Special Report – Next Generation Offshore Engineering, Procurement & Construction Services Bechtel by The Magazine Production Company

Special Report

Next Generation Offshore Engineering, Procurement and Construction Services Bechtel: Certainty of Outcome, Offshore Growth Brings Its Own Challenges Making the Best of Everything A World of Challenges Managing the Material and More

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Growth Brings Its Own Challenges

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Growth by any Measures

Publisher Kevin Bell

Responsible Development – Fair Shares

Business Development Director Marie-Anne Brooks

Making the Best of Everything

Editor John Hancock

The Outlook is Good Collaboration – Playing to Their Strengths

Qualitative Development to Match Growth Upgrades, Capability Extensions and Life Extensions

Advertising Executives Michael McCarthy Abigail Coombes

Frontiers Beyond Frontiers

For further information visit: www.globalbusinessmedia.org

Francis Slade, Staff Writer

Senior Project Manager Steve Banks

Production Manager Paul Davies

Peter Dunwell, Correspondent

Extending the Reach Many Things To Do And… … Opportunities To Do Them

A World of Challenges

John Hancock, Editor The opinions and views expressed in the editorial content in this publication are those of the authors alone and do not necessarily represent the views of any organisation with which they may be associated. Material in advertisements and promotional features may be considered to represent the views of the advertisers and promoters. The views and opinions expressed in this publication do not necessarily express the views of the Publishers or the Editor. While every care has been taken in the preparation of this publication, neither the Publishers nor the Editor are responsible for such opinions and views or for any inaccuracies in the articles.

The Challenge of Safety The Challenges of Environment The Challenge of Risk Business Models to Get it Done

Managing the Material and More

Peter Dunwell, Correspondent

A Large Part of the Budget Scope for Significant Savings Ethics and Responsibility

© 2013. The entire contents of this publication are protected by copyright. Full details are available from the Publishers. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical photocopying, recording or otherwise, without the prior permission of the copyright owner. Cover image – Snorre B, Statoil/Harald Pettersen

Creating a Positive Legacy

References 14

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SPECIAL REPORT: NEXT GENERATION OFFSHORE ENGINEERING, PROCUREMENT AND CONSTRUCTION SERVICES

Foreword O

ffs h o r e

ene r gy

exploration,

on an inexorable upward trajectory in which producers

development and production is a complex

have ventured further out into the oceans and to ever

business comprising many interlocking and

greater depths in order to find and exploit reserves.

individually complex processes and programmes.

As well as going into more remote and inaccessible

Given that complexity and the potential costs of

places, producers have also worked at ways to extract

failure, it is often better for each process to be

value from reserves that were previously considered

handled excellently by an expert business in that

uneconomic. That comes about with a combination of

field rather than for all to be handled acceptably by

rising prices, good technology and good management

an operator business undertaking work beyond its

of every step in the process. And in a similar manner,

core competencies.

companies are exploring how current reserves might

The opening article in this Special Report looks at one

continue to produce beyond their original planned

such expert business, Solvay Speciality Polymers, the

lives. Added to all that, the regulations around

leading supplier of high-tech solutions to a significant

operating a field and the ethical obligations with which

number of oil and gas operators, which offers the

all operations are now freighted have made today’s

largest portfolio of high-performance polymers to

business a far cry from the early ‘pioneering’ days.

the oil and gas market. The article describes the

The upshot is that most operations and systems

broad choice of materials offered by the company,

are these days very complex, to the extent that, for

their properties and typical applications in the oil

a growing number of functions, operators are calling

and gas industry.

on outside expertise to ensure that every job is

The Report goes on to examine the drivers that

done by an expert at that function. That way, the job

power offshore oil and gas exploitation and the

gets done well and the operator’s reputation is kept

operating models that can harness those drivers to

safe or even enhanced.

ensure the best outcomes for the business, starting with the demand-led growth that has typified recent history in the sector. That growth has pushed activity

John Hancock Editor

John Hancock joined as Editor of Offshore Technology Reports in early 2012. A journalist for nearly 25 years, John has written and edited articles and papers on a range of engineering, support services and technology topics as well as for key events in the sector. Subjects have included aero-engineering, testing, aviation IT, materials engineering, weapons research, supply chain, logistics and naval engineering.

