by the hurricanes and their aftermath. For example, Lew Dennis,
US Offshore Area Decommissioning Manager, Chevron Environmental
Management Company said that the scope of loss was over 8 million man
hours.
Mark Kaiser, head of the Center for Energy Studies at Louisiana State University,
said the damage meant that the previous more reactive attitude of the
industry had to be changed, with entire portfolios needing to be assessed
and ranked according to risk exposure. Speaking in 2010, he noted that idle
infrastructure represented a financial liability to the operator. If it is destroyed
or damaged in a hurricane, the financial liability may increase greatly
because the cost to abandon and remove storm-damaged infrastructure
is considerably higher than decommissioning operations under normal
conditions.
The economic impact of hurricane activity was substantial. The 2009-2013
DecomWorld summits highlighted how much insurance costs changed post-
hurricanes. Addressing the 2010 summit, Gordon Browne, Assistant VP of
Exploration and Production at Liberty International Underwriters, said insurers
views had changed post-Ike. Severe hurricanes were no longer viewed as a
fortuity but an inevitability, he said. As a consequence, the insurance market
now offered a re-structured product with complete transparency of exposure,
and having reengineered the fundamental elements of windstorm-exposed
Operators Extra Expense coverage. The need now was for closer cooperation
between clients, underwriters and brokers to better tailor coverage specific
to clients needs, while maintaining the balance that underwriters require,
said Browne.
New models would be introduced as a result of the hurricanes. According to
Stone Energys Siems, while very few toppled structures were in deep-water
depth, there was always a possibility that they could be. He outlined a model
to apply to operators portfolios, to identify the highest risk platforms and
mitigate the risk where possible.

Decommissioning &
Abandonment Summit
20-21 February 2018
Omni Hotel, Houston, Texas

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 A Decade of Decommissioning and Abandonment Part One, 2009-2013
Decommissioning &
Abandonment Summit
20-21 February 2018
Omni Hotel, Houston, Texas
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Business Intelligence for the Offshore Oil & Gas Industry
Idle Iron NTL
The publication of the Idle Iron NTL in October 2010 was a gamechanger.
This critical regulation was to dominate discussions in the first five years
of DecomWorld summits and with good reason. It represented a seismic
shift in the way the GoM was viewed by operators, forcing them into more
proactive -- as opposed to reactive -- approaches to decommissioning and
abandonment. For the first time, a regulation across any offshore basin set
a requirement for infrastructure to be decommissioned after production
ceased for a fixed period of time.
At the time, DecomWorld forecast that the landmark mandate for the removal
of Idle Iron would trigger a short-term 25% increase in decommissioning
activity, valued at $3.5bn.
The US Bureau of Ocean Energy Management, Regulation, and Enforcement
(BOEMRE), formerly known as the MMS, issued new guidelines and measures
in the form of NTL 2010-G05 for decommissioning idle wells and structures
on active leases on the Gulf of Mexico OCS. The aim was to prevent inactive
facilities and structures affecting the GoM or threaten increased risks to the
marine environment and navigation. The NTL was sparked by the findings of
a 2008 MMS review on the presence of idle infrastructure in the GoM, which
found that a significant number of idle platforms and wells had been neither
removed nor permanently plugged.
NTL 2010-G05 dissolved the lease boundary in determining decommissioning
time lines and redefined the regulatory requirements at the individual
wellbore and structure level by specifying the maximum number of years
wells and structures are allowed to remain idle before they have to be
abandoned.
The early summits were understandably heavily focused on the likely impact
of the Idle Iron regulation. Addressing the 2010 summit, Kaiser predicted that
the cost to the industry, in terms of gross revenue lost as a result of NTL 2010-
G05 would range between $6.2bn to $18.6bn.
Many operators were understandably anxious about the impact of Idle
Iron NTL. However, Kaiser told the DecomWorld summit in 2010 that there
would be benefits as well as costs. The benefits, he predicted, would be
a significant clean-up of the GoM idle inventory and reduced hurricane
exposure. That should improve the balance sheets of operators by reducing
liabilities and future liabilities. All things being equal, he estimated that
insurance premiums should be reduced as a result of the regulation.
While the benefits of Idle Iron were more difficult to quantify, the costs were
more easily quantified, said Kaiser. Potential lost production from the wells
that are permanently abandoned has an associated opportunity cost, with
operators losing access to a well that could yet have a utility in the future.
The summits aired some grievances related to Idle Iron NTL. Speaking to the
2013 DecomWorld Summit, Eric Smith, a Professor at Tulane Energy Institute,
highlighted an inherent conflict between Idle Iron regulations and post-
storm inspection and repair requirements that were adding to uncertainty in
determining government priorities.
 A Decade of Decommissioning and Abandonment Part One, 2009-2013
Business Intelligence for the Offshore Oil & Gas Industry

