Taking an oil or gas installation out of service is costly and complex. But tough decisions will increasingly have to be made as the wells run out


Taking an oil or gas installation out of service is costly and complex. But tough decisions will increasingly have to be made as the wells run out

Decommissioning oil and gas installations is expensive. Though worldwide estimates vary greatly, on an average, removing a complete platform in shallow waters such as in the Gulf of Mexico may cost $15 million to $20 million.

Removing structures from deep water, as in the North Sea, could cost between £30 million for smaller platforms and £200 million for larger structures, according to trade association Oil and Gas UK.

A 2008 Economic Report by Oil and Gas UK projected the current decommissioning costs of oil rigs in the UK waters in the North Sea to reach £16 billion by 2030 and £19 billion by 2040.

In the UK, decommissioning potentially means huge a financial burden on the government because rules allow operators of oil fields leased before 1993 to claim a rebate of up to 75% of the decommissioning cost from their past payments of petroleum revenue tax.

Oil price dynamics

Apart from the cost of removal, the price of oil also plays a role in a rig operator’s decision on decommissioning. Historically, rig operators try to delay decommissioning when the oil prices are high in order to squeeze out as much oil as possible from an otherwise exhausted well.

They do this by employing a variety of technology, of course at an additional cost. Rig operators in the North Sea have succeeded in extending the life of some of the wells by up to 15 years using technology.

But when the oil prices dip, as they did in the 1990s falling below $10 a barrel, decommissioning activities go up as continuing production from an already exploited and mature well becomes less economical.

But lean times also mean a tight cash flow and operators face the dilemma of choosing between preserving cash by delaying decommissioning or taking advantage of low oil prices and go for decommissioning.

This is easier said than done. A decommissioning process may take several years from the point an operator decides to stop production. Oil prices, on the other hand, are much more volatile and can swing either way in shorter cycles, as witnessed in recent years.

Decommissioning of depleted offshore rigs is very strictly regulated by international, regional and national laws, including the UN Convention on the Law of the Seas, The International Maritime Organisation’s guidelines and the Oslo and Paris Convention for the Protection of the North East Atlantic.

International laws allow complete or partial removal of the structures constructed before 1998. All structures installed after 1998 must be designed in a way that makes complete removal feasible.

Therefore, governments’ offshore oil field leasing contracts with rig operators require them to safely remove (partially or completely depending on the country and type of installations) the infrastructure from the sea when the oil runs out. In some cases, as in California, operators have a legal obligation to remove the whole structure, restoring the ocean floor to its original condition.

Technological challenges

Safely removing massive structures, which can weigh anywhere between 10,000 tonnes and 150,000 tonnes or more, from deep waters and shipping the pile to the shores for reuse and recycling also presents a technological challenge for operators.

While the industry has accumulated significant technical expertise in commissioning large structures even in hostile and deep sea waters, as in the northern North Sea, decommissioning these structures is a relatively unchartered territory.

Understanding the limitations of the existing technology in decommissioning rigs in depths greater than 120 meters, the Mineral Management Service, the US agency that manages the nation’s oil and gas resources, announced this June a project to study technical issues and methodologies for decommissioning rigs in water depths exceeding 3,000 meters.

New approaches

An increasing number of environmentalists and scientists have come up with new approaches to handle redundant offshore platforms since the Brent Spar controversy in 1995. One of these approaches gaining popularity involves removing only the above water part of the structure and turning the submerged part into reefs.

Professor David Booth of the department of environmental sciences at University of Technology, Sydney, who is part of SERPENT project, a study jointly funded by the Australian government and oil companies to examine impact of rigs on underwater biodiversity, says that in some cases keeping part of the rig in place can actually help the marine environment.

Over 60 rigs off the Australian coastline are projected to be decommissioned in the next decade.

The Mineral Management Service, the US agency that manages the nation’s oil and gas resources, has been actively promoting the “Rigs to Reef” programme encouraging oil producing states to change legislation so that companies can participate.

The coastal states of Louisiana, Texas, Mississippi, Alabama and Florida have already adopted it and over 150 obsolete rigs have been converted into artificial reefs. Some of the decommissioned rigs off Louisiana have been turned into fish and oyster farming, dive tourism and growing corals bringing economic benefits to the area.

Companies have done so by either towing the platforms to a location recommended by local governments, toppling them there, or removing the top part of the structure and leaving the submerged part in place.

Under the programme, companies are asked to donate half of the savings achieved by not having to dismantle and bring the platform to the shore, to the state funds, which use the money for fisheries conservation, research and management.

Another approach is to transform offshore rigs into hotels, resorts or casinos. This year in February, US-based Morris Architects won the first prize in the Radical Innovations in Hospitality Awards, an annual event organised in the US, for their idea of converting a rig into a luxury resort.

Dr Adele Pile of the University of Sydney and the SERPENT project coordinator says more information is required before decommissioning can progress.

Decommissioning deep sea rigs, their real impact on biodiversity and the merits of leaving the structure under the sea or turning them into artificial reefs or resorts, needs to be much more deeply researched.

Governments, oil companies, environmentalists and scientists will clearly need to devote more resources to jointly find the best ways to deal with the issue.

If you are interested in finding out more about oil and gas installation decommissioning visit http://social.decomworld.com for news, analysis and upcoming events in the field. To sign up to their newsletter click here

Related Reads

comments powered by Disqus