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SPECIAL REPORT: NEXT GENERATION OFFSHORE ENGINEERING, PROCUREMENT AND CONSTRUCTION SERVICES

Bechtel: Certainty of Outcome, Offshore Bechtel, Inc

CIVIL

ec h tel , t h e wo r ld’s p re mi e r e ngine e ring, proc ure me nt, and construction (EPC) firm, expanded global activity in the offshore oil and gas industry. With four decades of offshore experience, and offshore engineering offices in Houston, Kuala Lumpur, Luanda, and Bangkok, Bechtel continues to support owners and operators with some of their most challenging shallow-water and deep-water projects. Bechtel Offshore offers engineering, project management services, and full EPC delivery in developments including subsea systems, pipelines, subsea tiebacks, risers, topsides, fixed platforms, Floating Production Storage Offloading (FPSO), Floating Liquefied Natural Gas (FLNG), and other Floating Production Units (FPUs). On land or at sea, Bechtel solves construction challenges in diverse industries from infrastructure and civil programs to energy, both upstream and downstream. We continually build on our commitment to deliver: ‘Certainty of Outcome.’

Expertise Bechtel’s Joseph Gebara leads its Offshore business line. For the past two decades Joe has worked in the offshore industry. His experience includes leadership roles in the development of floater projects and serving on industry and government committees, including the Ocean Energy Safety Advisory Committee for the U.S. Department of the Interior, API Committees, and on the External Advisory Committee for the University of Texas Petroleum Engineering Department. Joe is supported by a seasoned team with complimentary geographic and technical responsibilities: •S ateesh Dev, Asia Pacific Regional Manager, 38 years of experience in naval architecture, project management and construction of floating production units; •P hilip Hawley, Senior Project Manager, 30 years of experience in floating production systems and subsea infrastructure; • Indranath Datta, PhD, Offshore Technology Manager, 30 years of experience in marine technologies and the development of floating

production units and subsea infrastructure; •S tephen Gunzelman, Offshore Engineering Manager, 36 years of experience in offshore drilling and production systems, subsea infrastructure and pipeline design including both fixed and floating units with emphasis on structural design. •K alyana Janardhanan, PhD, Subsea Systems Manager, 24 years of experience in engineering and project management of subsea infrastructure, umbilicals, risers and flowline projects.

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Floating LNG In response to growing global demand for LNG, operating companies are seeking new alternatives for the commercialization of unconventional and offshore natural gas. As the industry has ventured into deeper waters in search of oil, prospects for offshore gas extraction are considered with increasing frequency. Already the global leader in onshore LNG facility construction, Bechtel is extending its LNG expertise to offshore applications. Bechtel’s FLNG team has experience developing Concept, FEED, and FID designs ranging from 0.5 MMTPA to 5.3 MMTPA, and is able to offer N2 Expander, SMR, and DMR liquefaction processes dependent upon project requirements. Leveraging the process engineering capabilities, cargo containment expertise, and PDMS modeling capabilities of the Houston office, and execution centers in New Delhi and Shanghai, Bechtel offers a truly global execution model that includes teaming arrangements and partnerships with international shipyards and numerous hull, containment, and topside technology options. Just as Bechtel has led the way for decades in other industrial sectors including power, civil, and mining, the development of Floating LNG is a natural extension of proven core competencies in project management and gas process design.

Recent Projects Bechtel is developing offshore projects in the Gulf of Mexico, West Africa, and Asia, and managing work in six fabrication yards. Examples www.offshoretechnologyreports.com | 3

SPECIAL REPORT: NEXT GENERATION OFFSHORE ENGINEERING, PROCUREMENT AND CONSTRUCTION SERVICES

Bechtel is developing offshore projects in the Gulf of Mexico, West Africa, and Asia, and managing work in six fabrication yards

Bechtel FLNG

of where Bechtel Offshore is supporting its customers include: • Management support of the Husky Liwan 3-1 development in the South China Sea: a deep-water gas field including subsea flowline tiebacks to a shallow-water platform, and subsea related equipment on the platform; • Engineering for an oil production platform modification in the Gulf of Mexico for a supermajor to facilitate periodic well stimulation and artificial lift; •E ngineering for a development in Angola that encompasses a wellhead platform and tie-ins to existing production processing and treatment platforms via subsea pipelines.

Signature Projects

KG-D6: Control riser platform topsides

Cantarell: 8,000 joints, 83 km pipeline

KG-D6 Gas Field At its deepest point, the KG-D6 gas field lies in 2,700 m of water in the Bay of Bengal, India. The size of the reserves, well pressure, and its complexity made this project one of the world’s most challenging at the time. Bechtel provided project management services for KG-D6, and delivered the $5.2 bn development over a 3 year period. The selected concept required throughput of 2.8 BCFD, expandable to 4.2 BCFD, 18 subsea wells tied back through a network of flowlines, pipelines, and cluster manifolds to a deepwater pipeline end manifold in 600 m of water, connected to a control and riser platform at a depth of 100 m. The gas produced offshore is transported to an onshore terminal and gas plant via a three 25 km x 24-inch export pipeline system. The gas plant is a standard triethylene glycol dehydration facility to condition gas, MEG regeneration, and compression for transport through the 1,385 km 48-inch east-west gas pipeline that connect the onshore terminal with Mumbai and industrial areas in the Gujarat State. www.Bechtel.com/KGD6

