Budget Considerations for Converting a Jackup Drilling Rig into an Offshore Installation

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In May 2016, I wrote an article about Gulf Copper’s experience in converting jack ups into Mobile Offshore Production Units (MOPUs). That article was about the concept, the basic economic factors and the current availability of jack up due to market conditions.  I have been approached numerous times since then with the question of “How much does it cost?” This question is a critical question for the project viability, but it is not one that can be answered briefly. As in most projects, there are too many variables to define this without developing some definitions.

Eventually, the viability of converting a jack up into an Offshore Installation will be a relative question of the conversion and installation cost of the jack up versus the construction and installation of an alternative such as a newly constructed or refurbished jacket structure with a new or refurbished topside. This repurposing has been considered for oil processing, water oil and gas separation, gas compression for export or injection, and possibly other topside purposes. In this article I will address the cost areas of the conversion, however the alternative costs of the jacket structure would not be my area of expertise. In addition, the costs for the process equipment purchase and installation, field and pipeline integration, and the subsea systems would not be significantly different for a jack up conversion or a jacket and topside structure. I will not cover those costs in this article.

The areas of costs for conversion are the following:

  1. Hull
  2. Marine systems
  3. Legs (structural)
  4. Legs (Jacking system)
  5. Drilling System (removals)
    • Dereck, drill floor, and substructure
    • Below deck systems
    • Miscellaneous systems, piping and electrical
  6. Accommodations
  7. Safety and lifesaving equipment
  8. Helideck
  9. Electrical power and distribution
  10. Communications and Electronic systems

I will go over these areas individually, but it is clear that the technical condition of each of these areas prior to beginning the conversion, will be a direct determinant of the final cost of conversion.

The Hull costs will be from three different types of activities;

  1. Steel repairs and renewals
  2. Additional strengthening or reconfiguration for repurposing.
  3. Painting and corrosion prevention of hull steel

Costs associated with items 2 and 3 above are not challenging to predict. The accuracy of budgeting for the costs associated with item 1, will be mostly dependent on the quality of the pre-budget inspections of the hull and associated steel.

The marine systems with cost impacts are:

  1. Fuel Systems
  2. Ballast Systems
  3. Cooling Water Systems
  4. Potable Water Systems
  5. Service Air Systems
  6. Black and Gray Water Systems

The Equipment for these systems will be relatively easy to budget for; the area that usually creates budget challenges is the associated piping. Piping can be difficult to inspect and evaluate. The condition of the piping will be dependent on the materials of construction, the type of service, and how the system was preserved, if it was at all.

MOPU Veer Prem undergoing conversion from jack up drilling rig at Gulf Copper Drydock and Rig Repair

The costs associated with the structural integrity of the legs will be driven by the integrity of the leg chords, the weld integrity of the bracketing and TKY joints, and the condition of the spud cans. The connections of the legs to the cans is usually an area of focus for the classification society due to the stresses often seen in this area. The ability to budget accurately for these costs is dependent on the quality of inspections and subsequent reporting, prior to budgeting.

The costs associated with the Jacking System for this type of conversion are usually minimal and relatively easy to predict after a good inspection and evaluation of the relevant systems.

Removing the Derrick and substructure is easy to budget for if the method of removal is know. The Derrick will come down by dismantlement or by a single lift, depending on crane availability. One issue with the drilling equipment that occasionally creates budget related challenges is the decision to remove drilling related equipment that is below the main deck. This would normally be considered if there is a need to increase the value of the variable deck load. If the weight of the new topside process package is greater than the weight of the derek and substructure plus the designed variable deck load, additional weight capacity can be created by removing some of the heavier equipment below the main deck, such as the mud pumps, bulk tanks, and related high pressure piping.

