Acts of piracy have taken place on production platforms since the early years of the offshore industry.

The new pirates

Acts of piracy have taken place on production platforms since the early years of the offshore industry. Years ago, virtually all facilities had boarding ladders or low landings, permitting access for crew boats. Today, few structures have such access, but a determined boarder can still climb to the deck level. Other than a little currency and some small equipment items, however, there is little to offer pirates.

More brazen boarders have taken hostages among offshore workers, to ransom for money or as a political act. This hasn't caught on much because kidnappers have such a limited means of escape.

Lately, governments and oil and gas producers fear another offshore act - sabotage. And, the offshore industry is vulnerable. Saboteurs usually don't have to worry about escape, and offshore workers intent on fighting a fire or controlling damage often can't report the incident right away. Also, saboteurs may not have to approach a platform to produce a catastrophic event.

Weapons usually are not kept aboard offshore platforms, other than in hostile regions, and there aren't enough workers aboard to post an armed watch or repel a heavily armed boarding party. Offshore facilities attract fishing vessels, making it sometimes difficult for crews to determine friend or foe on approach. During night hours, all bets are off.

Small arms fire from a nearby vessel would do little damage offshore, but larger caliber weapons could produce a fire or explosion. Gas injection and production treatment and separation facilities aren't that well protected and are sometimes located outboard where releases can be vented without endangering the facility. A knowledge of facility design could prove useful to saboteurs, so companies would be wise to protect designs and plans.

An explosive charge attached to several leg supports could bring down an offshore structure, but there is structural redundancy among the legs, so the charges would have to be knowledgeably positioned. A production platform's vulnerability rests largely with access to production and sales risers, usually well protected inside platform jackets. Penetration of the risers could trigger a highly destructive event. Again, a knowledge of platform jacket members or plans would be vital to saboteurs.

While the sabotage threat has triggered some planning, the fact that few such events have occurred has left producers largely unprepared for a first-time incident. Still, producers are insured; governments and markets are not. Governments should recognize the vulnerability of valuable offshore assets.

All contrarians now

Not that long ago, oil and gas producers had little choice but to respond radically to product price downturns. Ponderously long investment, drilling, and development cycles prevented producers from canceling or curtailing projects, or from shifting investment to take advantage of cost shifts. The only strategy back then was to plead that "we're in it for the long haul."

Today, oil and gas producers have a windfall - healthy prices for a while - and they're trying to use it to weather steep price cycles - should they return - and bring some calm to their business plans. As a result, some producers are embarking on contrarian strategies. When everyone else is shrinking E&P - expand. When prices are weak - explore. When everyone else is selling assets - buy. When everyone is unloading personnel - start hiring.

There is something to be said for that strategy, but it obviously wouldn't work if every producer decided to be a contrarian. The primary advantage to being a contrarian is obtaining drilling rigs, survey vessels, mud and pipe contracts, and hundreds of services for one-half of peak prices. Drilling costs often take up two-thirds of total development outlays, so the savings can be substantial. The strategy works spectacularly when oil and gas prices rise just as the field is ready to begin producing.

The shrinkage in E&P cycles - from seismic surveying through field development - is helping many producers create an organization that anticipates and responds smoothly to business and price cycles. This allows the maximization of reserve values, without having to ramp up investment in high-cost conditions, or ditch employees that will be needed later. It doesn't necessarily mean becoming a contrarian, but it does require ramping up risk and eliminating some conservative responses (how about near-contrarian). It may be what the future is all about.

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