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Cantarell Field Development Project At the time of development, Cantarell was the world’s largest offshore project, and Bechtel held project management responsibility for the full scope of Pemex’s giant heavy oil field. The project involved modification and upgrades to 36 existing platforms and installation of 16 new platforms, with a total installed cost of $4.5 bn. Bechtel’s participation began with the preparation of a conceptual design study with Pemex in 1996 that identified a number of modifications to remove production bottlenecks and increase the field’s long-term productivity. The debottlenecking scope included modifications to existing platforms to add new production separation facilities as well as pumps and compressors and the installation of additional gas compression facilities, interconnecting pipelines, and a Floating Storage Offloading (FSO) vessel. Further systems to increase production included the installation of new wellhead platforms, riser and injection platforms, two new central processing complexes, accommodation platforms, bridges and flares, and interconnecting pipelines. Bechtel’s scope of work as project management contractor extended from conceptual engineering through to the preparation of 40 EPC contract packages and management of EPC contract execution, including 2 build own and operate contracts on Pemex’s behalf. www.Bechtel.com/Cantarell Scarab/Saffron Development The Scarab/Saffron field development located offshore Egypt, lies approximately 90 km from the Nile Delta shoreline in the Eastern Mediterranean with water depths ranging from 250 to 850 m. Bechtel’s scope included EPC and overall project management for two years. The development area contained two main structures, Scarab and Saffron, each of which holds high quality methane reserves. The development consisted of a long-distance subsea tie-back to new onshore facilities, located adjacent to the Rosetta

SPECIAL REPORT: NEXT GENERATION OFFSHORE ENGINEERING, PROCUREMENT AND CONSTRUCTION SERVICES

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Hoover Dam

onshore processing plant near Alexandria. The initial development included eight subsea wells tied back to two manifolds and two 20 to 22-inch export pipelines to shore. The wells are controlled from shore using a multiplexed electro-hydraulic control system and umbilicals. The onshore processing plant was designed for a maximum delivery capacity of up to 600 mm scf/d of gas and 3,000 bpd of condensate. The initial phase of development is expandable by the addition of wells and manifolds, up to approximately 20 wells, to maintain the plateau production profile. Following onshore treatment and separation, the gas is exported via pipeline to the Egyptian National Transmission System. www.Bechtel.com/Scarab

highest standards of ethical business culture. Our reputation for adhering to these standards is one of our most valuable assets. Quality: Bechtel is built upon time-tested values of excellence. The reliability of our performance is evidenced in the enduring quality of our projects. We never rest and continually strive to improve our performance through Six Sigma and other initiatives. Zero Accidents: Bechtel has a world-class safety program. We believe every accident is preventable, and we continue our pursuit of zero accidents.

Values Bechtel has been at the forefront of engineering and construction for more than a century. What began as a railroad-grading operation in the Oklahoma Territory has grown into a multinational company with hundreds of projects around the world, including such recognizable structures as the Hoover Dam and Channel Tunnel rail link. Regardless of location, client, or scope, Bechtel maintains three foundational values: Integrity: Bechtel’s culture is grounded in integrity and respect. This means holding the

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SPECIAL REPORT: NEXT GENERATION OFFSHORE ENGINEERING, PROCUREMENT AND CONSTRUCTION SERVICES

Growth Brings Its Own Challenges Peter Dunwell, Correspondent

Offshore oil and gas growth requires too many and too complex processes for just one business to master them all

There are few environments more inaccessible or hostile than the oceans but there are significant reserves of oil and gas to be found at ever increasing distances from land and ever greater depths beneath the oceans. It’s a significant challenge

s global energy requirements have risen inexorably with the continuing long term growth of economies at all stages in the development cycle (undeveloped, emerging and developed alike) and the ever increasing demands and expectations of a rapidly growing population, so energy businesses have been driven to exploit reserves of oil and gas in ever more challenging places. Also, nations these days seek energy security for which reserves of carbon fuels within their own jurisdiction are desirable. Where once oil and gas were lifted from under the deserts of the Middle East to be shipped around the world to where industrial activity and consumer demand needed the energy, today, reserves are sought wherever they might be located. In reality, most of the world’s carbon fuel reserves are already known but not all are yet exploited, usually because virgin reserves tend to be in inaccessible or inhospitable environments… or both. There are few environments more inaccessible or hostile than the oceans but there are significant reserves of oil and gas to be found at ever increasing distances from land and ever greater depths beneath the oceans. It’s a significant challenge. However, as we know, when the price is right and can be realised, it will be worth undertaking extraordinary engineering and technology programmes in pursuit of a product. And so it is with deep sea exploration for and production of oil and gas. This has spurred an enormous growth in the offshore oil and gas sector coupled with some incredible engineering, construction and supply chain challenges.

