Drilling dilemma

Drilling contractors are being advised to consider the full picture of costs as they make increasingly tough choices surrounding preservation and lay-up for out-of-contract mobile drilling units. Should they demobilise the full crew and protect the asset with vapour corrosion inhibitors and dehumidification, known as cold stacking? Or should they warm stack – keeping the drill ship, semi-submersible or jack-up in a state of readiness with key personnel and to a reduced corrosion and humidity control package?

A cold stacked rig which is unmanned or has a skeleton crew may be, on the face of it, a more financially appealing option as oil prices continue to remain within the ‘nothing works at $30 – $50 a barrel’ bracket; especially when expensive routine maintenance can be deferred.

While the costs of cold stacking a mobile offshore rig are undoubtedly considerably cheaper than warm stacking – estimates of day costs for a cold stacked jack up rig are less than $5,000 and can be lower in the region of $3,500 a day if the cold stacked rigs are clustered – while a warm stacked rig – idle but partially crewed and fully maintained – is closer to the $20,000 a day range.

But are the cost savings as clear as these figures make out?

One of the key issues facing drillers as they grapple with this dilemma is how to ensure that a cold stacked mobile drilling unit is an adequately protected asset which remains viable once the market strengthens.

Allan Durham, Director of CSL Presserv, a leading preservation and mothballing contractor explains, "This industry is seeing an unprecedented rise in the volume of mobile drilling units coming off contract with no mid-term redeployment in sight. There’s a growing sentiment that we will experience lower oil prices for longer and

E & P companies globally are focusing on preserving cash and low cost/near- term production.

"Without the adequate investment in a robust preservation programme in place for out-of-contract drilling assets, the costs of bringing these rigs back into production when there is a more positive economic landscape within the industry, could be far higher than predicted. The global drilling industry needs an economical solution to protect these units for a minimum of 24 months with options to extend to 36 months and beyond until demand for mobile drilling rigs returns to 2013/2014 levels. Drilling companies need a preservation specification ideally based on vapour phase technology and dehumidification. This standard of preservation will protect drill ships, semis and jack ups for extended periods of time and keep them in a state of readiness with the minimum of mechanical maintenance needed.

"Current technology provides that even in a cold stack environment with no crew, a mobile drilling unit will remain corrosion free for 24-36 months with no retreatment requirement and minimal reactivation costs.

"However, although on the face of it, cold stacking is a more cost effective option, it also has its inherent problems. A warm stacked rig, with experienced crews who are familiar with the equipment and its operation, know how to run a unit efficiently. Losing these key staff and contractors if the rig is cold stacked, will leave a void once the market turns. We know we have an ageing workforce, but with age comes experience and this will prove very difficult to find when the time comes to bring these rigs back to full operation.

"Careful consideration has to be given to warm stacking versus cold stacking; although the initial costs are higher in a warm stack mode, the chances are the equipment on-board will be better maintained and less liable to the effects of dormancy than that of cold stacking. It should also be borne in mind that a return to service for a cold stacked drilling unit could mean repair costs to equipment that would normally be run at periodic intervals, whereas redeployment of a warm stacked rig would done from operational expenditure.

"Forecasting and strategizing on how many rigs to warm or cold stack requires a crystal ball. Who could have predicted, on Monday 3 May, that oil prices would rise that week following supply disruption due to the Canadian wild fire? And who, on Thursday 5 May could predict how long this unexpected supply disruption would support oil prices? And with 55% of all the jack up rigs being built before the 1990s, what is their future after cold stacking?

"Drilling contractors need to think carefully about asset protection and investing in competent preservation contractors. Many preservation companies which have never before been involved in stacking – and who have seen turnover from their other services significantly affected by the downturn – are now adding a range of preservation offerings to their capabilities. In many cases, it will be the drilling contractors who end up paying for badly preserved and often damaged equipment and systems.

Cutting corners on a preservation programme may bring short term savings during a period of unprecedented downturn, but a disproportionate price tag is likely when the unit is reactivated. The selection of a reputable contractor who has a longstanding track record in this specific area is imperative."