LEARNING SERIES: MAJOR PHASES OF UPSTREAM OPERATIONS Production By Farouk Al-Kasim 1 Monitoring the progress of development operations While the licensee is developing the field, the government should be monitoring the operation in order to accomplish the following: • Ensure the licensee’s compliance with legislation and contract commitments • Note any departure from the agreed Field Development Plan (FDP) • Note any surprises from the assumptions made in the FDP and assess remedial actions to restore optimal depletion of reserves • Propose changes to the FDP if new data from operations warrant it, e.g., conduct tests, obtain data, or conduct analyses • Provide permit or consent as required by legislation and legal contracts, e.g., allocation of contracts, drilling of wells, testing, etc. • Provide reviews to higher authorities and the public 1 2 Monitoring production operations • The start of production may require specific approvals from the authorities. • Once production starts, the government requires licensees to monitor reservoir performance and report periodically on the reservoir response in comparison with assumptions from the FDP. • In some countries, e.g., Norway, the licensees are required to reapply every year to renew their permit to produce oil. • If reservoir performance data justify it, the rate or the mode of production may have to change after discussions with the licensee. 2 3 Monitoring production operations • • If reservoir performance confirms the need for changes to the mode of production after a prolonged observation period, the licensees and/or the government may propose a revised FDP if the economics of the field support such a change. The government may ask the licensees to consider improved recovery methods (IOR) should reservoir performance and technological progress be low. • The procedures for a revised FDP are the same as those for the FDP. • A few years before the field ceases to be commercial, the licensees are required to report to the government about what measures they will use to prolong production. This is referred to as a Tail-end Production Plan. • The government and licensee may agree on appropriate measures to prolong production. 3 4 Monitoring the metering of produced hydrocarbons The measurement of produced oil and gas is basic to all stakeholders. The accuracy of measurements as well as the robustness of equipment and procedures used are of great importance. When the license is issued to a group of licensees in a nonconsolidated joint venture, the licensees cross-check each other to ensure accuracy. The authorities should monitor the calibration processes and check the performance meters to ensure accuracy of measurements and the quality of produced petroleum and to correct any errors. The government may ask the licensees to upgrade the instruments used in metering produced petroleum. 4 5 Objectives in the production phase Cost Efficiency I. II. Licensees should provide data on costs. By comparing cost performance among operators, the government may note who is operating efficiently, which can create a competitive environment for cost reduction. III. Publishing data on cost saving should be encouraged. IV. Research on cost efficiency should be supported by all parties. 5 6 Objectives in the production phase Energy Saving and Reducing Gas Emissions I. II. Production installations can be compared to giant factories regarding the demand for energy. It is necessary to make systematic efforts toward energy conservation due to the complexity and variety of installations and operations. III. Typically, energy requirements are covered by the produced oil and gas. The combustion of processed oil and gas fuels leads to the emission of poisonous gasses that have a considerable impact on the environment. IV. Authorities should endeavor to reduce the negative impact from the burning of oil and gas as fuel on production installations. 6 7 Research on reducing risk and uncertainty o Due to the uncertainty of oil prices, oil companies are under increasing pressure to reduce costs. o After several cost reduction campaigns, the potential for further cost reduction needs to be renewed. o Research may prove vital in removing the residual risk elements of the production process, particularly when prolonging production or boosting it. o Research may optimize production operations through the introduction of technological and organizational innovation. o Norway’s experience in carrying out joint industrial research campaigns can offer a positive model. 7 Developing local content in the exploration and 8 development phases In developing local content, the greatest challenge for the government is to ensure quality and time of delivery in the range of services offered to the petroleum sector. The build-up of competencies and capacity in local content is difficult in the exploration phase because exploration work is unpredictable in volume and frequency, particularly if deep water is involved. There is usually little time to build the required competencies and capacity. The scope for developing local content is larger in the development phase, but continuity and technical sophistication are challenges. The development of several discoveries spread over time would offer a superior platform for developing the local content. In the production phase, developing local content is less challenging because it is a lengthier process. 