Growth by any Measures Underwater oil wells have been established since at least the nineteenth century but “The first commercial offshore oil rig began drilling in 1947 off the coast of Louisiana in the Gulf of Mexico in just 14 feet of water. Permanent platforms were the first offshore oil rigs to drill successfully 6 | www.offshoretechnologyreports.com

in deep waters, followed by the drill ships and semi-submersible offshore oil rigs that became widespread in the 1960s. These could reach to a depth of 1,000 feet. Since then… capabilities have evolved greatly and the amount of offshore oil rigs in use worldwide has skyrocketed.”1

The Outlook is Good Not only has the sector experienced significant growth but, according a 2010 survey by ICD Research into oil and gas executives expectations for the growth prospects of their companies2, “57% of respondents in the upstream and downstream oil and gas industry [were] more optimistic about revenue growth for their companies over the [following] 12 months, relative to the previous 12 months.” This confidence was confirmed in 2013 by Infield Systems whose research results3 published in February 2013 suggested that, “the outlook for the Subsea industry is amongst the most promising in the offshore oil and gas world, with Subsea Capital Expenditure (Capex) set to grow at a staggering 14.8% CAGR to 2017.” The report continues to state, “This positive trend looks set to continue into 2013… [and] operators are expected to invest more than US$19 billion in Capex for subsea production equipment during 2013, a figure that is likely to grow to US$33.3 billion by 2017.” Perhaps one more sign of long term growth in the sector is that, “Deepwater and ultradeepwater oil and gas production began in the early 1990s, reaching approximately 1.5 million barrels per day (BPD) in 2000, and now exceeds 7.2 million barrels of oil equivalent per day (BOED).” According to Plant Engineering, ‘Challenges of Offshore oil and gas production.’4 Meeting the demands represented in those growth expectations requires ever more complex engineering and construction programmes to be deployed across an

SPECIAL REPORT: NEXT GENERATION OFFSHORE ENGINEERING, PROCUREMENT AND CONSTRUCTION SERVICES

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infrastructure that itself is growing. Energy industry analysts at Douglas-Westwood 5 are projecting more than 7,000 fixed and more than 200 floating platforms, and with 190,000 km of pipeline currently installed plus a number of major modification programmes to push growth in offshore operations and maintenance in the next couple of years. It isn’t only the growth of new fields but also the life extension of established fields that is stretching oil and gas production life cycles to extents that were not previously planned.

Collaboration – Playing to Their Strengths It is here that the theme of this paper can be picked up. With increasing complexity comes the need not simply to specialise but to be expert in a range of processes and operations which take businesses in the sector ever further away from their core competencies. As a result, programmes are becoming ever more collaborative efforts with a number of businesses who are specialists and experts in their own field (engineering, construction, procurement, etc.) working within each programme overseen by one of the oil and gas businesses.

Responsible Development – Fair Shares But it isn’t only growth or engineering challenges that the sector has to consider. The discovery and exploitation of oil and gas reserves can transform a national economy. Not only is the product itself very valuable, but also it can drive improvements in employment and technical skills in the locality of the reserves. That will, in turn, benefit the economic capability of the country and generate tax revenues which will significantly affect the ability of a government to provide for its people in the longer term those staples of modern life such as good communications, healthcare and education. Achieving this is largely a function of responsible procurement which, again, might best be outsourced to businesses specialising in that function, familiar with how to ensure that, wherever possible, the local economy benefits from reserves within its territorial waters. In the growing business of exploitation and realisation of offshore oil and gas, there are many reasons why experts in each part of the process should collaborate to ensure that the whole is an expertly conducted operation.

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SPECIAL REPORT: NEXT GENERATION OFFSHORE ENGINEERING, PROCUREMENT AND CONSTRUCTION SERVICES

Making the Best of Everything Francis Slade, Staff Writer

It’s a growth sector but not all growth will require new areas to be exploited

This kind of qualitative development and increasing application of specific expertise opens up opportunities in many of the industries and business sectors that serve offshore oil and gas

