NTL 2016-N01 Bonding

Requirements: Industry Impacts

Produced by DecomWorld

FC Business Intelligence
 NTL 2016-N01 Bonding
Requirements: Industry Impacts

NTL towers over all other issues in Gulf of Mexico

Executive Summary

DecomWorld has engaged with operators, contractors and other industry leaders
in the Gulf of Mexico, to gain the latest insight into the major issues facing the
decommissioning industry. BOEMs new financial-assurance requirements have
fundamentally changed the decommissioning landscape and caused owners and
operators to consider major strategic changes with more to come as the compliance
deadline approaches in early 2017. Vessel selection remains an important component
of cost-effective and efficient well P&A, while resin techniques are revolutionizing
downhole safety. Decision-making on when to conduct well interventions continues
to evolve as new techniques enter the market place. On the structures front, reefing
remains a strong environmental and economic choice.

Introduction

Beyond the usual talk of vessel selection and methods of removing subsea
infrastructure, one issue looms tall over the Gulf of Mexico as a new year approaches:
NTL 2016-N01.

The Bureau of Ocean Energy Managements (BOEM) notice to lessees and operators on
requiring additional security was released July 14 and made effective September 12.
The new regulations have been frequently cited by some of the GoMs leading players
in recent discussions with DecomWorld.

Gustaf Johansson, Director of Projects at Montco Oilfield Contractors, summed up the

significance of the new requirements, commenting, The NTL has forced every single
operator, as of July 14th 2016, to redefine their Gulf of Mexico strategy.

Jerry Gilmore, President of TSB Offshore, warned of consequences for larger operators
if some of their smaller counterparts in the GoM file for bankruptcy. In past cases of
bankruptcy, he noted, the regulator has typically pushed the decommissioning liability
back to the previous owner and as far back as the original owner if necessary.
GOM 2017 Johansson similarly predicted that if five or six major independents with large holdings
14-16 March 2017, Houston in the basin file for bankruptcy, it would create a shockwave.
Optimize Your Financial and Technical
Decommissioning Strategy The notice to lessees reversed the policy of the past eight years, whereby if BOEM
determined that one or more co-lessees or co-owners had sufficient financial
600+ Attendees 50+ Speakers strength and reliability, it was not necessary to provide additional security. Now,
when determining the amount of additional security that may be required, BOEM will
35+ Exhibitors 3 New Tracks consider 100% of an operators decommissioning and other liability for every lease,
right-of-way (ROW), and right-of-use (RUE) in which the operator holds an ownership
Click here for the brochure
interest or for which it provides a guarantee.
 NTL 2016-N01 Bonding
Requirements: Industry Impacts

BOEM may also determine that an operator has the ability to self-insure part or all
of the additional security obligations for a lease. In order to meet all or a portion of
the additional security required for any one lease, an operator may be able to make
arrangements to rely upon financially strong co-lessees or co-owners who agree to
allocate BOEM-determined self-insurance to the lease.

In the past, an operator would be granted a waiver by demonstrating to BOEM that

it was financially stable or that it had sufficient assets, a senior decommissioning
engineer for an independent GoM operator confirmed. Now, he said, every company
is negotiating with the government and trying to establish how the bonding rules
will work and none want to be left with cash tied up in a binding account where it
cannot be accessed. For some independents, the amount being asked by BOEM is too
much for them to bear without having to tap into alternative markets, the source said.

Stone Energy, which announced recently that it will file for Chapter 11 bankruptcy
protection, revealed a few months ago that its supplemental bonding needs could be
as high as $565 million under the new requirements. Prior to the updated NTL, Stone
had posted an aggregate of about $230 million in surety bonds, third-party bonds, and
letters of credit all relating to offshore abandonment obligations.

The first thing operators will look to do as part of their post-NTL strategy is to restate
the costs and liabilities on their books in order to get relief, according to Christopher
Mancini, Senior Project Manager at Oceaneering International. The same wells are
still on their books as before, but what the operators can do is re-evaluate the cost of
conducting a well abandonment now as compared to when they first had it valuated.
With rig prices unusually low, this allows operators to substantially reprice their
decommissioning liability, he explained.

Decommissioning costs on deepwater wells are probably half what they were a
couple of years ago, the senior decommissioning engineer said. If the regulator were
to ask for a $20 million bond, an operator could respond by pointing out that it will
only cost them $10 million to plug that well, he said. These kinds of conversations
are ongoing, and thats a good reason for accelerating this [decommissioning and
abandonment] work: you can prove the lower costs youre proposing.
GOM 2017 Vessel selection and well-access technology take on added
14-16 March 2017, Houston importance
Optimize Your Financial and Technical
Decommissioning Strategy The debate over how to reduce decommissioning costs is only likely to intensify now
that operators must address these new regulations bringing vessel selection and
600+ Attendees 50+ Speakers well-access technologies further into the spotlight.

