Energy issues

Did you ever have one of those months when everything you read seemed to compound the other things you read? Well, it has been one of those months for me. And, a lot of what I have read seems to indicate that no one has a clear vision of what might be about to happen. On the other hand, as discussed below, well-reasoned plans can mitigate a good deal of the uncertainty.

Take these comments from a recent issue of the Houston Chronicle, for example. “OPEC could bring back 1 million barrels a day, but any barrels brought back by Saudi, Russia, Kuwait might just offset barrels lost from Iranian sanctions,” said Noah Barrett, an energy research analyst at Janus Henderson Investors (http://digital.olivesoftware.com/Olive/ODN/HoustonChronicle/Default.aspx). Due to bottlenecks in the Permian Basin, “U.S. production will continue to grow, but it probably won’t exceed expectations. It’s more likely it will disappoint to the downside.” And, said Ashley Petersen, lead oil analyst at Stratas Advisors in New York, “there’s just kind of an acknowledgment that there is still a lot of supply in Texas, so it’s not clear sailing for prices.” According to John Kilduff, a partner at New York-based hedge fund Again Capital, “the summer-time doldrums are here and there’s not a lot of direction for this market at the moment.”

The market uncertainty is compounded by additional factors, such as Venezuela’s continuing oil collapse (You can call that a collapse of the whole country. A cup of coffee in Venezuela costs 2,000,000 Bolivars [yes, two million] at the time this was written) and actions such as Mexico’s announcement that they intend to increase production by 600,000 bopd in two years. The move in Mexico is an effort to reverse a decline in production of nearly 2 MMbopd since 2005, with an investment estimated at some $9.5 billion.

Yeah, it’s a crazy world. It’s hard to figure out where to go. So, why not start with what you have. First, protect your assets. Then, build on them with a life extension plan.

At its core, a life extension (LE) plan is a management system that provides assurance that an aging asset can continue to operate safely beyond the original design limits. This may, or may not, include the necessity for repairs or upgrades to address fabric degradation and/or manage risks. A life extension plan summary was recently published by Endeavor Management, a company that designs and implements practical business strategies. The plan would, at a minimum, include a summary of present condition, a strategy to monitor pertinent aspects of the facility to continually verify fitness for service and compliance with regulations and, ideally, baseline contingency plans to mitigate credible risks.

Challenges. The challenges of life extension, said Endeavor, fall into four categories—safety, codes, technical and business. All four must be addressed, for a feasible life-extension program to exist:

• SAFETY is at the core of business culture and must be considered at the outset of a LE program.
• CODES AND STANDARDS. It is not expected that the asset will fully comply with codes and standards in place at the time of the LE review. The expectation must be that the risks associated with not meeting the latest codes and standards are assessed, and identified risks managed.
• TECHNICAL CHALLENGES. The more reliable and comprehensive that the data are, the better will be the assessment. Generally, the challenges can be broken down into the following seven categories:

◦  Uncertain condition of critical components and equipment

◦  Decaying corrosion protection systems

◦  Challenges complying with new regulations

◦  Weight management

◦  Lack of historical data

◦  Change of use and/or location

◦  Predicting/extrapolating corrosion and fatigue.

• BUSINESS IMPACTS. This would include both short and long-term impacts of the LE plan. Factors typically considered include:

◦  Plan development: There will be desktop studies and, if necessary, site surveys to develop the documents that confirm that LE is achievable.

◦  Upgrades and repairs: Some form of work on the facility is required to sustain or support the LE. Examples of this are renewing corrosion protection systems, strengthening or replacing corroded steel, or installing monitoring systems.

◦  Periodic surveys: Extent and frequency of periodic surveys may be changed, as dictated by regulators.

◦  Production interruptions: Items (2) and (3) above may require shutting in, or at least disrupting, production. The extent, timing, duration and frequency of this needs to be estimated.

Implementation. At the end of original life, the decision would be made to consider extending the operational life and this is the trigger to start the stepwise approach to determining the viability of LE. If followed through to extend the operating life, the stages are like those for a new asset: assess, implement, operate and verify.

This systematic approach allows an asset life to be extended incrementally, provisionally at five-year to 10-year intervals. There would be periodic reassessment and “course corrections” made as the asset matures, and additional performance data are gathered and assessed. These “course corrections” may be purely business- or regulation-driven, but can include aspects, such as changes in operations.

For access to all three portions of this LE analysis, visit (https://www.endeavormgmt.com/blog/life-extension-offshore-floating-assets-part-1.) 

About the Authors

William J. Pike

World Oil

William J. Pike has 47 years’ experience in the upstream oil and gas industry, and serves as Chairman of the World Oil Editorial Advisory Board.