Yet the 2013 summit was able to report some progress in reaching Idle Iron
targets. Addressing that summit, Michael Saucier, the head of the GoM region
at the BSEE, put the inventory of Idle Iron at 2,016 total idle wells (including
260 newly idle since NTL) and 400 idle platforms (including 62 newly idle
since NTL). He said 770 total platform removal permits had been approved
since the NTL three years earlier. He reinforced the message that the BSEE
was implementing a strict policy on the NTL, though in certain cases, he
acknowledged extensions could be granted if the data could justify it.

Risk mitigation
The concept of risk mitigation embedded itself firmly in the lexicon of the
DecomWorld summits in the 2009-2013 period. David Wisch, a Chevron
fellow, posed the key question in his address to the 2009 summit: whether
the notion of what is acceptable risk was changing noting that the original
decommissioning code left the determination of an acceptable level of
economic risk to the operators discretion, and that it could be beneficial for
an operator to perform explicit cost-benefit risk analyses in addition to simply
using this recommended practice. While many were meeting the codes
terms, said Wisch, the issue of risk was not being properly addressed.
The recent impact that hurricane damage had exerted on offshore structures
meant that this attitude had to be changed and entire portfolios assessed
and ranked according to risk exposure. This would lead to a more proactive
approach to risk mitigation, moving it beyond something that was once
deemed as simply a cost to be borne.
The issue of risk mitigation was prominent for other key speakers at the
2009-2013 summits. Some highlighted the opportunities that would be
forthcoming. As Kaiser noted in 2010, plugging idle wells also reduces
decommissioning risk because -- at least for permanent abandonments --
conductor removal decreases the chance the structure will be toppled. If a
structure is destroyed, wells that have been abandoned save operators time
and expenditure in decommissioning operations.
In 2011, Frank Buescher of Casparian Engineering, delivered a paper outlining
the importance of pre-emptive mitigation to avoid the risk of downed
structures, and how to manage resources by platform age, water depth, deck
height, platform axis orientation and well conductor density. He mentioned
techniques which could be employed to reduce risk including wave profile
reduction, platform strengthening, structural integrity analysis and removal
of conductors.
Buescher outlined the cost of the risk mitigation options in descending
order. Top of the list was deck elevation, followed by conductor removal and
riser removal. Platform strengthening would be a less expensive option for
operators, but came with a caveat: If you run your analysis and find out your
pile or foundation has a problem then strengthening the platform isnt going
Decommissioning &
to help you, he said.
Abandonment Summit
20-21 February 2018
Omni Hotel, Houston, Texas

