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The price of a barrel of oil or unit of gas is well known, as are the immediate fees paid to independent third parties, but less so the collateral cost of compliance. Add up all the preparatory activities such as tank preparation for entry and then factor in the production interruptions, and the cost can be vast for duty holders. It also might be unnecessary. Alternatively, cost-conscious compliance offers sweeping financial gains.
The cost to produce today’s barrel of North Sea oil can be greater than the price paid for it. Although particularly challenged, the U.K. offshore sector is not alone in facing unprecedented pressure to cut spending. The dramatic fall in oil prices and decline in gas prices has hit the sector hard globally. The consensus is that this trend will continue, while regulatory demands will only heighten. Bold thinking is needed in all quarters, and compliance should be no exception.
In high-risk sectors, challenging compliance often is regarded as controversial and even underhanded. It should be applauded if done right; taking full advantage of every opportunity to optimize efficiencies is a positive step. Lloyd’s Register maintains this as an independent body that has held safety, integrity and high standards as guiding principles for more than 250 years. The argument for cost-conscious compliance does not advocate compromising safety, environmental protection or corporate reputations. It does not dismantle the regulatory framework. Rather, it reconstructs those beams and brackets to build a robustly effective compliance approach for unique offshore assets, be they fixed or floating.
Concentrating on what counts
The supply chain focus on reducing compliance spending is direct but misdirected. Minuscule short-term savings are the result. Take a U.K. North Sea asset, which might incur a £100,000 spend with a classification society and independent verification body (IVB). Even a reduction in rates as high as 20% equates to a one-off savings of £20,000. This is insignificant when one considers that a single tank entry will cost roughly tenfold that amount. On top of this, there are the financial losses of interrupting production; the collateral costs for one event can escalate into the millions.
It is this short-term mindset that needs to shift, not the tank’s ballast. And it’s not just tank entries to consider. Compliance’s collateral costs encompasses a spectrum of activities that shut down critical equipment, prevent everyday operations, consume the time of onboard personnel, introduce external inspectors and other professionals, use up helipad slots and more. The majority of these costs can be saved if a company starts from the position that there is little need for compliance-only activities.
Minimizing spend, maximizing benefits
Lloyd’s Register sees six main ways to optimize compliance. While goal-setting approaches, notably the U.K. Safety Case regulations, offer greater opportunities for efficiencies, there is more potential than often thought under prescriptive regimes.
1. Fully integrate compliance and integrity assurance activities.
“Double dipping” of activities is commonplace, but with one unified program this costly practice can be avoided. The long-term benefits are considerable for an upfront investment. Working closely with a classification society and experienced IVB, an offshore business can account for all of its asset’s collateral compliance costs. With this information, it’s possible to comprehensively align regulatory and integrity assurance activities, establishing a proprietary scheme that simply does compliance smarter than previously.
2. Program activities on a true risk-based basis.
A risk-based approach provides particular opportunities for savings, especially for complex assets operating in challenging environments. It allows considerable flexibility in the scheduling of structural inspections, moving away from the traditional five-year survey cycle. Credit can be earned for enhanced design that reduces fatigue and corrosion. Activities can be coordinated with operational or maintenance needs. Schemes can be tuned to operational experience. However, a risk-based approach does not necessarily mean doing less. Determining a risk-based inspection plan is a significant exercise, and it’s best to stick to the rules once they have been set. Increasingly, risk-based schemes are available under prescriptive approaches. Lloyd’s Register updated its “Rules and Regulations for the Classification of Offshore Units” in 2015 to allow the use of risk-based inspection techniques for a big-ticket item: hull structural inspection.
3. Work with regulators to agree on alternative arrangements.
The opportunities here have largely been untapped, even when it comes to floating installations operating under U.K. goal-setting regulations. The trend is to adhere to international conventions such as MARPOL and SOLAS without contemplating the options. But rules are there to be challenged with sound alternatives that class can agree on. “Equivalent level of safety” clauses appear for a reason. Solutions such as condition-based maintenance are well defined and accepted. Successes can be achieved provided the case is made from an in-depth understanding of what’s being challenged.
4. Plan for compliance activities, particularly offshore.
Where compliance-only activities can’t be avoided, planning them ahead of time saves money. Aborted surveyor visits are costly. Dealing with an issue offshore that could have been resolved onshore is an unnecessary expense. These all add up. Again, a close relationship with a classification society and IVB will help.
5. Take advantage of credit to be gained from unplanned events, maintenance and testing.
Compliance does not necessarily require an activity to be witnessed by an independent body. An audit of the activity by that body might be perfectly acceptable as long as the details have been suitably recorded. With a little forward thinking, unplanned downtime becomes an opportunity to perform upcoming compliance tasks, not just to investigate the incident. Why run a shutdown test in the near future when equipment already has been forced to power down? There are also efficiencies to be gained when all maintenance and testing is recorded in a way that demonstrates suitability.
6. Be open to using new tools and techniques.
IVBs are able to help the industry assess the pros and cons of employing new ways to demonstrate compliance. Let’s return to that cargo tank. Inside an LNG vessel, the membrane will be a big, wide, flat space and, with only a few welded stiffeners, delicate. Such an environment lends itself well to inspection by drones. The increasing use of photogrammetric techniques and supporting software allow operators to see and analyze more than a surveyor can in situ. Elsewhere, risk modeling and graphical representations also can support efficiencies.
With a compliance rethink and closer collaboration between the offshore industry and its independent experts, money spent on meeting regulations should never be a waste of money.
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