Regulators run the rule over US Gulf idle iron
  from: Offshore Engineer
  by: Russell McCulley
  Thursday, October 02, 2008

The US Minerals Management Service is stepping up its efforts to get ‘idle iron’ – rigs, wells and associated infrastructure that have been off production for five years or more – out of the hurricane-prone Gulf of Mexico. OE’s Russell McCulley talks to the MMS and others about the push and how increased decommissioning could further strain an already high demand for service vessels and personnel.

The hurricane season of 2005 destroyed 123 fixed structures and one floating facility in the Gulf of Mexico, scattered pipelines and seriously damaged dozens more installations. It also heightened awareness of the environmental and financial dangers inherent in leaving non-producing assets in place: as many leaseholders discovered after hurricanes Katrina and Rita, the cost of removing a felled platform can run 15 times more than a normal decommissioning.

Roughly 5000 wells in the Gulf have been inactive for at least five years, says Lars Herbst, regional director for the Gulf of Mexico Outer Continental Shelf program at the MMS. In its push to clear the Gulf of idle iron, the agency is concentrating on about 500 wells located near the mouth of the Mississippi River, most in the stormvulnerable mudslide area where the river deposits sediment. At this point, says Herbst, the effort amounts to ‘mainly a dialogue between us and the companies’ that hold leases for the wells and structures to determine if there’s any current or future utility for them. ‘If not, then we’re going to work towards a schedule towards abandoning all these,’ he says. ‘If there is, then we get to somewhat of a diligence issue.’

If there are hydrocarbons to be extracted from idle wells, Herbst says, ‘maybe it’s time to start moving on those resources, because the American public can certainly use those resources if they’re available. It’s really become two issues: one, the liability of keeping older well and facilities in place if there’s no longer a need for them, and the other is a diligence issue.’

He says it will take an organized effort between MMS and industry to address the issue, especially considering the tight availability of vessels and crews needed to perform a massive decommissioning and abandonment project. Though the initial focus involves only a fraction of the total number of inactive wells, he says, ‘500 wells is probably a big enough step for us and the industry at this point’.

‘Some of it gets back to resources,’ he says. ‘Whether it’s in-house resources or the vessels and equipment and people you need to do the work, there’s only so much you can do. And this is, obviously, on the tail end of cleaning up after the hurricanes as well.’

It will likely be three years or more before the post-hurricane cleanup is complete.Wild Well Control, a Superior Energy subsidiary, is in the early stages of a $750 million effort to decommission seven downed platforms offshore Louisiana in water depths ranging from 85ft to 135ft. The work for BP, Chevron and Apache is expected to stretch into 2011. Several smaller-scale projects are also under way, including a $7 million job for Proserv’s abandonment and decommissioning subdivision that entails the abandonment of two platforms and associated wells in the shallow-water Gulf of Mexico, along with the removal of pipelines and subsea tie-ins.

Ron Twachtman, president of Proserve Decommissioning Contractors & Engineers, has noted a greater sense of urgency among exploration companies and regulators to tackle the idle iron problem. With the damage of 2005 still occupying much of the Gulf decommissioning picture, along with the increased costs of cleaning up storm-damaged sites, ‘everybody has an incentive now’ to deal with inactive wells and platforms before another rough hurricane season takes its toll.

After Katrina and Rita, Twachtman says, ‘some of the oil companies attacked (decommissioning and abandonment) straight away; others have decided they want to wait. Now that time has gone by, MMS is saying, “no, the wait is over, you’ve got to start doing something.We were reasonable about it, but if you chose not to take action, you’re going to have to now”.’

Will a stepped-up effort to remove aging structures and plug wells put further strains on the labor and offshore service vessel market? ‘It certainly could have that impact,’ he says. ‘We’re seeing where deadlines are being more adhered to by the MMS, and they’re not offering extensions as freely as they were.’

The MMS is also taking steps to ensure that the federal government isn’t stuck with the bill if leaseholders go belly-up before the decommissioning and abandonment stage of a field’s life – a rare occurrence in the Gulf of Mexico, but the agency has had to deal with ‘a couple of bankruptcies’ of late, Herbst says.

A joint study by Mark Kaiser, professor at Louisiana State University’s Center for Energy Studies, and the MMS is under way that will be used to help MMS update its supplemental bonding formula for smaller oil and gas exploration companies. Current guidelines, developed in the 1990s, require a bond of about $100,000 per well, Kaiser says, while the cost of decommissioning and abandonment can run several times that amount, even without the added expense of storm damage.

Many of the mudslide area wells that were downed in Katrina – some now buried in 100ft of sediment – were not adequately bonded for the extraordinary work needed to decommission and abandon them, Herbst says.

‘We don’t want to have to spread that type of bonding across the entire Gulf to cover events like that,’ he points out.

If the agency can hasten the decommissioning of inactive wells in the Mississippi’s vulnerable mudslide area, he says, ‘then we won’t be spending 15 times the cost’ to clean up after a major storm. ‘And we won’t have to bond for that amount.’ OE

Artificial reefs
A stepped-up pace for decommissioning inactive wells and platforms in the Gulf of Mexico could be good news for the area’s aquatic life if more operators opt to turn aging steel into artificial reefs – in some cases, a less expensive alternative to complete removal. The Louisiana Department of Wildlife & Fisheries has 104 structures either under consideration for artificial reef status or in development, says Doug Peter, coordinator for the state program. Since the 2005 storm season, Peter says, ‘the oil and gas industry has requested a lot more artificial reef sites, since it’s generally cheaper for them. There’s an emphasis now on not leaving idle steel out, and we’re looked at as an option for the industry.’

Louisiana has nine planning areas offshore where a majority of the artificial reefs are concentrated, he says, and interest in the program is increasing. ‘We can’t just create a reef site at every structure,’ he points out. But for those that qualify, he says, ‘we try to play a role during decommissioning in how the reef will come out, and what they need to do to meet environmental guidelines.’

The decision to reef or remove often boils down to water depth, he says. ‘If the rig is in shallow water and near shore, there are constraints,’ Peter says. ‘But once you get to about 130ft in depth, our program looks more attractive because the cost of decommissioning becomes much greater. Oil companies are looking at it from an economic standpoint, and we’re looking at it from a biological standpoint.’

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