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 A Decade of Decommissioning and Abandonment Part One, 2009-2013
Decommissioning &
Abandonment Summit
20-21 February 2018
Omni Hotel, Houston, Texas
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Business Intelligence for the Offshore Oil & Gas Industry
In 2012, Chevrons Lew Dennis highlighted the wider importance of risk
reduction. Technology could be used to move people to safer locations, for
example moving them out of the way of high risk activity or towards a safer
location, or even by moving the whole project to a safer location by taking
structures apart into larger pieces and them taking them onshore (where risk
was inevitably lower).
But often the simplest means to reduce risk are the best. For example, Dennis
mentioned the need for routine meetings with diver contractors, which
could reduce risk by sharing incidents and learning lessons. Risk reduction
is working for us, he said. Projects end up better planned and well thought
out and the result is a more cost-effective project as well.
The message from DecomWorld was clear: dont wait for a major safety or
environmental incident to take action.
Cost estimation
The early DecomWorld summits grappled with one of the big issues
confronting the industry cost, and more specifically, the difficulties in
estimating costs associated with decommissioning in the wake of hurricane
activity in the GoM. As BJ Kruse noted in 2009, the costs for removal of
toppled structures and wells was in the range of 10-15 times more than
normal abandonment and removal. In 2009, the average cost for removing a
structure stood at $1.2m and to plug a well, at $775,000.
In 2009, decommissioning costs were escalating to an all-time high a
source of considerable disquiet at the time, as the summit that year revealed.
Decommissioning costs, as a whole, had gone from less than 1% to just under
2% globally from 2006-2010. Decommissioning costs went up on average of
22% annually over the same period, according to one of the speakers, Richard
Ward, VP of Global Sales and Marketing, at TETRA Offshore Services.
Michael J. Saucier, Field Operations Supervisor at BSEEs Gulf of Mexico OCS
regional office, noted that some facilities topple during hurricanes, risking
pollution, and that it costs significantly more to clean up, plug, and abandon
a toppled well.
Numerous factors impact costs and costs are themselves subject to
significant uncertainty. According to Kaiser, again speaking in 2009, these
included the wide variety of configurations, sizes, weight, water depth,
ownership, preparation time, market rates, contact terms, economies of scale
weather and technology evolution. He noted that tor wells on producing
platforms, operators will need to determine the benefit and cost on an
individual well basis, which was difficult to evaluate. The estimated total cost
to perform the requirements specified by the NTL is likely to range between
$1.4bn to $3.5bn, according to Kaiser.
Edgar Anderson, President of Maritech Resources, highlighted some of
the lessons learned from decommissioning in the West Delta at the 2009
DecomWorld Summit. Maritech, he said, was removing idle iron long before
hurricanes and the MMS made it a popular thing to do, and budgeted $50m
annually for decommissioning and well abandonment. In his view, consistent
 A Decade of Decommissioning and Abandonment Part One, 2009-2013
Decommissioning &
Abandonment Summit
20-21 February 2018
Omni Hotel, Houston, Texas
Click here to pre-order the
conference brochure
Business Intelligence for the Offshore Oil & Gas Industry
project management in planning, permitting and execution of this multi-
phase project was key to success, with a significant drop in field operating
costs achieved as a result of the decommissioning project and focus on
remaining wells. In this a fixed third-party contribution gave a goal to beat
and a motivation to keep costs low. The result was 30 wells plugged for
just 77% of the AFE amount, and 13 removed structures for 82% of the AFE
amount.
Total minimum average GoM decommissioning exposure stood at $18.3bn,
according to Kruse, speaking in 2010. But in the worst-case scenario, taking in
wellbore P&A, platform removal and site clearance, this stood at $57bn.
Total Decommissioning Exposure
Total Decommissioning Exposure
Source: Mark Kaiser 2010 Presentation
In 2012, Stone Energys Siems highlighted ways of undertaking
decommissioning such that it could be done more cost-effectively if not
necessarily cheaper, at least done in a way that delivered more bang for the
buck.
Increased regulatory pressure doesnt automatically mean increased
decommissioning budgets, said Stone. He foresaw that operators would be
forced to do more decom work for the same or less money making the best
use of available budgets.
 A Decade of Decommissioning and Abandonment Part One, 2009-2013
Business Intelligence for the Offshore Oil & Gas Industry

Having a price list is one strategy employed in the GoM that was popular
among many contractors. Another option was pure turnkey projects, where
for defined scope of work contactors offers proposals to execute that for
fixed amount a variation on this being qualified lump sum terms. Siems
noted that pay per performance was difficult to employ as it is very hard in
decommissioning work to determine the metrics on which you will evaluate
performance. There were, he said, so many variables outside the control of
the operator, especially on properties that are more than 50 years old and
may have stood idle for 20 years.

