Three Case Histories on the Risks, Timing, Business ... Case Histories on the Risks, Timing,...

Introduction of New Technologies Offshore

Three Case Histories on the Risks, Timing, Business & Regulatory Impacts on Acceptance of New g y p p

Technologies in the US Gulf of Mexico

Peter Lovie

7 July 20097 July 2009

Three Case Histories

(1) Subsea processing – separating oil, gas and water subsea and/or i h f i d f i li d h f pumping to the surface instead of processing live crude on the surface

on a platform or ship with natural drive.

(2) FPSOs in the US Gulf of Mexico - applying technology used elsewhere in the world to a mature offshore region with regulatory hurdles.

(3) Shuttle tankers in the US Gulf of Mexico - restrictive laws (Jones Act) for crude oil transport from production vessel to port: tankers Act) for crude oil transport from production vessel to port: tankers must be by US flag, US owned tankers. Makes it difficult for proven methods.

After long journeys for each, the use of all three will be achieved in the US Gulf of Mexico (GoM) in the next year.

7 July 2009 2 of 40Energy Week at Tulane

Comparison

TechnologyHi/Low T h?

Significance BarriersTiming: Serious Study to First gy

Tech?g y

Commercial Use

1 Subsea High A new way of Risking production on 1969‐2007:1 Subsea Processing

High A new way of doing things, a game changer

Risking production on success of a new technology

1969 2007: about 38 years

2 FPSOs in US GoM

Medium Been used everywhere else in world

Competition of other production systems / regulatory acceptance

1996‐2010: almost 14 years

in world regulatory acceptance

3 Shuttle Tankers i US G M

Low Modest version f N h S

Competition of pipeline k / J A (US

2000‐2010: hl 10in US GoM of North Sea

precedentnetwork / Jones Act (US protectionism)

roughly 10 years

7 July 2009 Energy Week at Tulane 3 of 40

Words of Wisdom!

There is nothing more difficult to take in hand There is nothing more difficult to take in hand,

More perilous to conduct, p

Or more uncertain in its success,

Than to take the lead in the introduction of a new order of thingsorder of things.

Machiavelli, “The Prince”, Chapter 6 1513Chapter 6, 1513


Arrive at your Own Insights . . .

These case histories are chosen solely from personal experience in These case histories are chosen solely from personal experience in having been in these businesses during 1990-2009;

Innovations that are incremental steps may proceed faster;Innovations that are incremental steps may proceed faster;

The offshore production sector is naturally slow to risk interruption f fit bl t f th f j of profitable streams of revenues on the use of major new

technologies;

But consideration of what went on in these three examples may provide insights on how the offshore industry thinks, and in particular the attitudes of the US Gulf of Mexico which has long been a leader gin technology offshore.


(1) Subsea processing

First demonstrated in about 70 ft. of water in Abu Dhabi by Zadco(BP) in the early 1970s, then by Exxon in GoM, Hamilton Bros. inNorth Sea in 1980s and Texaco in North Sea in 1996 2004 North Sea in 1980s and Texaco in North Sea in 1996-2004.

Exxon SPS(1972 -1974)

BOET (1986 1989)(1986 -1989) Texaco Highlander

(1986 -2004

From the early days there was little doubt that subsea processing

ZAKUM (1969 -1972)

little doubt that subsea processing could be made to work - but it took almost forty years to reach broad commercial acceptance!


( ) commercial acceptance!

More History on Subsea Processing

Multiple companies built and tested prototypes, acting on the big potentials they saw in the marketplace.on the big potentials they saw in the marketplace.

But operating oil companies remained slow to commit to use the technology for actual field production

VASPS(2000 - ongoing)

use the technology for actual field production.

( g g)

GASPAESOP GASP(1986 -1990 successfully tested)

KværnerBooster Station

(Mid 80’s) SUBSIS (2000 i Pil t)

AESOP(1999 -2000

successfully tested)

(2000 - ongoing Pilot)


Many Studies on Subsea Processing were Done and Duly Reported at OTC y p

Joint Industry Projects (JIPs) were popular for developing were popular for developing many technologies, including subsea processing.

One of these JIPs was organized for the GoodfellowL i A i t S b Lovie Associates Subsea System (GLASS) in 1990-1991, investigated how subsea processing could be made to work in GoM in what then was “cutting edge”: 1,500 g gfoot water depths!

Economics looked favorable,


Economics looked favorable, but nothing happened.

