Pro and con of adding production to drillships

How useful is production functionality

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Efficiency has long been the primary focus of the offshore industry. From the service side all the way to the operator, the upstream industry has been in a continuous push for new ways of improving operating techniques and exploit oil at the cheapest possible cost. One such avenue used to increase efficiency is to increase flexibility in terms of equipment. Equipment that can provide multiple services, while in the short term adding significantly to costs, could lower costs by increasing efficiency over the long term.

One such technique that has fast gained popularity in the past few years has been the idea of adding crude oil storage and production capabilities to the fleet of newbuild drillships. Currently, twelve of the fourteen newbuild deepwater drillships are being or have been built with crude oil storage capability. This addition has further extended the capabilities of these new multi-million dollar vessels and has the potential of pushing the vessels into a new operating realm.

During the last building cycle, drilling rig contractors were looking for ways to offer the operator the most equipment for their money when they began bidding their rigs. This resulted in new drilling techniques such as the dual handling and dual derrick. Another aspect arising out of this cycle was the addition of crude oil storage capabilities, to make the vessel easily convertible for production activities. In doing so, contractors added crude oil storage tanks to hold 80,000-150,000 bbl to the vessel designs. Even so, the vessels are not being outfitted for actual production. The rigs have the spaces built in for crude oil storage, but the equipment to handle the production has not been outfitted.

This, along with new drilling techniques and state-of-the-art equipment on these new rigs, offered the operator almost the complete scenario for deepwater operations. In essence, the rig could drill and test in water depths up to 10,000 ft efficiently, in addition to actually producing, storing, and moving the oil to market.

Design theory

To add storage and production capability to a drilling vessel, major design factors have to be considered. The main factor is the size of the vessel. The crude oil will be stored in the hull, and as a result the design had to be adapted.

The first alteration was the addition of a double hull. A double hull, while not required for a drillship, is required for tankers in trade due to the OPA 90 legislation upheld by the Coast Guard in US waters and the International Maritime Organization in international waters. As a result, in attempting to comply with future regulations if the vessels do begin storing crude, most are being fabricated with double hulls, or being converted from tankers where double hulls existed or have been added.

In addition to the double hull, the overall size of the vessel has to be increased for the addition of production equipment. The reason is that equipment such as the tanks will be stored inside the hull and regulations require that all crude oil piping be installed above the deck. This results in the movement of equipment normally stored in the hull of a drillship to the topsides, resulting in a necessary increase in the deck space.

This also requires the implementation of safety features such as safe cabling, adding manways, slop tanks, transfer equipment, and other additions. In effect, vessel safety is boosted to accommodate the increase in hazardous conditions.

These factors result in a much larger vessel, but the addition requires additional generating capacity, thruster capacity, and other items related to vessel size. In turn, construction costs increase, which some users feel cannot be justified.

Cost impacts

There are differing opinions on the costs of adding crude oil storage and production capabilities to drillships. The costs are definitely higher than a conventional drillship, due to the increased steel and equipment.

One example to illustrate this difference is in two of Gusto Engineering's drillship designs. The Gusto 10000 was used as the design for the Pride Africa and Pride Angola drillships, and does not feature crude oil storage. The Gusto P10000 design, almost identical to the 10000, has storage capabilities. The Glomar C.R. Luigs and Glomar Jack Ryan vessels are very similar to the latter.

Bob Rietveldt, Marketing Manager of Exploration Vessels for Gusto said the P10000 design is closer to the Discoverer Enterprise and the Deepwater Pathfinder because of the capability for crude oil storage. "This just makes the vessel longer and bigger and lifts everything to the topsides on a modular basis. You basically end up with a virtually empty hull."

"Compared to the drilling-only 10000 design, the enhanced capability design costs about $100 million more. The increase is driven by an enormous increase in vessel size, in generating and thruster capacity, and also in steel costs. When you examine it from an economic viewpoint, the enhancement is not easy to justify when it is not being used."

Luxury or need?

The drilling units being built today for the addition of production do not have production equipment aboard. When drilling contractors were receiving bids for the new drilling units, the idea of having crude oil storage was a key selling point. But when construction began and the market turned around, the storage option became less important. It became a luxury for operators and the installation of production equipment was never carried out.

Rietveldt explained: "Crude oil storage capability was what drilling contractors were asking for in those days. Most of the oil companies would say today they don't need crude oil storage. Many ships are being outfitted empty with void spaces instead of cargo tanks, piping, and processing."

With the crude oil prices on the rise again, the demand for this luxury good could return and the contractors with enhanced drilling vessels will be ready. The vessels would need only minor upgrading and the addition of production handling equipment. These costs should be minor.

Chuck Steube, Director of Production Operations for Conoco Shipping said, "If you have storage built into a vessel, it is not that complicated an issue. All you need to do is rent a processing facility and place it on the deck. The oil storage is ready. It is basically just the day rate cost of the facilities, plus transportation, to get them out there."

Mark Dreith, Global Marine's Senior Manager of Marine Projects and the Project Manager for Hull 456, said, "The 456 was designed originally with production facilities for extended well testing (EWT) in mind. We have the capability of adding this production facility. The upgrade cost would be about $10 million. Certain items have to be added and we can do most of the upgrading offshore. For final hull penetrations and tie-ins, we would have to stop operating for about 30 days."

Usage time

The amount of time the production and storage capabilities would be used is also a major cost justification issue. Without the storage tanks, the vessel is basically outfitted with an empty hull, which means a lot of wasted space. Olivier de Bonnafos in Pride International's Department of Offshore Engineering said, "Oil storage is a high cost. With production capacity, oil will be on board 2% of the time; 98% of the time, that storage is wasted space."