Qualitative Development to Match Growth According to the Subsea Oil & Gas Directory review of The Subsea Industry6, “The subsea oil and gas industry is changing again. The last change was from large budget field developments in the North Sea shallow waters; the trend was towards marginal field development, smaller tie backs to already developed fields, and deepwater challenges offshore [of] Africa, GoM [Gulf of Mexico] and Brazil. The subsea oil and gas industry was faced with the deepwater challenges of what was called the ‘last frontiers’ on this planet. Developing subsea prospects in water depths up to 3,000m required outstanding engineering skills, equipment qualification and extreme focus on reliability.” Put in layman’s terms, this will mean that oil and gas suppliers will be looking at a whole range of options for new exploration, development and production (EDP) potential. How that potential is realised will depend on where exploitable reserves can be found. Sometimes it will mean the simple life extension of an established field, perhaps using new technology that can extract value from lower grade outputs; sometimes it will mean extending the reach of production facilities to the more remote edges of a field, using tie backs to link them to existing production platforms and infrastructure; and sometimes it will mean using the latest technology and engineering

Phase 1

to economically exploit reserves that were previously deemed uneconomic. This kind of qualitative development and increasing application of specific expertise opens up opportunities in many of the industries and business sectors that serve offshore oil and gas, not least of which will be those supplying engineering, procurement and construction services. And those opportunities will be across the three phases in the life of an oil and gas field (exploration, development and production) as identified by Ahmad Shukrima in ‘Offshore Oil and Gas Development Projects’7. Perhaps, given the maturity of the sector in areas such as the North Sea, we should add a fourth phase to these three; decommissioning – the safe cessation of production, and dismantling and removal of infrastructure. Among others, the UK Government is quite prescriptive about decommissioning, “A decommissioning programme sets out the measures to decommission disused installations and/or pipelines, and will describe in detail the methods to undertake the work. In some cases this process can cover a wide range of activities such as radioactive material handling, removal of debris from the seabed and environmental monitoring of the area after removal of the installation.” This from the UK Department of Energy & Climate Change ‘Oil and gas: decommissioning of offshore installations and pipelines.’8

Phase 2

Phase 3

EXPLORATION DEVELOPMENT PRODUCTION Locating the oil bearing Design, Construct, strata underneath the ocean Transport, Install, Hook-up and Commissioning the facilities for extracting the hydrocarbon from underneath the ocean

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Extracting, processing and transporting hydrocarbon from underneath the sea to onshore for further processing and refining.

SPECIAL REPORT: NEXT GENERATION OFFSHORE ENGINEERING, PROCUREMENT AND CONSTRUCTION SERVICES

The opportunities for specialist service providers are considerable.

Upgrades, Capability Extensions and Life Extensions Given the long lives of offshore platforms (often longer than was ever intended); also, with the current trend to add new production facilities into old infrastructure in order to make less viable reserves economic to exploit, existing platforms might need to be equipped to handle products that were not in their original design specification. Indeed, platforms might even be physically extended with the addition of or a link to another module in order to enable the structure to handle more of the production process. And, of course, increasing numbers of platforms are undergoing work to extend their operating life well into the 21st century in order to continue exploiting reserves that, with old technology, might not have been exploitable.

Extending the Reach The process of extending the reach of a production platform to further extremities of the field involves the application of new engineering to an established infrastructure. As Plant Engineering9 explains, these involve, “multiphase pipelines on the sea bed… used to extend the life of existing production platforms. Rather than place a new platform over a new asset area, a subsea tieback is used to connect the new field to an existing but underutilized production platform. These solutions require extending control networks for several hundred miles and controlling complex multiphase pumping systems.”

Frontiers Beyond Frontiers There are also reserves that were once considered uneconomic to exploit, reserves such as the KG-D6 gas field under 2,700 m of water in the Bay of Bengal which, with its size and well pressures is one of the most complex in the world but which is now being developed using a range of skills and engineering capabilities. “The subsea oil and gas market continues to grow at an increasing pace, as oil and gas operators continue to discover reserves in deeper water areas where the only economically viable recovery solution is a subsea development.” Is how the Infield ‘Subsea Well Intervention Market Report to 2017’10 puts it. Reserves now being developed for the first time will face different challenges from earlier developments. In the article ‘Offshore Oil and Gas Installation – Aging and Life Extension’ in The Journal of Petroleum Technology February 2012 edition11 it was explained that, “When

oil and gas prices are high, marginal or technically demanding fields become more financially viable. Also, existing assets with low production rates are able to generate significant profit margins. Advances in technology can affect the financial viability of new field developments…” Infield ‘Subsea Well Intervention Market Report to 2017’12 summed up that, “The subsea oil and gas market continues to grow at an increasing pace, as oil and gas operators continue to discover reserves in deeper water areas where the only economically viable recovery solution is a subsea development.”

