gulf of mexico

In the past, record high oil prices coupled with rig life extension and improved recovery methods, often resulted in the delayed decommissioning of oil wells.

The decommissioning stage of an oil project typically starts when the overall cost of production is no longer economical or the reservoir is depleted, or technically, if wellhead pressure is not high enough for the well to flow.

With today's continuously low oil prices, it's thought that decommissioning will become a priority for many companies, as the overall cost of production is no longer financially viable in the current economic environment.

This will be particularly evident in the mature US Gulf of Mexico (GOM), the biggest decommissioning market in the world. The region has already seen steady oil well decommissioning activity due to an abundance of ageing infrastructure, and this could grow considerably if oil prices remain low.

Will operators conserve cash or cut and run?

"There is a fine economic balance to be considered here," says Andrew Glass, managing director at BMT Cordah, a multidisciplinary environmental consultancy. "While the oil price is low, do operators conserve cash and review where an investment can be made, possibly via mergers and acquisitions?

"Or, do they cut and run, utilising low support rates and availability of engineering crews to decommission late life assets and remove the liability from the balance sheet?

"In reality you will see a mixture of behaviours," he says.

According to a 2015 report by Mark Kaiser, director of the Research & Development Center for Energy Studies at Louisiana State University, in the Gulf's shallow water decommissioning market, which is worth around $27bn, the total stock of assets to be decommissioned has been depleting by 5%-7% a year.

The low oil price has shifted focus, however, and according to Kaiser's report, entitled Offshore Decommissioning Report 2015, the number of structure removals is expected to rise from 210 in 2014 to 250 in 2015 and 2016 – a peak not reached since 2011 and 2012.

The market size of decommissioning in the GoM in January 2015 was valued at $26bn, according to the report.

"The reality is the GOM shelf has a large number of rigs and wells waiting to be abandoned."

Zaharia Stoianovici, from Halliburton's consulting and project management business-line, says the decommissioning market in the Gulf of Mexico is 'strong' and 'could get stronger'. However, she adds: "If the price of oil continues to be as low as it currently is for an extended period companies will remain in a cash conservation mode."

Darren Walters, from Halliburton's wireline and perforating business-line, adds: "What has been noted in the GoM today will steadily rise over the next 20 years as for the peak this is not only driven by the industry but by the regulatory bodies, for example the Idle Iron program with BSEE dictates when a well must be abandoned."

He adds: "The reality is the GOM shelf has a large number of rigs and wells waiting to be abandoned which has made the abandonment market quite large. Some of the rigs that have required decommissioning are casualties of hurricanes and have been damaged beyond economical repair."

Challenges of GoM decommissioning

Decommissioning is always a challenge for operators because the capital cost has little to no return on investment and can be very costly overall. Also, operators will retain liability for any oil wells they plug.

In the Gulf of Mexico operators can face other challenges, such as bad weather, which can increase time on location and therefore costs, and regulations.

"Meeting the governmental regulations or guidelines are also challenging as these can be interpreted differently and are not so clear cut when submitting a decommissioning plan," says Walters.

"Each well has its own challenges, these could range from deep conformance problems to surface vent flow issues or they could be simple with very little intervention required," he adds.

Future decommissioning won't only be focused on the older shallow water projects. The sustained oil price slump is expected to see a number of deepwater projects to be decommissioned earlier than originally planned.

Kaiser's report states that more than 4,500 structures have been decommissioned in water depths of less than 400ft, compared with just 12 carried out in deeper water.

These deepwater decommissioning projects are set to create new challenges for operators.
According to Glass, these projects include technical and logistical challenges.

"For example, the need for collaboration and a programme wide approach to sequencing and support services sharing," he says.

And economic and environmental challenges, such as ensuring liability is minimised and the deep sea environment is fully understood and protected.

"The level of understanding of the deep sea environment is more limited than some of the shallower waters," says Glass.

GoM Rigs to Reef – a cheaper, marine-friendly option?

The Rigs to Reef programme ongoing in the Gulf of Mexico offers operators the opportunity to reduce their decommissioning costs significantly.

Rigs-to-Reefs (R2R) provides an alternative to complete rig removal in which an oil company chooses to modify a platform so that it can continue to support marine life as an artificial reef.

After an assessment, if the platform is designated to be reefed, it will be donated to the state which can either chose to keep that platform in place or have it removed or towed to an alternative reefing site. The oil company seals and caps the well and retains its usual liability.

Oceanographer and co-founder of consultancy firm Blue Latitudes, Amber Jackson says the Rigs to Reef programme is widely supported in the GoM and 300-400 rigs have already been decommissioned in this way.

"The reason why oil companies are attracted to this is not necessarily because of its ecological value and the impact that is has, but because of the money they save," says Jackson.

"Reefing of a platform has the potential to save them millions off their decommissioning costs."

Currently the law states that in the Gulf of Mexico 50% of that cost saving will be given back to the state for an endowment for marine preservation, which the state uses to up keep its rigs to reef programme and also funnel money into marine science and the Department of Fish and Wildlife.

"Reefing of a platform has the potential to save them millions off their decommissioning costs."

Rigs to Reef can also be used for deepwater rigs.

"Depending on the locations, if you had a really deepwater reef it might make sense to tow the upper 85 portion to an alternative site, but if you find that area is particularly productive you might find it better to topple it there," Jackson says.

However, not everyone is as supportive of the programme. In California, for example, the programme has been widely criticised as 'supporting a polluting industry'.

Glass says that caution should be exercised when considering reefing of rigs. "We need to apply some caution to ensure this isn't just a route to dump material in the oceans to save costs," he says.

"If these structures are to be decommissioned using rigs to reef, the method of disposal or abandonment should be considered carefully."

Although given the current economic environment, more attention may turn to the Rigs to Reef programme in the not so distant future.

"What we have seen is that oil companies are cutting their budget and trimming the fat in almost all departments, except for decommissioning," says Jackson.

"This is because they realise they are losing millions of dollars a day on these inactive platforms offshore. Rigs to Reefs is the most cost-effective decommissioning option, so there has definitely been more energy and more interest put into to that option, and more research being done to assess its value and how it can be used properly."