Deepwater projects face up to cost challenge

Subsea standardization widens the applicability of tools on remotely operated underwater vehicles (Photo credit: FMC Technologies)
Collaboration, standardization and technology are long-term responses to lower oil prices

Deepwater mega projects typically cost billions (bn) of US dollars each, and their risk grading is the highest for all field development types. So it is no surprise that lower oil prices have caused industry commentators to ask whether companies will press ahead with active and planned deepwater projects. There are also question marks over future development and deployment of new enabling technologies such as subsea compression.

“A reduction in operators’ willingness to engage in capital expenditure (capex) intensive projects will limit further field trials and severely impact the spread of relatively unproven technologies,” according to analysts Douglas-Westwood.[1]

While cost cutting by operators has slowed some deepwater mega projects, the majority remain on track, according to Norway’s INTSOK, an offshore industry and government networking and knowledge exchange.

Even as oil prices slumped, US operator Hess confirmed at the time of PERSPECTIVES going to print that it would proceed with the USD6bn development of a deepwater field in the Gulf of Mexico alongside Chevron, Statoil and Nexen.[2]

Shell has operations in 14 deepwater basins including the Gulf of Mexico. It remains “positive about finding the right mix of synergies to develop such projects cost effectively”, according to Dr Ajay Mehta, technology delivery manager - deepwater projects, Shell International Exploration and Production.

Mehta was speaking at INTSOK’s deepwater mega projects conference[3] in Houston, US, an event that provided a timely indicator of industry thinking on this theme.

“Oil prices will remain a significant factor in future project economics and final investment decisions (FIDs),” Graeme Pirie, vice president, business development, North America at DNV GL - Oil & Gas, told the conference. “However, we feel the greater challenge is cost efficiency.”

Compared with capex eventually authorised, original FIDs underestimated costs for deepwater projects by 45% on average between 2009 and 2014.[4]

“What has made the industry successful in the past two decades is not enough,” Mehta said. “Rapid cost escalation is a problem that developed before the current drop in oil prices, and it has to be solved no matter what the oil price is. Our projects need to be credible, competitive and affordable.”

Collaboration and standardization
From an original equipment maker’s (OEM) perspective, Brad Beitler, vice president, technology at FMC Technologies said his company wanted to work closely with customers to reduce costs per well, keep deepwater development sustainable, and draw on economics of scale together.

Speakers from two oil supermajors signalled willingness to collaborate on cost challenges. “We have to work more with our suppliers in the early stages, not just hand specifications to them,” Shell’s Mehta said.

Similarly, Kevin Kennelley, vice president - facilities technology, BP, commented: “We need to work much more closely with OEMs, yards and others, and at much earlier stages, to identify savings and things that can be done just a little differently yet still yield great savings. There is a lot of potential here.”

Such views echo analysis showing the value of improving front-end loading of projects to make savings.

Turning to the key topic of standardization, Mehta said: “We have to be less accommodating to one-offs and to tweaks that may seem innocent enough by themselves, but which destroy any standardization achieved up to the point where that tweak is made.”

The potential value of standardization was quantified by FMC Technologies’ Beitler. He said that, generally speaking, the cost reduction delivered by making something more than once is roughly 20%. “There are so many other benefits, including indirect cost reductions such as safety through familiarisation,” he added.

Deepwater operators are aware of these potential benefits. For example, US oil company Anadarko’s offshore deepwater platforms in the Gulf of Mexico demonstrate greater standardization in practice, with an existing design concept being reused.[5]

DNV GL’s Pirie indicated that standardization underpins “the most important” cost reduction initiatives being launched, or underway, and of relevance to deepwater mega projects. He cited Statoil's standardization of subsea factory interfaces; FMC Technologies’ ‘benefits from subsea standardization’ initiative; the Society of Petroleum Engineers’ subsea standardization initiative; the Norwegian Oil & Gas Association (NOGA) report on subsea standardization; and DNV GL’s joint industry projects and standards.

“We would like to see the ‘plan one, build many’ concept re-evaluated to determine how it could work in our industry where nearly every facility is unique,” Pirie added. Beitler suggested one way in which it could work: A modular approach involving custom configuration of standardized modules can address most needs, he said.

BP’s Kennelley expressed optimism about achieving agreement around standards despite the increasing complexity of projects and the growing number of people involved. “It is possible to take a group of, say, metallurgists into a room and not come out until they have agreed on an acceptable standard. I have seen it happen.”

Managing technology
Technology in general, and subsea in particular, is a great enabler for deepwater projects. But while making full use of innovative technology can do “wonderful things” in deepwater, the management of its deployment needs to be more refined, suggested Caroline Marie Alting, team lead in Maersk Drilling’s technical organisation.

She explained: “It needs to be evaluated more thoroughly, not just from a cost-benefit perspective, but also from the likelihood of it actually being used, and the associated training and familiarization needs, as well as the buy-in of personnel that may or may not use the technology. There is probably a lot of waste in this area.”

Aside from big themes such as collaboration, standardization and technology, there is scope for cost reduction in many individual ways, Kennelley stressed. “We need to chip away at the elephant one piece at a time and to have our eyes on total cost of ownership,” he said. “For instance, running offshore supply vessels at three-quarters throttle usually results in at least 50% savings in fuel costs.”

Maybe the best efficiency that can be realized is related to regulation, he suggested: “Global standardization and the use of internationally-recognized standards could be based on a common global regulatory framework.”

The ‘take home’ message from Kennelley was that the industry is creative and asks for much more than it needs for field developments, including deepwater mega projects. “That time is now over and we need to turn the industry’s creativity and energy towards more cost-efficient and reliable solutions,” he urged.

DNV GL wins work on 20,000psi HPHT project
FMC Technologies has chosen DNV GL to perform independent third-party verification of a 20,000 pounds per square inch (psi) high pressure, high temperature (HPHT) subsea completion, production and workover system for the Gulf of Mexico.

FMC Technologies is coordinating this as a joint development agreement (JDA) with international oil companies Anadarko, BP, ConocoPhillips and Shell. Its aims are product standardization and greater cost efficiency.

Breaking the 20,000psi HPHT barrier at extreme depths has for years been the objective of taskforce groups of the best and brightest engineers within many of the oil majors. It is seen as a vital long-term capability for maximising development of deepwater and ultra-deepwater resources.

The establishment of the JDA led by FMC Technologies shows an industry that is now pragmatically collaborating as a response to increasing costs and a falling oil price. DNV GL is involved in several HPHT projects in the US.

[1] Douglas-Westwood research note, December 2014
[2] ‘Hess announces plan to develop stampede field in the deepwater Gulf of Mexico’, Hess, 28 October 2014
[3] Deepwater mega projects: INTSOK US-Norway Technology Conference, February 2015
[4] ‘380 projects to change the world – top 380 trip highlights a disconnect in two supply chains,’ Goldman Sachs, May 2013
[5] ‘A Balancing Act: The outlook for the oil and gas industry in 2015’, DNV GL. Download at: www.dnvgl.com/balancingact

Kevin Kennelley BP
Standardized subsea interfaces are a boon to equipment makers such as FMC Technologies. The company’s deepwater riserless light well intervention stack, pictured aboard an intervention vessel, boosts production from seabed wells