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Many Things To Do And… Ahmad Shukrima (see above) identifies five key stages in offshore development projects… 1. Design of Offshore Platforms; 2. Procurement of long lead materials and specialist equipment; 3. Construction of Offshore Platforms; 4. Transportation and installation of Offshore Platforms; and… 5. Offshore hook-up and commissioning of Platforms. There is also a range of disciplines required for the development and operation of subsea and deepwater fields… • Floating systems; • Topsides facilities; • Field development planning and field layouts; • Flow assurance; • SURF (system utilisation reporting facility); • Subsea pipelines and long distance tie-backs; • Subsea power transmission; • Risk management; • Safety and project assurance; • Travel and logistics planning; • Materials and corrosion; • Geotechnical.

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… Opportunities To Do Them That range of disciplines means that there is also a range of engineering, procurement and construction specialities required to ensure the good running of a facility. And, to an increasing degree, those services are being outsourced. Engineering Services Outsourcing13 confirms that, “a rather wide range of engineering support services have been outsourced for many years...” The range of tasks, disciplines and processes in offshore oil and gas continues to grow and to grow more complex. A business model that introduces skills from wherever they are to where they are needed will ensure that the best experts do the jobs and allow oil and gas companies to concentrate on their core competencies.

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SPECIAL REPORT: NEXT GENERATION OFFSHORE ENGINEERING, PROCUREMENT AND CONSTRUCTION SERVICES

A World of Challenges John Hancock, Editor

Nothing in offshore oil and gas is straightforward and some things are downright difficult

The definition of health and safety is interpreted in the widest possible sense which makes the challenge considerably more than simply ensuring the safety of personnel on platforms, important as that is

A combination of past disasters, increasing awareness of safety and ever more hazardous environments has posed a whole raft of new challenges for the operation of an offshore oil and/or gas platform. And it’s not as if the industry was short of challenges already, according to Subsea Oil and Gas Directory14. “The subsea oil and gas industry [is] faced with the deepwater challenges of what was called the “last frontiers” on this planet. Developing subsea prospects in water depths up to 3,000m required outstanding engineering skills, equipment qualification and extreme focus on reliability.”

The Challenge of Safety Safety is a major consideration and concern for legislative bodies such as the European Union whose Directive 2013/30/EU15 on safety of offshore oil and gas operations, “… will make sure that the highest safety standards will be followed at every oil and gas platform across Europe. It will also ensure that we react effectively and promptly should an accident nevertheless occur. This would help minimise the possible damage to the environment and the livelihoods of coastal communities. The new directive 10 | www.offshoretechnologyreports.com

sets clear rules that cover the whole lifecycle of all exploration and production activities from design to the final removal of an oil or gas installation.” Clearly, the definition of health and safety is interpreted in the widest possible sense which makes the challenge considerably more than simply ensuring the safety of personnel on platforms, important as that is. It may also suggest that the introduction of expertise from outside of the operating company will be a useful addition to achieving compliance with all aspects of the regime. But safety is only one among the many challenges facing producers. Before any safety considerations come into play, operators have to consider the harsh nature of many environments in which they wish to operate platforms.

The Challenges of Environment “Offshore engineers and scientists face fascinating economical and technical challenges in designing offshore platforms for shallow water oil and gas fields in moderate ice conditions. Petroleum production systems in these ice-infested areas such as the Bohai Bay of China, Cook Inlet, Barent Sea,

SPECIAL REPORT: NEXT GENERATION OFFSHORE ENGINEERING, PROCUREMENT AND CONSTRUCTION SERVICES

and Caspian Sea must be designed to accommodate the harsh environmental conditions, among which the first-year sea ice is one of the major design considerations. Extreme ice loads and ice-induced vibrations still remain an area of uncertainty in offshore platforms.” This is how Science Direct16 describes the major challenges of offshore platforms design for shallow water oil and gas fields in moderate ice conditions. In reality, most offshore environments are harsh and pose significant challenges to platform operators. Offshore oil and gas fields can be found in all climatic conditions and offshore oil and gas production is more challenging than land-based installations due to the remote and harsher environment. But, over and above the element of risk, an offshore oil platform is a small community in itself. Supplies and even waste are transported by ship, which requires careful planning of the supply chain...”17 It is also true that offshore platforms are themselves large constructions with many systems and fittings all of which must be supplied and, where appropriate, resupplied. Flowtech Energy describes the complexity of an offshore platform as a, “structure that comprises of a number of multifarious parts, each with its own specific function and purpose. It is a unit made of smaller units like drill machinery, the control and power system, and all sorts of instrumentation required for efficient oil extraction.”18