New technologies
The need for efficiency in decommissioning has proved a significant driver
for technology advances. New technologies therefore featured prominently
in the DecomWorld summits between 2009 and 2013, with the Katrina and
Rita hurricanes forcing the pace on solutions such as dynamically positioned
dive vessels and coupled ROV-diver work two technologies that came
as a response to damage to infrastructure in the wake of those events. As
DecomWorlds own reports have illustrated, the high cost of decommissioning
creates business opportunities for technology to cut costs -- while still
protecting people and the environment.
One innovative technology highlighted at the 2010 DecomWorld summit was
a new inflatable technique to stop annular bubbles in subsea P&A wells. Wade
Maxwell, GoM Decommissioning Project manager at Baker Hughes, noted
that plugging and abandoning wells using the normal method using cast
iron plugs, cement and or resin were not always sufficient to decommission
wells that are bubbling and need different handling. One solution was the
use of vented inflatable method using PIP inflatable technology. Under this
technology, developed in 2009, a vented PIP is run into a well that is bubbling
and is used as a mechanical barrier to divert the flow of bubbles while
cement that is place on top of the PIP sets up. On top of the vent tubing, a
mechanical disconnect device is in place to facilitate disconnecting from the
tool once the initial cementing operations have been concluded and a plug
has been placed in the tubing. This technology would help the bottom line,
said Maxwell, with expected savings of $900,000 to $1.3m per well versus the
conventional method.
Efficient methods for the use of ROVs in subsea commissioning were
developed in the late 2000s, and the DecomWorld summits played host to
the announcement of exciting new developments in this area. According to
Mads Bardsen, President of Subsea Services at Trico Marine, there was no one
tool fits approach, but some tools were a better match for use with ROVs
than others. The advantage of ROVs are clear in reducing exposure for drivers
he said and more appropriate for decommissioning compared to repairing
structures on producing fields.
Decommissioning &
Abandonment Summit
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 A Decade of Decommissioning and Abandonment Part One, 2009-2013
Business Intelligence for the Offshore Oil & Gas Industry

Another new device developed in response to hurricane activity included

innovative engineered solutions to meet the demands of subsea heavy lift
requirements. With ever larger platforms entering the removal population,
traditional techniques had been found wanting. John Greeves, Technical
Director at Versabar, highlighted at the 2011 summit a new single hook lifting
solution his company had developed. This 4,000-ton Custom Lift System
comprised four independent 1,000-ton capacity main hoists, allowing the
main hoists to lower to 450 feet depths.
Rig-less P&A also emerged as a solution that offered advantages over rig-
based operations. This had helped to revolutionize the way P&A is conducted
and scheduled, according to Delaney Olstad, Western Hemisphere
Decommissioning Champion at Weatherford International. This is now
being talked about as an innovative technology in 2017, but back in 2012 it
appeared even more revolutionary in both impact and ambition.
As Olstad pointed out, rig-based operations with large and heavy lifts mean
higher day rates. Increased logistics also means working with more people,
therefore more risk and cost. But crane-based operations could be very flexible,
he noted, and could be performed on any platform with minimal equipment
necessary and therefore less need for personnel on board. This the smallest
footprint and highest lift, said Olstad, who highlighted the evolution of new
equipment to bridge the gap between crane-based operations and those of
a fully functioning drilling rig.
Specialized technology development has become a significant enabler for
the entire decommissioning industry, noted Chevrons Dennis at the 2012
summit. Chevron had deployed a device known as The Claw, designed for
removal of decks and debris with minimal diver intervention. This subsea
grappling device was able to bring an entire topside off the sea floor in one
lift -- rather than the previous approach where submerged topsides that
had been knocked off their bases were cut up into small pieces by human
divers and then brought to the surface using hooks. The use of the clew for
deck record saw a sharp reduction risk down 90% on diving, and efficiency
improvements from weeks to days on deck lifts.

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 The Worlds Largest
A Decade of Decommissioning and Abandonment Part One, 2009-2013
Business Intelligence for the Offshore Oil & Gas Industry

Decommissioning, Abandonment
and Late-Life Asset Management
Conference

Decommissioning &
Abandonment Summit 2018
20-21 February Omni Hotel, Houston, Texas
Celebrating its 10th year of bringing together the most influential names in the industry, The Decommissioning
& Abandonment Summit 2018 will share a decades worth of decommissioning and well P&A data, recent
case study insight and lessons learned in an unrivalled learning experience.
As the worlds largest and most established late-life summit, no other meeting point is able to bring you the
quality of information and networking as The Decommissioning & Abandonment Summit 2018.

Keynote speakers include:

Mike Celata Paul Versowsky John Hand
GOM Regional Chief Office of Structural Technology Program
Director & Technical Support Manager
BOEM BSEE ConocoPhillips

Ernest Hui Bruce Crager Joe Nicolette

Global Decommissioning Executive VP Senior Principal and Ecosystem
Business Improvement Lead Endeavour Services Practice Leader
Shell Management Environmental Planning
Specialists

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