Subsea Processing may be Employed at a Number of Locations in a Single Field DevelopmentLocations in a Single Field Development


Subsea Processing Becomes a Commercial Reality

The world's first commercial subsea system provided by FMC for the Statoil's Tordis field p y

Contract award 2005,


Contract award 2005, operational 2008

Multiple Functions may be Employed, can Extend the Reach of a Central Facilityy


Subsea Processing Comes to GoM

Shell’s Perdido Regional Host gdevelopment lies in the Gulf of Mexico, approximately 200 miles south of Freeport (Texas), south of Freeport (Texas), developed by a spar moored in 7,817ft (2,383m) of water, making it the deepest spar production it the deepest spar production facility in the world and the first with DVA (Direct Vertical Access).

Perdido will be followed by subsea processing at Cascade/Chinook(P b d) f h (Petrobras operated) a few months later in 8,200 ft. of water.


Subsea Processing in 2009

Multiple large and well established vendors are now ready to supply a range of well developed practical systems. For example:-

Akerhttp://www.akersolutions.com/NR/rdonlyres/03A80E3F-0BAE-41AB-AC12-BC9C09C645C/16190/Subseaprocessingandboosting pdfAC12-BC9C09C645C/16190/Subseaprocessingandboosting.pdf

Cameronhtt //http://www.c-a-m.com/content/products/product_detail.cfm?pid=51762

FMChttp://www.fmctechnologies.com/Subsea/Products/IOR/SubseaProcessing.aspxg p

GEhttp://www.geoilandgas.com/businesses/ge oilandgas/en/prod servhttp://www.geoilandgas.com/businesses/ge_oilandgas/en/prod_serv/systems/subsea_production/subsea_processing.htm


Subsea Processing – the Future

“Expenditure on subsea processing systems is expected to amount to some expected to amount to some $3.4 billion over the 2006-2015 period, which in the most favorable conditions most favorable conditions could increase to as much as $5 billion”.

I k l i b h It took a long time - but the dream came true.


(2) FPSOs in US GoM – The History

Although FPSOs have been used widely elsewhere in the world,starting in the 1970s, they are new to the US GoM, even though GoMsaw the first production offshore (1947 Kerr McGee) and has been asaw the first production offshore (1947, Kerr McGee) and has been aconsistent pioneer in offshore operations and technology.

Hi tHistory1996 First approach by US operators to the regulators (MMS &

USCG) concerning approval of FPSOs in GoM; 1997 Studies started by two operators on the use of an FPSO in

GoM. Ultimately one development was non commercial and the other decided to use a semisubmersible as the development solution;

1999 Start of DeepStar funded work on an Environmental ImpactStatement by MMS, with USCG support, for approval in Statement by MMS, with USCG support, for approval in principle to enable FPSOs to be in operators’ development “toolbox”;

2000 One operator considered FPSO and FSO solutions for a GoM


2000 One operator considered FPSO and FSO solutions for a GoMcomplex but the regulatory position was not clear,

More on Background of FPSOs in GoM

competition was close and another system was chosen in mid 2001;

2001 I D b MMS i d h R d f D i i i 2001 In December MMS issued the Record of Decision approving use of FPSOs and shuttle tankers in US waters;

2002-2006 Despite all the earlier efforts, very little operator interest in FPSOs for GoM;

2007 Third FPSO in GoM - and first on US side was contracted in to enter service in 2010.

For the record, the first two FPSOs in GoM were in Mexican waters:1st FPSO 1989 Owned by Pemex1st FPSO 1989 Owned by Pemex1st FSO 1998 Charter from Modec2nd FPSO 2007 Charter from BW Offshore

For service in US waters FPSOs can be owned and built anywhere.

I t t h ttl t k t b d b ilt d d i USIn contrast shuttle tankers must be owned, built and crewed in US.


FPSO is Most Widely Used Hull Type for Floating Production

The world’s fleet in service at the end of 2008 comprised:

Floating Production Storage Offloading (FPSOs) 144 ) Mostly tanker) conversions,

Floating Storage Offloading (FSO) vessels 86 ) some newbuildsFloating Storage Offloading (FSO) vessels 86 ) some newbuilds

Semisubmersibles 42 )) G ll) Generally

Tension Leg Platforms (TLPs) 22 ) field specific) newbuilds

Spars 16 )

Production Barges 6 Variousg

Floating Storage Re-liquefaction Units (FSRU) 2 Conversions-----


318

Typical FPSOsBrazilBrazil

Operator: Devon60:40 Devon:SK

L d FPSO f P fLeased FPSO from Prosafe(7 years + options) (Shown en route)