35+ Exhibitors 3 New Tracks Costs come down to equipment choice and methodology, commented a senior
advisor for offshore structures for one of the global majors. An operator can only
Click here for the brochure
evaluate the performance of different methodologies and equipment if they have
used them before or seen them in action on a project, he said.
 NTL 2016-N01 Bonding
Requirements: Industry Impacts

Endeavor Management recently led a joint industry project (JIP) on the cost and
effectiveness of various technologies used in plugging and abandonment (P&A). Eleven
companies participated in this phase of the JIP: ExxonMobil, Shell, Total, Freeport-
McMoRan, Marubeni, Stone Energy, Aker Solutions-Baker Hughes Alliance, GE Oil & Gas,
Halliburton, Oceaneering, and EnVen Energy Ventures. Only the participants can access
the full results, but Crager shared some of the main findings with DecomWorld.

On vessel selection, the JIP compared the use of three different vessel types in subsea
intervention and P&A: a light-well intervention (LWI) vessel with no riser, which Crager
estimates can complete 60-70% of all tasks; a vessel with a small-bore intervention
riser, which can complete around 70-90% of tasks, and a mobile offshore drilling unit
(MODU) with full subsea riser system, which can complete all tasks but is generally
more expensive.

The study found that MODU rates have fallen to $200,000-250,000 per day from
$500,000/d, making it almost as affordable as the other, typically cheaper, options.
With all their capabilities, youd probably take the MODU option in the current market,
Crager said. But we expect rig rates to go back up again and then there will be
substantial advantages in using less expensive vessels.

Mancini similarly expects rig rates will rise, and he says this will cause operators to start
using multi-service and LWI vessels for the lions share of the work. They will become
more comfortable with LWIs and with open-water or high-pressure monobore risers
for conducting P&A and complex well interventions, he said, predicting that this
transition will take place maybe two to three years from now its inevitable.

Rig-based and rigless methods are neck and neck right now, according to the senior
decommissioning engineer. There are advantages to both, with the intervention
vessels being fit for purpose, and the drilling rigs having the ability to run a full riser
and blowout-preventer stack if aggressive methods are needed to access the well.

Even if one chooses to use a drilling rig, he said, the intervention-riser systems offer an
advantage: Even the people using the full drilling rigs for the decommissioning are
going to at least be investigating very strongly the possibility of using a hybrid setup
GOM 2017 and bringing out third-party intervention equipment, instead of just going in with the
full drilling package.
14-16 March 2017, Houston

Optimize Your Financial and Technical The view downhole

Decommissioning Strategy
In the debate over whether to use resins instead of cement to plug wells, the JIP
600+ Attendees 50+ Speakers was emphatic. The industry has traditionally rejected resins because they are more
expensive, but the Endeavor-led study concluded that their superior performance
35+ Exhibitors 3 New Tracks makes the extra cost worthwhile.

Click here for the brochure

Resins are 25 or 30 times more expensive but they have ecological, technical and cost
advantages if used in the right way, Crager said. They set faster than cement, which
 NTL 2016-N01 Bonding
Requirements: Industry Impacts

could save 10 hours of rig time a valuable commodity. They are also more likely to
seal for long periods. If youre going to leave a well for an eternity and never want to
have a problem again, its better to have something going in as a liquid that sets up as
a hard plug rather than cement, which is more likely to get cracks over time that will
lead to leaking.

When the unique properties of resins are fully exploited, there are several means
of saving money while still increasing sealing performance, the JIP found. But this
comes with a caveat: these advantages must be designed into the well or into the
decommissioning program; if done correctly, lifetime seal performance can be cost-
effectively increased.

Larry Johnson, Principle Engineer Global Decommissioning at BHP Billiton,

commented that when planning P&A, operators need to assess and attribute
individual wells and divide them into technical risk types. This means that when wells
are entered, crews not only know how they were individually as-built, but also what
theyve likely evolved into as-is over their life.

One can potentially attack problematic wells, such as those with sand-control failures
or asphaltenes, by paying up for P&A vessels with more capability, rather than
gambling that one size will fit all just because its the cheaper tool for a majority of
a fields P&A campaign, Johnson said.Thats where they may be opportunities for
operators to pool their wells to match up well types with vessel types.

Another major question in regard to downhole activity is when and how to conduct
interventions. Discussions can become very intense when operators are deciding if an
intervention is worthwhile, noted the decommissioning engineer. Questions that go
around the table will include: Is there a recomplete we can do? Is there a re-acidization
we can do? Is there another zone in which we can complete? In the case of this
particular operator, some interventions are done, but very selectively, depending on
the economics.