The Challenge of Risk Operators need a thorough understanding of the risks and hazards that their operations face. Fortunately, in the offshore sector, those risks and hazards are pretty well known. Robert Lamb writing in ‘How Stuff Works’ explained it as; “Once the exploratory drilling phase is over and geologists have determined that a petroleum reservoir is worth the massive expense, oil companies prepare to establish an offshore production platform. These rigs [sic] are designed to last decades, often far from land and in some of the most hostile waters on Earth.”19 Risk is an ever present part of the business. All of this requires procurement and supply chain expertise which almost certainly won’t be part of an oil and gas business’s core competencies and so might well be better brought in from outside of the company. As a result this is often a collaborative industry where different firms apply their world class skills to often quite narrow parts of the process with the outcome that everything will be done to the highest levels of quality and capability. As APS Engineering 20 says, “Offshore Engineering, Oil-Gas Refinery and Power are multidisciplinary industries and a co-operation

Operators need a thorough understanding of the risks and hazards that their operations face.

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Fortunately, in the

OIL, GAS & CHEMICALS POWER

offshore sector, those risks and hazards are

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pretty well known

between Civil Engineering, Mechanical Engineering and Marine Technology.”

Business Models to Get it Done There are several ways in which this collaborative approach can be achieved. The simplest way is to appoint a contractor to complete each job and for a one-off task such as installing a new wellhead or, in extremis, putting out a fire. That will work fine with the task allocated its place within the production company’s work management plan. For more regular functions, a sub-contractor might be asked to undertake one or more of the functions that are needed by but not part of the core business of the platform – catering for staff, cleaning accommodation and recreation areas, etc. On a larger scale, for whole subprocesses within the exploration, development, production and even decommissioning phases, it might be best to outsource the responsibility to plan and execute to an expert in that field. To close, Engineering Services Outsourcing 21 summarises why engineering services should be outsourced. “For pretty much the same reasons why many other services – such as traditional business processes such as accounting and software development – are outsourced. (1) Cost and (2) Ability to get better quality, through a vendor qualified in and focused on a specific engineering service domain.” www.offshoretechnologyreports.com | 11

SPECIAL REPORT: NEXT GENERATION OFFSHORE ENGINEERING, PROCUREMENT AND CONSTRUCTION SERVICES

Managing the Material and More Peter Dunwell, Correspondent

Managing everything else that makes up an offshore production system

Countries in whose territorial waters oil and gas reserves are found want their good fortune to be translated into a more lasting legacy. This chimes very well with modern views on corporate responsibility and responsible capitalism

n an industry where costs will be measured in hundreds of millions or, given time, billions of dollars, waste can account for a significant amount of money which might well be better applied to more productive purposes. Already, in earlier articles above, writers have alluded to the complexity of an offshore platform at any phase of a field’s working life, let alone the complexity of the whole system taking product from well to user. This means that the inventory of materials, supplies, individual parts, subassemblies and whole assemblies needed to keep the system working is enormous, creating a management challenge all of its own.

A Large Part of the Budget Intergraph22 estimates that, “For a typical new oil or gas facility, 10 to 15 per cent of the total cost is for engineering design and 50 to 60 per cent of the costs are related to material. It is obvious that surplus materials caused by ineffective materials management, even to levels of only five per cent, can result in the loss of millions of dollars on an average capital project. Without continuous management and project performance, it is difficult to take the appropriate corrective action to prevent schedule delays. These delays can often be even more costly when they affect the oil and gas facility owner’s ability to produce and sell the product. Effectively managing these complicated business processes in an integrated environment throughout all phases of the project life cycle is vital.” In a similar vein, TKDN Online in its April 2011 article ‘The Challenges of Supply Chain Management Function in Upstream Oil and Gas Activities’23 set out that, “The activities of procuring goods and services, known by the term Supply Chain Management (SCM), constitutes one of the end most points in the process of expenditure in various business activities. Approximately two thirds of operational cost in upstream oil and gas business activities is expended through SCM Function.”

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Scope for Significant Savings The secret to minimising the costs of surplus materials is procurement and supply chain management. It might be summed up as getting the required goods and services at the right price to where they are needed, when they are needed but not much sooner. Clearly, in a situation where the installation is located up to a couple of hundred miles from shore, pure ‘just-in-time’ delivery management might not be appropriate. However, a well-managed system will avoid surpluses, the cost of them, the risk that they’ll become out of date and the expense of warehousing them. The TKDN Online article above, continues to estimate that, “If the synergy of SCM Function among contractors could book just three per cent of Cost Recovery or of the annual realization of investment of the oil and gas sector, an economizing value of over US$300 million per year could be gained.”

