Maximizing platform value, minimizing decommissioning costs

Nov. 1, 1998
Re-use of offshore oil and gas facilities has become a common occurrence in the US Gulf of Mexico. While the Minerals Management Service (MMS), the US regulatory agency, does not keep statistics on re-use, anecdotal evidence indicates that most facilities in water depths less than about 300 ft and less than about 15 years old are considered for re-use as a matter of course, in whole or in part.

Re-use spreading across the globe

R. C. (Bob) Byrd, J. R. (Ron) Twachtman
Twachtman Snyder & Byrd
Re-use of offshore oil and gas facilities has become a common occurrence in the US Gulf of Mexico. While the Minerals Management Service (MMS), the US regulatory agency, does not keep statistics on re-use, anecdotal evidence indicates that most facilities in water depths less than about 300 ft and less than about 15 years old are considered for re-use as a matter of course, in whole or in part.

The reasons for this are twofold. Reuse offers sellers the opportunity to maximize the value of their capital investments and minimize the net cost of field decommissioning. For the buyer, it offers a cost effective means of developing a new field with a faster schedule, in most cases.

From a permitting standpoint, the MMS routinely approves projects which have followed the API recommended practices for re-use. Twachtman Snyder & Byrd has an Internet web platform listing service (PLS) containing 70 facilities for sale and allows prospective buyers to register their requirements. This year, 20 facilities have been sold through this means, all for use in the Gulf of Mexico. However, there has recently been an upsurge in interest in facilities for international applications.

Re-use market

Sale prices for used platforms in the Gulf of Mexico vary widely, depending on the specific conditions. We expect that this will also be the case in the international market. Figure 1 [8,584 bytes] presents three examples of recent sales (cases 1-3) and one currently offered facility (case 4), with sales price (or asking price) compared to estimated new construction cost.

Cases 1 and 2 were topsides only with processing equipment, but requiring significant refurbishment. Case 3 was a jacket only in excellent condition. Case 4 is a complete topsides in excellent condition. The current market is rather soft and this is reflected in the prices.Figure 2 [7,847 bytes] and Figure 3 [6,865 bytes] show the numbers of jackets and decks currently offered on the PLS, by type and water depth, compared with inquires.

Given the situation in the Gulf of Mexico, how likely is it that a worldwide market will develop for offshore facility re-use? There are a number of issues to consider with regard to the development of such a market:

  • Source of facilities for re-use
  • Nature of the new development projects
  • Mind-set of the operators and their contractors
  • Regulatory and environmental concerns
  • Transportation and other logistics considerations
  • Overall cost effectiveness.

Geographic spread

Until now, the major source of facilities for re-use has been the Gulf of Mexico. That is understandable, since that is where the bulk of the worlds' offshore facilities are located and many of the fields are mature and declining. However, the Gulf is now being joined by the southern and central North Sea as a source of decommissioned facilities. The facilities that will be coming out of these areas are generally larger and more complex than those in the Gulf of Mexico.

They will offer some unique challenges to those who wish to sell and those who wish to re-use the facilities. Nevertheless, they will offer a tremendous opportunity to find value for the right combination of existing facility and new development.

In addition to the North Sea, California will soon begin to provide candidates for re-use. As with the North Sea, these facilities are larger than those typical of the Gulf of Mexico. Because of the water depth, it would seem unlikely that California jackets could be used in other areas. However, if the considerable logistical challenges can be overcome, the topsides will provide great value in the right new development scenario.

Matching facilities

Developing an efficient means of matching the existing facilities with the most suitable new development is essential to the development of a worldwide market for re-use. This involves communicating decommissioning plans and facility characteristics to engineers and planners in a timely manner, or alternatively, establishing a means of preserving and "warehousing" facilities onshore or offshore until they can be reused. The PLS is an attempt at solving some of these problems, but more complete communications methods will be needed to support a worldwide market.

Determining which existing facilities will work effectively in a new development is one of the more challenging aspects of re-use. Anyone who has been involved with oil and gas facilities design will appreciate that there is generally more than one way to achieve a particular objective.

Cost effective re-use of facilities requires an open-minded, creative approach to design of the new facility. This is often a challenge for operators who by instinct and habit want things to be done their way. It also requires the cooperation and active support of engineers and designers who must make a concerted effort to make the existing systems work in the new application with the minimum of changes.

It is often much easier to design a new system from scratch than to modify an existing facility. Engineers and designers must have a real commitment to re-use to avoid the "not invented here" syndrome and the natural tendency to make changes. There is an inherent conflict of interests between engineering companies, equipment suppliers, and fabricators on the one hand, and facility re-use on the other. By its very nature, re-use decreases the amount of work for everyone. For this reason, the operator must be very careful in selecting the engineers and contractors to evaluate a re-use prospect.

Other issues

Regulatory and environmental issues will have a direct bearing on the economics of facility re-use. This will be particularly true for facilities coming out of the North Sea, since many of the facilities being decommissioned will not meet the current safety standards for new facilities in that area.

This may make it difficult for re-use to occur within the North Sea. It also brings up the question of how and what standards should be applied in other areas. No one in the industry has any interest in seeing unsafe or environmentally unsound facilities placed into service.

Responsible operators who are selling facilities will want an assurance that they are not setting up future environmental or safety problems. Nevertheless, conditions in other areas of the world are very different from the North Sea and regulatory agencies and operators will need to consider each re-use application on its own merits. Reasonable "fit for purpose" standards should be applied in all cases.

Undoubtly, the single greatest challenge to a worldwide reuse market is our current inability to remove, transport to the new location, and reinstall the larger topsides in a single piece. The same thing can be said for jackets.

There are several development efforts currently underway which may change this situation in the near future; for example:

  • The Offshore Shuttle in Norway
  • The Versatruss system in the US.
While a great deal of work remains before these concepts are proven and available, they hold the promise that we will be able to transport large facilities without having to dismantle them first. This will change the basic economics and open up a wide range of possibilities for re-use on a worldwide scale.

The bottom line issue for re-use is "Does it make economic sense?" This is often a difficult question to answer since there are always uncertainties related to re-use, more so than with new construction. Many of the uncertainties in re-use can be eliminated when facilities are brought to shore and are available for inspection. This has the added advantage of eliminating decommissioning schedule uncertainty, which may be considerable in areas such as the North Sea.

In the end, a re-use project should offer a better and firmer schedule than new construction and a good facility at a discounted price. This, in turn, should make more fields commercial and create more overall business for the industry.


Byrd, R., "Realizing the Inherent Value in Decommissioned Facilities", OTC, No. OTC 8787, Houston, Texas, May 1998.

Twachtman, J., "Offshore-platform decommissioning perceptions change", Oil & Gas Journal, December 8, 1997.


R.C. (Bob) Byrd is a Principal of Twachtman Snyder & Byrd in Houston. He has over 20 years of experience in design, fabrication, and installation of offshore platforms and marine facilities. Byrd was previously with Imodco, Brian Watt Associates, the Norwegian Hydrodynamics Laboratory, and is a former USCG officer. He holds a PhD in Civil Engineering and is a Registered P.E. in Texas.

J. R. (Ron) Twachtman is CEO of Twachtman Snyder & Byrd. Previously, he was with McDermott and Raymond Offshore Constructors. He has worked in planning, mooring, and pipeline installations and decommissionings. Twachtman had a BSME from Louisiana Tech University and is a registered P.E. in Texas.

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