A senior production supervisor for another of the independents operating in the GoM
noted that his company was doing everything it can to maximize the production
GOM 2017 and capacity at the facilities it already has in operation rather than developing new
facilities or investing in greenfield projects. He said the operator continues to support
14-16 March 2017, Houston riserless and rig-based acid stimulations as a way of extending the life of wells and
Optimize Your Financial and Technical improving the drainage of reservoirs without having to spend a lot of money.
Decommissioning Strategy
Reefing remains high on agenda
600+ Attendees 50+ Speakers
As has been the case for a number of years, the conversation over how to deal with
35+ Exhibitors 3 New Tracks subsea infrastructure remains a hot one in the GoM. Reefing is a known quantity in
the region; the talk now, according to Crager, is of reducing the clearance required
Click here for the brochure
between the top of the structure and the sea surface from 80ft down to 60ft, in order
to give marine life something more to throng around.
 NTL 2016-N01 Bonding
Requirements: Industry Impacts

BHPs Johnson has been a vocal proponent of net environmental benefit analysis, or
NEBA, a tool introduced to decommissioning to find the break point best option by
quantifying and comparing risks, benefits and trade-offs between alternatives.

Hulls of floating production hosts, and jackets have accepted high value to marine
life to reef, and then the subsea infrastructure the lines, pipelines, manifolds,
umbilicals we prefer to disconnect each end and lay them down on the seabed, he
said. Fortunately, recent case studies using comparative assessment tools like NEBA
indicate that this approach can be quantified as holistically least harm not pre-
supposed, but the outcome of a sound, science-

based, site-specific, comparison between alternatives, considering multiple stakeholders.

Amber Jackson and Emily Callahan, co-founders of Blue Latitudes, are focusing on
educating industry stakeholders in California on the benefits of reefing platforms in the
same way as is now common practice in the GoM.

Most of the issues arise from a lack of understanding about the ecological and
economic value of reefing and from the significant legislative hurdles that come into
play and streamlining that legislative process, they said.

Asked to list the three main points they would want to impress on operators on the
topic of reefing, Jackson and Callahan provided the following:

Leaving these platforms in place can create and maintain a habitat thats been
growing there since the platform was put in place, and theres a huge ecological
benefit to that;
There is an economic benefit, not only for the oil company, but for the state, and
the local population as well through benefits to fishing or diving. The money
coming back to oil companies and to the state is only a good thing, they said.
Lastly, they stressed the importance of thinking about decommissioning as an
incredibly taxing process on the environment.

They explained that the second subsea infrastructure is removed, it is typically put on a
GOM 2017 barge and sent over to the third world to be dismantled in a break yard.

14-16 March 2017, Houston Theres a huge carbon footprint associated with that, and taking apart these structures
Optimize Your Financial and Technical is a goliath task. So by leaving them in place youre repurposing a structure, youre
Decommissioning Strategy giving something new life, its a creative way to think about ocean management and
sets a precedent and good example for other areas of the industry that are affecting
600+ Attendees 50+ Speakers our ocean we have a chance to repurpose this structure for the betterment of the
environment, oil companies and the state. Its a win-win-win.
35+ Exhibitors 3 New Tracks

Click here for the brochure

 NTL 2016-N01 Bonding
Requirements: Industry Impacts

Looking ahead

Clearly there are a great many challenges facing the decommissioning industry in the
Gulf of Mexico, and when faced with such issues, cooperation and collaboration are
more important than ever. This is why we are bringing together 600+ of the worlds
leading decommissioning professionals for DecomWorld GOM 2017 (March 14-15,
Houston TX). This global event, the largest of its kind, provides an unmissable forum
for operators, service companies, consultants and others to learn about and discuss
the key issues of the day, and help drive the decommissioning industry through these
challenging times.

Visit the website and download the brochure to learn more

http://1.decomworld.com/LP=10775

GOM 2017
14-16 March 2017, Houston

Optimize Your Financial and Technical

Decommissioning Strategy

600+ Attendees 50+ Speakers

35+ Exhibitors 3 New Tracks

Click here for the brochure

DecomWorld GOM 2017
March 14-16, 2017 | Omni Houston Hotel, Texas
Optimise Your Financial and Technical Decommissioning Strategy

Leading speakers include:

Joseph Witt John Hand Win Thornton Ernest Hui Larry Johnson
P&A Technology Lead Technology Program VP Decommissioning Global Decommissioning &
Manager Decommissioning Abandonment Lead
Business Improvement
Lead
ExxonMobil ConocoPhillips BP Shell BHP Billiton

Brand New Dedicated 600+ Top Level Exclusive

Keynote Plenary NTL 2016-N01 Attendees Networking
Sessions Dinner
60+ Expert Senior First Ever Asset New Wells/ 2 Networking
Level Speakers Management Structures Drinks Parties
Afternoon Discipline Tracks

Pre-order the full 3-day program right here

A Brand New Format To Help You Address All The Most Pressing
Decommissioning and Late Life Challenges
KEYNOTE SESSION: NTL 2016-N01 updates and impacts from senior level regulatory,
operating and service perspectives
ASSET MANAGEMENT TRACK: Everything you need to know about finance,
compliance and strategic late-life decision making in the GOM
WELLS TRACK: The latest case studies and innovations in well P&A, intervention and
much more
STRUCTURES TRACK: The place to be for vessels, removals and decontamination
expertise

Be the first to get the full speaker line up and agenda right here