Dreith adds, "It sounded like everybody wanted crude oil storage when we started designing this drillship. Is it worth $10 million to have that capability? How much is it going to be used? If for your financial model you assume a 30-year life for such a vessel, and you only use the additional capability for a net 30 days, can you justify it?"

Location

Another key factor in the debate over adding crude oil storage and production to drillships is the location in which the vessel will primarily operate. While one of the key advantages of a drillship is the ability to move from location to location, the rig will primarily be used in one theater. One theater - the Gulf of Mexico - has not accepted the principle of storing crude on a ship-shape vessel.

It is conceivable that these vessels could be used to obtain approval of placement of floating production, storage, and offloading (FPSO) vessels in the Gulf of Mexico. The production capabilities and the mobility of both FPSOs and drillships with production capability are closely comparable. However, this event is considered unlikely, but it brings up the major misconception that many have in dealing with production on drilling vessels.

Maximum EWT

Crude oil production capabilities on drilling vessels are not designed to mimic the capabilities of an FPSO. The main purpose of the crude oil storage and production capabilities is for EWT. To help reduce the overall well and development costs, especially in the deepwater where costs are high, EWT offers time to gather production and pressure data and help define reservoir parameters.

Steube explained: "Development costs are so extensive that, once you drill your well, you would like to have a better feel for the flow characteristics of that well. EWT will drive development decisions for the field. But, it's not like shelf production - you can't over-design your facilities. Over-design in deepwater costs a lot of money. Fit-for-purpose development is critical."

There are key differences between an EWT vessel and an FPSO. Malcolm Sharples, Vice President of Offshore Technology for ABS Americas, described it best: "An FPSO is an EWT extended on a permanent basis."

The EWT is the main driver behind crude oil storage. Due to flaring regulations in the Gulf of Mexico, the oil for the test must be stored. Therefore, storage tanks are necessary.

Dreith said that added production capabilities would be more applicable in the Gulf of Mexico because of flaring regulations. "Production capability onboard depends on what an oil company wants. The vessel is not an FPSO. If you want to produce to a ship long-term, an FPSO is needed. A drillship is intended to be a drilling vessel, but we are looking at an EWT classification. This doesn't fall under the FPSO rules, but incorporates some FPSO capabilities. We have looked at what we would need from a classification point of view to allow us to temporarily store crude oil onboard our drilling vessel. For example, an FPSO cannot trade in crude oil, and it cannot travel into port and offload crude oil. With a drilling vessel, we would conduct EWT to prove the reserves. The vessel would have the ability to store that crude produced during the EWT, instead of trying to flare it. This would bring us under the scope of offshore regulators."

In terms of EWT capability and a comparison with FPSOs, specifically for the Gulf of Mexico, Chris Oynes, Regional Director for the Minerals Management Service (MMS) said the regulatory body is considering moderate storage on drillships. "But, there is a production limit to a drillship," he added, but declined to clarify the volume.

Classification

DNV offers the only EWT classification in the industry. ABS has been getting involved by assisting several companies in making the vessels compliant if they do install the capabilities.

"We are looking at the design of the vessel in terms of its location and cargo to make sure that those systems would be in compliance with what we would expect for an FPSO," explains Ken Richardson, ABS Vice President. "We are not working for a formal certification at this point. It is a description. We have not been asked for it yet."

Bret Montaruli, ABS Chief Engineer, Engineering Services added that the vessel is a mobile offshore drilling unit (MODU) and will remain classed as a MODU. "We are looking at the safety impact of that equipment on the rest of the drillship."

"We are doing some work with R&B Falcon and Global Marine on their newbuilds to help streamline the conversion possibilities in the future," said Todd Grove, ABS Manager of Offshore Engineering.

"In addition to our present scope of classification on these vessels, we are looking at getting them prepared for doing this in the future. What they have asked us to do is review the expected configuration according to our Guide for Building and Classing Floating Production, Storage, and Offloading Systems" and let them know where they do, and do not, comply. It is more of an advisory than a formal notation because the vessel is not presently set up to operate in that manner. Everyone is keeping their options open to provide maximum flexibility."

The future

What does the future hold for these vessels? If needed, the vessels could be converted to full FPSOs and could provide fierce competition by offering an all-in-one solution for an operator's deepwater needs.

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But, Joe Key, Vice President of Engineering Development for TDI-Halter's production division, disagrees. "The industry had similar arguments 30 years ago - do you have a derrick barge, or pipelay barge, or a combination barge? The industry pretty well proved that if there's enough workload in a particular geographic area, it is better to have two units working full time doing what they are best at, instead of having a combination unit where half of the equipment is not working half of the time. I think that is somewhat true of tanker-based FPSOs that have drilling capabilities, or vice versa."

"There has been an increasing request from oil companies to have longer EWT to prove the reservoir before they put in whatever facilities," ABS' Sharples pointed out. "I think FPSOs will be absolutely necessary for the long-term because there will be no other reasonable way to produce these fields, particularly in deepwater areas where the pipeline infrastructure is not there."

In the meantime, drilling-production vessels will operate as normal drillships and have a great deal of unused capacity. But, when the time is right, they will have the ability to convert or upgrade to their full potential. At this time, such a function does not appear to be necessary. These new drillships are built for the future, and when the production capability is implemented, industry will have met another goal of increasing efficiency offshore.

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