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Sunday، 19 August 2018 | Article Rating

During the toughest downturn in oil prices for decades, some energy projects had to find inventive ways to survive. One was Appomattox, a major deep-water development in the Gulf of Mexico. Those involved believe it sets a new standard for the development of major Shell projects in the future. Thomas Francis reports.

In late 2014, as the price of oil tumbled, seasoned engineers drafting plans to build a new deep-water oil and gas project in the US Gulf of Mexico told their younger, more anxious colleagues not to sweat it. 

This is a cyclical industry, they said. And the cycle will swing back, like it always does. 

The future of the Shell project, Appomattox, seemed to depend on it. The biggest offshore project for Shell in the Gulf of Mexico, and one of the region's deepest, Appomattox would be designed to produce 175,000 barrels of oil and gas equivalent a day, drilling in waters 2,200 metres deep (7,400 feet). But it was initially shaping up to be costly.

By industry standards, this was the kind of project that is vital to energy supplies needed to drive the global economy for decades to come.

"Our models project a massive supply gap around 2025, where demand will outpace supply," says William Turner, a senior analyst at Wood Mackenzie, the research and consultancy firm. "And onshore production just doesn't produce the volumes they do offshore."

But the lower the price of oil, the harder it would be to make Appomattox profitable. 

As the oil price continued to fall through 2015, it became clear this was much more than a short-lived downturn.

Industry experts, from analysts to oil company executives to media commentators, began to talk of "the new normal". The grim economic conditions posed a threat not only to Appomattox, but to a Gulf Coast economy heavily reliant on the oil and gas industry. 

The Appomattox team had to prove that in the era of low-price oil there was still a place for major projects - and that it was possible to cut costs without compromising safety.

The downturn

The economic outlook would only get worse. In January 2016, the price of oil fell below $30. This was less than one-third what it was when Appomattox was conceived. Across the offshore industry, investment plans were being scrapped.

And across the Gulf Coast, those who worked on offshore oil production feared for their livelihoods, with good reason. Some 350,000 oil and gas workers were laid off worldwide in the two years following the collapse of the oil price, with job losses near 100,000 in Texas alone.

In neighbouring Louisiana, the number of energy workers sank to its lowest in 25 years. The historic downturn caused layoffs from Canada to Brazil, from the North Sea to Malaysia.

Focusing minds

The old certainties had fallen away and the Appomattox team knew they had a fight for survival on their hands. 

"The one psychological upside is that it becomes absolutely clear to people at all levels and across the supply chain that we have to win this cost-reduction fight if we're going to stay in business," recalls Appomattox Project Manager Marno de Jong.

Project team members at all levels were strongly encouraged to look critically at costs that had previously been unchallenged.

Wells engineering manager Adrian Chesters remembers brainstorming workshops with up to 100 workers, estimating that together they must have had 1,500 years' experience in deep-water operations. 

Their brief: to be sceptical of what they knew, to open their minds to new efficiencies and to risk proposing bold, unconventional ideas, while at no time cutting corners on safety.

"Every time someone would have an idea for what we could do to cut costs, we would look at the potential risks," says Chesters. "And if there were safety risks that could not be mitigated, that idea did not go anywhere. Safety was our number one priority." 

As to cutting costs, there was no single "Eureka!" moment, no silver bullet. The Appomattox team went after all costs irrespective of size - chasing hundreds of ideas for saving money that together might add up to billions of dollars.

Finding new methods

Drilling wells, for example, represents one of the steepest costs in a deep-water project - and Appomattox was to have 20 wells. But the wells team managed to halve the typical cost of drilling wells, realising huge savings.

One key technique they adopted was what is known as batch drilling - several wells drilled at once, in assembly line fashion. The rig drills just through the surface at several locations, then returns to drill the middle section of each well, and so on.

This is speedier than the traditional process of building up one well completely, then moving to the next. This approach made it possible to reduce time spent drilling, significantly cutting expense.

At virtually every step in the complex wells process, workers scrutinised the number of minutes and dollars spent on tasks until they had devised the most efficient system possible. 

 "We celebrated and recognised those people when they delivered," says Chesters. "It's surprising how that lights a fire within the team, an enthusiasm for chasing more ideas that will lower costs."

Another technique involved so-called mattresses. Where new pipelines cross existing pipelines, these concrete mattresses are used to separate and protect the two pipelines.

Although traditionally thought of as standard designs, the Appomattox team found new ways to make them stronger and more effective, reducing by hundreds the number of mattresses needed.  

In addition to saving the project nearly $50 million, it meant fewer crane lifts, making the project safer.

"What we found was that many of the efforts to reduce cost also reduced our safety exposure offshore, decreasing the potential for people to get injured," says Mike Dupre, principal engineer for pipelines. 

While the project team's focus was to reduce initial capital costs, another priority was to minimise costs over the life cycle of Appomattox. They also found a way to reduce the environmental impact of powering operations offshore. 

Onshore plants and refineries commonly use an ultra-efficient technology called combined cycle power generation, where the heat from a gas turbine exhaust is used to power a steam turbine-driven electric generator.

The Appomattox team will be the first to apply this approach in the Gulf of Mexico, allowing the project to remain well below regulatory nitrogen oxide emission levels while reducing fuel use, one of the biggest operating expenses, by up to 40%. 

It was not all about innovation and processes. People under great pressure to deliver needed encouragement. It was important, for example, to find ways to support contract workers facing uncertain employment prospects.

As the project developed, the offshore industry continued to face a dearth of investment, and things remained gloomy.

Large projects such as Appomattox provide essential jobs for communities on the Gulf Coast. If Appomattox had not gone forward, says Dupre, "some companies might have gone under."

"So then the question is, how do you keep guys motivated to work quickly when they're going to be out of a job at the end," says Mark Kite, Shell construction manager for Appomattox.

Contractors and the Shell team worked closely together to reduce costs and maintain efficiency, while preserving strong levels of professionalism and motivation.

Sailing ahead

For all the strides Appomattox workers have made so far, they know there is still much to do before the project launches. Appomattox is being transported to its location in the Gulf of Mexico. Production is expected to start before the end of 2019. 

The passage of each milestone brings the team closer to its goal: safely delivering a major energy project in a timely fashion, while saving billions of dollars in costs. 

Appomattox is one of several new deep-water investments Shell has on track in the Gulf of Mexico. Conceived at a time when oil was around $100 a barrel, it is planned today to be profitable at considerably less than that. It will cost 30% less than originally expected when sanctioned. 

Marno de Jong believes it sets a new standard. "We are confident that the successful way we've been able to run the development of this project will become a model for how Shell will run major projects in the future," he says. 

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