8 Developing local content in the exploration and 9 development phases Both the operators and the local industry will invest time and money to encourage local content, because it offers an excellent opportunity to reduce costs and improve performance. To reap the full benefit of the synergy between the local content and production tasks, the government should take the initiative to facilitate dialogue between local industry and the operator(s). Prior and timely knowledge of the work required during production is vital for mobilizing the local content. The good will of the licensees and the operator is key. It is an advantage when the government takes an active role in planning and implementing a program for local content development. 9 10 Tail-end production 1. An operator is normally motivated to prolong production until income from the output no longer supports the direct costs. 2. A few years before the field ceases to be commercial, the licensees are required to report the measures they intend to take for tail-end production to the government. 3. The tail-end report is intended to provide a basis for dialogue between government and the licensees on how to extend production despite signs of diminishing economic return. 4. The government and the rights holders may seek to agree on appropriate measures to prolong production. 5. Tail-end production may be combined with shares in current or planned production from small and medium-sized fields. 10 11 Prolonged production o Eventually, sustaining production is no longer attractive economically to the licensees. This would leave three courses of action: 1. Some of the licensees may agree to take over production, subject to approval by the host country. 2. Alternatively, the licensees may ask the government for incentives to extend the field’s productivity. 3. New licensees may acquire the assets and continue production. o The companies assuming production are typically “mean and lean,� focused on innovative cost reductions and improved production and recovery. o It is important that the government monitors the physical condition of installations, equipment, and components to ensure they are fit for service despite their age. 11 12 Complex legal arrangement o The original licensees leave the field’s assets to the companies responsible for prolonged production and simply �go to sleep,� being allowed to postpone decommissioning cost. o The government allows the new licensees to operate the field but ensures that the physical condition of installations, equipment, and components is fit for service. o The new licensees can continue production from the field itself or any other structure they may discover or develop. Maintenance of the installation is at their cost. o Once the new licensees cease production, they hand over the field and assets to the old licensees to decommission the field. o The legal arrangement between old and new licensees is complex but it has been accomplished successfully. 12 13 Decommissioning report and plan 1. If efforts to prolong production fail, production may cease and the field must be abandoned. This would call for a Decommissioning Report, which informs the government of the imminent cessation of production and the removal of facilities. Decommissioning may take three or more years. 2. Most jurisdictions require the licensee to include a preliminary Decommissioning Plan in the original FDP. 3. The Decommissioning Plan has to be prepared years before the decommissioning stage. 4. The government grants a cessation of production permit. 5. The wells are securely plugged deep beneath the surface. 13 14 Decommissioning report and plan 1. The operator removes all or parts of the structures. Those components taken ashore are reused, recycled, or disposed. 2. The best current solution is to cut the structures into small, manageable pieces, lift them onto barges, and bring them back to land. This is often a dangerous, lengthy, costly, and weather-sensitive procedure. 3. The industry is currently sponsoring a number of projects to develop new technologies that will reduce the time spent offshore by lifting larger pieces of the structure at once and floating them to land. This process would accelerate the removal process and reduce the time workers remain offshore, thereby reducing their exposure to the risk of injury. 4. It will also be more cost-effective and ensure that parts of the structure can be reused— wholly or in part—for other projects rather than scrapped. 14 15 Decommissioning report and plan 1. Removing a redundant oil and gas production facility from its offshore location is only one part of the decommissioning process. 2. Once the main structure has been removed, associated infrastructure such as pipelines and cables often remain. Debris, such as scaffolding poles, cabling, and lumps of concrete, may have fallen overboard over the years. This residue must be removed or protected and monitored. 3. The aim of post-decommissioning activities is to ensure that nothing left behind adversely affects the marine environment or other maritime activities, such as shipping and fishing. 15 Thank you for your attention! 16