Oil development in BM-C-8:Capacity 90,000 bopd344 ft. w.d.1,500,000 bbl storageDiscovery: June 2004 first oil: Discovery: June 2004, first oil: July 2007

South China SeaO CNOOCOil development at Panyu Block 4-2

60,000 bopd max320 ft. water depthFirst oil 4Q03

Operator: CNOOCCNOOC 51.0%Devon: 24.5%


1,000,000 bbl storage ConocoPhillips: 24.5%

FPSOs Export their Crude Production Generally by Tanker Generally by Tanker

This is the closest to This is the closest to “rocket science” in the FPSO business

North Sea operations typically

employ shuttle tankers on short

trips from FPSOs to prefineries and

back.

Shown is back up hawser mooring to DP shuttle tanker DP shuttle tanker

while loading (black hose)


Common FPSO Configurations: Full Field Development (FFD)p ( )

Spread moored FPSO FPSO Barge

Spread Moored

Spread moored, risers over the side, converted t ktanker

FPSO FPSO Bargewith External Turret

Custom built newbuild, shown with external turret

FPSO Converted VLCCwith Internal Turret

Converted tanker with internal turret


More FPSO Configurations: Extended Well Test(EWT) or Early Production System (EPS)( ) y y ( )

Dynamically positioned

EPS EPS

y y phull (thrusters fore and aft), single drillpipe riser in EPS Dynamic positioned

with Internal Turret

drillpipe riser in moonpool for EWT service. Example: Seillean offshore Seillean offshore Brazil, 1990 to date.

Moored hull via

EPSEPSPermanently mooredPassive weathervaning

ith I t l T t

Moored hull via internal turret, multiple risers via

ibl f with Internal Turretturret, possibly aft thruster, for EPS service. Example: BW Pioneer, 2010 in GoM


FPSOs can Operate in Rough Weather

Contrary to common impressions about the sensitivity of shipboard process plants to motions, it is feasible for FPSOs to operate motions, it is feasible for FPSOs to operate in severe weather conditions.

These photographs were taken from the These photographs were taken from the bridge on Bluewater’s Uisge Gorm FPSO in 1996 in Force 12 weather (i.e. hurricane f diti ) i th N th S N t th fl b i g! force conditions) in the North Sea. Note the flare burning!

Seas that caused 6-8 degree single gamplitude motions


The First FPSO in US GoM

Contract signed in August 2007, BW Pioneer is due to start production at the Petrobras operated Cascade/ChinookPetrobras operated Cascade/Chinookdevelopment in US GoM in May 2010.

Cascade is 50:50 Petrobras:Devon Cascade is 50:50 Petrobras:Devon, Chinook is 2/3:1/3 Petrobras:Total

BW Pioneer shown under construction in Singapore in 1Q09:1Q09:+ 600,00 bbl storage, + 80,000 bopd production, E Sh l k+ Export: Shuttle tankersfor oil, pipeline forassociated gas.


FPSOs in GoM: An Important Start

The FPSO at Cascade/Chinookis an Early Production System(EPS) to gain production(EPS), to gain productionexperience in the LowerTertiary;

A full field development solutionnot yet decided, not necessarily 5+1+1+1 year lease

i h B Off han FPSO;

An FPSO record of 8,200 ft.

with BW Offshore

,water depth;

Coincident with this commitment Other operators are now starting Coincident with this commitmentis the first use of Jones Actshuttle tankers In GOM;

Other operators are now starting to consider FPSOs seriously for remote deep waters of GoM.

(3) Shuttle Tankers in GoM - History

Demand Side2000-2001 Consideration of FSO, FPSO and shuttle tankers for Mardi2000 2001 Consideration of FSO, FPSO and shuttle tankers for Mardi

Gras complex;2002-2006 Several inquiries for shuttle tankers in competition to

existing pipeline offerings Magnolia and Perdido were the existing pipeline offerings. Magnolia and Perdido were the most serious. Word on the street was that shuttle tankers helped oil companies hammer down the pipeliners’ rates!

Supply Side2001 Conoco’s Seahorse Shuttling LLC formed; 2001 Navion Shuttle Tankers from North Sea “test the waters”;2002 Navion/Skaugen form American Shuttle Tankers LLC;2005 Teekay completes acquisition of American Shuttle Tankers, y p q

then in effect abandons this business;2007 First time charters for 5+1+1+1 and 4+1+1+1 for shuttle tankers.