Ethics and Responsibility And there are other risks such as those associated with corrupt practices that might be present in a local market and which it takes particular experience and skills to avoid. In its 2012 Corporate Citizenship Report, ExxonMobil highlights the importance of the procurement process24. “We apply a standardized procurement approach that allows our operations to share the same rigorous standards, accountability and good practices worldwide. Our procurement staff is trained to conduct supplier prequalification assessments (which include anti-corruption due diligence where appropriate), perform restricted parties screening and incorporate standard legal terms and conditions into contracts. After prequalification, our procurement professionals communicate project expectations or operational requirements that a potential or existing supplier must meet.” Procurement and supply chain are closely tied in to a business’s corporate responsibility profile and, given the size and operational areas of oil

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and gas operations, that profile will usually be somewhere in the public’s sight.

Creating a Positive Legacy What is also true is that, to an increasing degree, the countries in whose territorial waters oil and gas reserves are found want their good fortune to be translated into a more lasting legacy. This chimes very well with modern views on corporate responsibility and responsible capitalism. And there are some specific, often UN driven, priorities which businesses ought to acknowledge and on which they’ll need to deliver. The USA, for instance, likes US companies to source, wherever possible and subject to safety considerations, from ‘small, small disadvantaged and women-owned small businesses…’ among others. But also, any responsible procurement process will have to operate a structured procurement process for selecting and managing suppliers. ExxonMobil, again, “has in place a disciplined qualification process for suppliers. Once the business line has determined the operational requirements, procurement clearly communicates those requirements to potential suppliers through the proposed contract language. This process is used whether ExxonMobil is procuring a pump for

a refinery, janitorial services at an office building or hiring a fabricator to build an offshore structure. Potential suppliers and their capabilities are then assessed based on operational criticality and level of risk associated with the material or service required.” Not only ExxonMobil but also Chevron operates a clear and ethically supportable procurement and supply chain programme. Maria Lindenberg, Chief Procurement Officer, confirms25, “As part of Chevron’s Procurement / Supply Chain Management function, our Supplier Diversity / Small Business Program is dedicated to the success of minority – and women-owned businesses and to helping address small business concerns – whether by supporting educational programs or helping suppliers find opportunities to do business with Chevron... we support initiatives for locally based suppliers in international locations where Chevron does business… Chevron seeks to develop and maintain partnerships with suppliers who have a strong safety culture, reliable operations, quality goods and services, competitive pricing, strong cost-management skills, innovative business solutions, and a strong customer focus. Procurement and supply chain are much more important than simply buying. www.offshoretechnologyreports.com | 13

SPECIAL REPORT: NEXT GENERATION OFFSHORE ENGINEERING, PROCUREMENT AND CONSTRUCTION SERVICES

References: 1

eHow http://www.ehow.com/about_4597210_offshore-oil-rigs.html

Offshore Technology http://www.offshore-technology.com/features/feature81879/

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Plant Engineering

http://www.plantengineering.com/single-article/challenges-of-offshore-oil-and-gas-production/15fa92acc29c4fe160821e99f427f026.html

Jason Waldie at the ‘Subsea Asia Conference’, Kuala Lumpur. http://www.subseauk.com/documents/subsea%20asia%20-%20jason%20waldie.pdf

Subsea Oil & Gas Directory http://www.subsea.org/subsea.html

Ahmad Shukrima ‘Offshore Oil and Gas Development Projects’

www.efka.utm.my/thesis/images/4MASTER/2005/2JSB-P/Part1/AHMADSHUKRIMA011094D03TT2.doc Department of Energy & Climate Change, ‘Oil and gas: decommissioning of offshore installations and pipelines’:

https://www.gov.uk/oil-and-gas-decommissioning-of-offshore-installations-and-pipelines 9

Plant Engineering

http://www.plantengineering.com/single-article/challenges-of-offshore-oil-and-gas-production/15fa92acc29c4fe160821e99f427f026.html

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The Journal of Petroleum Technology

http://www.mydigitalpublication.com/article/Offshore+Oil+and+Gas+Installation%E2%80%94Aging+and+Life+Extension/951953/0/article.html 12

Subsea Well Intervention Market Report to 2017 http://www.infield.com/market-forecast-reports/subsea-well-intervention-market-report

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Flowtech Energy http://www.flowtechenergy.com/Oilfield-Services/offshore-oil-field-drilling-rigs/

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APS Engineering, ‘Solutions for the Offshore, Oil & Gas and Power industry‘ http://www.apsengineering.eu/

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Intergraph http://www.intergraph.com/oilgas/default.aspx

TKDN Online http://tkdnonline.blogspot.co.uk/2011/04/challenges-of-supply-chain-management.html

ExxonMobil 2012 Corporate Responsibility Report http://www.exxonmobil.com/Corporate/Files/news_pub_ccr2011.pdf

Chevron http://www.chevron.com/productsservices/supplierinformation/supplierdiversity/procurementmessage/

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