Shuttle Tankers Face Serious Competition: Well Established & Competitive Pipeline NetworkShipping lanes are already well travelled by lightering tankers. Many pipeline breaks occurred in the 2005 hurricane season - in an emergency

p p

shuttle tankers could deliver to East Coast refineries, e.g. Philadelphia.

Flat

Mountains of the moon!


Existing Pipelines in Deepwater

Existing pipelines reach out to the Lower Tertiary discoveries in Walker Ridge and Keathley Canyon FPSO territory!


Marine Safety & The Valdez SyndromeOil spills still loom large in the public mind with tankers – but simple prescriptions are available to prevent nightmares!

Marine industry best practices are very safe - hundreds of

7 July 2009

millions of barrels “on the water” every day worldwide.

28 of 40Energy Week at Tulane

Shuttle Tankers - North Sea Precedent for GoM

Turret moored, weathervaning FPSOs (passive or active);

Shuttle tankers tandem moored;

Shuttle tanker equipped with: + Dynamic Positioning System (latest usually DP2); Dynamic Positioning System (latest usually DP2);+ Bow Loading System (BLS)/control station;+ Positioning system: ARTEMIS + DARPS, on both FPSO and

shuttle tanker;shuttle tanker;

Separation: 80-100m (hawser length, if used);

No hold off tug, no workboats assistance (lines shot across with airgunfrom FPSO to shuttle tanker);

FPSO equipped with retractable reeled or free-hanging hose;

Shuttle tankers chartered dedicated or Contract of Affreightment (COA).


Modern North Sea Shuttle Tanker Configuration

Gaining production experience in the Lower TertiaryShuttle tankers do just that, shuttle back and forth from FPSO to sales destination(s). FPSO to sales destination(s).

Contrasts with export tankers elsewhere in world such as elsewhere in world such as West Africa where trip times are much longer and often diff t t k f different tankers of convenience are used.

Capacity 300,000 to 1,000,000 bbl.

Strenuous service in North Sea often Twin screw, diesel electric power, bow and stern thrusters.

fatigues the hull more that normal tanker practice.

thrusters.Commonly built in Korea, recently in China.


Shuttle Tanker Operations

Load offshore on bow, then at

d i i

Typically shuttle tanker

h destination discharge from

midship manifold

approaches FPSO from stern

Use of Bow Loading System


(BLS)

Special Requirements for Shuttle Tankers in GoM

US law requires must be Jones Act and OPA 90 compliant;

P d f di i 40 f d f h i f b Port drafts dictate maximum 40 ft. draft, hence maximum of about 550,000 bbl capacity;

Current limited market for shuttle tanker service demands backup trade, hence use of tankers that can work in the products trade, i.e. about 330,000 bbl capacity., p y


The Merchant Marine Act of 1920 (Jones Act)

Senator Wesley Livsey Jones (1863-1932), author of the Jones Act. A Republican, Jones had a long and

d i W hi H d fi i respected career in Washington. He served five terms in the House of Representatives and then 22 years in the U.S. Senate.

The Jones Act requires: 75% US ownership of ships engaged in coastwise trade, US crews, US construction.

From the protectionist era of the 1920s, through wartime objectives, the Jones Act has evolved in 2009 to have a powerful alliance of lobbies, e.g. p , gshipyards, ship owners, pipelines, truckers, railroads, unions.

There are attempts about every ten years to do away with the Jones Act –There are attempts about every ten years to do away with the Jones Act it is said to cost the country $10billion per year – but none has succeeded. Last attempt was in 2001 by Senator John McCain, trying to eliminate waste in the marine industry (Marad and Jones Act)


waste in the marine industry (Marad and Jones Act).

Politically Expedient in US to Support the Jones Act

“America needs a strong and vibrant US Flag Merchant Marine. That is why you … can continue to count on me to support the Jones Act (which also includes the Passenger Vessel Services Act) and the continued exclusion of maritime services in international Vessel Services Act) and the continued exclusion of maritime services in international trade agreements.” Barack Obama, August 28, 2008

“The United States needs a maritime policy tailored to 21st century needs. Programs that have contributed to the growth of our domestic fleet, such as the Jones Act ... should be maintained.” P id t G g W B h 2004President George W. Bush, 2004

“My Administration ... continues to support the Jones Act as essential to the maintenance of the nation's commercial and defense maritime interests ” maintenance of the nation s commercial and defense maritime interests. President William J. Clinton, 1997

“Sealift is essential to both executing this country’s forward defense strategy and to Sealift is essential to both executing this country s forward defense strategy and to maintaining a wartime economy... . [T]he U.S.-owned commercial ocean carrier industry ... will be relied upon to provide sealift in peace, crisis and war.” President George Bush, 1989


g

Limited US Commercial Shipbuilding Capacity

Traditionally US commercial shipbuilding has been very expensive (2.5+ times Far East) and expensive (2.5 times Far East) and that is still true in 2009.

Delivery time has historically been Delivery time has historically been unreliable and usually late.

I th l t th t h ll In the last year that has all changed at Aker Philadelphia shipyard: a complete yard rebuild, plus changes in management of operations down to shop level with full labor cooperation. US built ptankers can now be delivered on a schedule set years in advance, to the nearest week, just like Korea:


the nearest week, just like Korea: important for offshore production.

If Field Production Conditions Allow, a Sound Business Case Exists for Shuttle Tankers in GoM

i. Shuttle tankers may indeed offer an economic benefit over pipelines, f l fi ld i h L T i ld b even for large fields in the Lower Tertiary: could amount to about a

$Billion saving over field life;

ii. Aggregation of large enough volumes to enable an economic pipeline is more difficult in the Lower Tertiary than closer to shore. A pipeline very difficult economically for EPS - risks and economics p p y yfavor tankers;

iii Tankers offer future flexibility in changing destinations for maximum iii. Tankers offer future flexibility in changing destinations for maximum margin from production - and in event of hurricane damage can be re-directed to alternate delivery points;

iv. In the event of a field being a bust, tankers being re-deployable mitigate risk on export service commitments. Pipelines are not good t b i l d d d l d!at being reeled up and redeployed!


GoM Shuttle Tankers Compared to North Sea

Two time charters signed August 2007 by Petrobras America with OSG America for shuttle tanker service at Cascade/Chinook.

RegionTypical capacity,

Constraint on where

Max. draft at

Design features

Hold off tug?

bbl built port features tug?

North Sea up to None No limit DH, BLS, DP2 Nop1,000,000

, ,

US GoMat 340,000 US only 40 feet DH, not DP, but YesUS GoM at Cascade / Chinook

340,000 US only 40 feet DH, not DP, but bow thrusters,

CPP

Yes

Despite their small size, “low tech” design and relatively short charter period shuttle tankers in GoM proved competitive economically


period, shuttle tankers in GoM proved competitive economically.

Conclusions . . . .

a. The paradox: oil companies take huge risks in acquiring leases to explore for oil, drilling exploratory wells where the majority are

f l b h i d i h f not successful, but when it comes to producing that stream of crude, oil companies are risk adverse;

b. Technical proof of performance still has to overcome Murphy’s Law and innate conservatism borne of long experience;

c. Initially there was really no compelling economic reason to use subsea processing when it was originally thought of, but as oil became more difficult to find and exploration went into deeper became more difficult to find and exploration went into deeper waters, overall economics favored a better way;

d There is a link in US GoM between reservoir conditions pipeline d. There is a link in US GoM between reservoir conditions, pipeline infrastructure and the choice of development solutions other than FPSOs.


More Conclusions . . . .

e. When fields became particularly remote and reservoir conditions uncertain, the circumstances favor an EPS such as BW Pioneer;

f. Incremental technology developments - as opposed to major advances discussed here – can be achieved more quickly, e.g. top drives on MODUs in 1990s longer lighter legs and cast steel nodes drives on MODUs in 1990s, longer lighter legs and cast steel nodes in the ETA jackups of the late 1970s;

g S fi ld d l t l ti i US G M h g d g. Some field development solutions in US GoM have progressed more quickly, e.g. Spars and TLPs. Curiously these two have been slow to catch on elsewhere in the world;

h. The US stands for free enterprise most of the time,, e.g. hull construction and be anywhere for floating platforms. Senator y g pWesley Jones has a lot to answer for in his legislation of 1920!

i. Despite the ebb and flow of business since the 1940s, GoM based i. Despite the ebb and flow of business since the 1940s, GoM based oil companies remain a key influence in the worldwide market.


Questions?

Peter Lovie PE PMP [email protected] 419 9164

For more on the documents, presentations & history leading to the acceptance of FPSOs in GoM this link can help: www lovie org/fpso htmlacceptance of FPSOs in GoM this link can help: www.lovie.org/fpso.html

Similarly for more on shuttle tankers in GoM, please refer to:www lovie org/shuttle htmlwww.lovie.org/shuttle.html


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