The cost variables related to the accommodations is dependent on the condition of the existing accommodations, the standards that the owner has for the crew, and the regulatory requirements of the national state where the new installation will be operating. Once these variables are determined, the budget can be determined. One of the budget risks that is often over looked is steel repairs that is often discovered when older joiner works are removed. Steel structure underneath wet areas such as the galley, showers and water closets is often wasted but not detected until the joiner work in these areas is removed.

Safety and life saving equipment can have different requirements when a drilling unit is repurposed to an offshore installation for various topside processes. As an example, the lifeboats and helideck may not meet current requirements, and due to the conversion, may not be able to be grandfathered. Also, there may be additional requirements for blast protection or jet fire protection for the accommodation. Careful consideration must be made when installing new process equipment or gas compression systems to ensure they have a minimum impact on accommodations or safe zones and escape routes. Another budget impact will be the firefighting requirements, the existing seawater fire lines often have excessive corrosion due to their nature, and replacement of this piping must be evaluated prior to budgeting. In addition, the process package will require fire detection and fire fighting systems suitable for their respective processes.

The existing helideck is easily inspected and evaluated. A budget for the helideck can be established after evaluating the existing helideck with CAP 437 standards. The variables that will drive the costs for the helideck will be:

  1. Condition of the fabric of the existing helideck
  2. Compliance with required standards such as CAP 437
  3. Repair vs replace decision.

A good inspection of the existing helideck will be able to easily determine the degree of steel repairs or system upgrades required for the helideck. If greater deck loads are required for the repurposed package, production or gas compression, there is an option to change out the steel constructed helideck for an aluminum helideck. The rule of thumb is that an aluminum helideck is one half the weight of a steel helideck. This can be a savings of 30 to 40 tons of weight. Related systems such as refueling packages or foam firefighting systems will also be budget factors.

There should be sufficient generating power with the existing generators, and the distribution of power to the new process package should be relatively straight forward. Typically the new process package will be installed in multiple modules and the electrical distribution of this equipment will be designed after the placement of the modules is determined.

The new offshore installation will require similar communications packages as the existing mobile offshore drilling unit and the budget for this is easily determined once the new requirements for the offshore installation are established and the condition and capabilities of the existing equipment is determined. The electronics for integrating existing systems such as machinery controls and alarms, safety and firefighting systems, process plant alarms and control stations will require a degree of integration which will be determined by regulations and the owner’s standards. The budget for implementing these requirements can be developed only after all requirements are agreed and established.

I have not discussed the costs associated with the topside process package because this cost will be very similar if the topside package is built as a independent topside to be mounted on a fixed jacket structure or a floating structure. There may be a cost differential related to integrating the piping, tubing, and cabling of multiple modules once they are lifted on to the jack up hull. But this may not be significant if well planned. The main cost advantage of the jack up structure over the fixed jacket structure, is that the process topside modules can be lifted in smaller modules with less cost that lifting them offshore which requires expensive floating construction assets and a more expensive work force offshore.

The discussions above give a good outline on what areas should be closely evaluated for determining a budget for repurposing a jack up drilling unit in to an offshore installation for oil or gas related processes. While there are many areas to be evaluated, the process is much the same for each area; establish and define the final requirements of the repurposed installation, inspect and evaluate the condition of the existing structure that is to be repurposed. Budget the cost of restoration of the asset to the appropriate condition to be in regulatory compliance and the owners standards, and budget the cost of building and installing the new topside process package. It sounds easy, but the degree of complication will depend on the degree of evaluation and quality of the planning.

This article is not intended to cover all costs areas of field development, such as drilling, geological evaluation for structure stability, mission costs such as oil processing or gas compression, etc… These other costs will also require evaluation and budgeting but through a separate process, and they will likely not be significantly different for a jacketed structure versus a repurposed jack up rig.

Examples of other MOPU projects:

  1. Cendor MOPU Producer and the Maleo MOPU Producer 2006
  2. The Rubicone  2013
  3. Ocean Legend 1999
  4. West Seahorse

Gulf Copper and Manufacturing Inc. is available to assist with contacts for surplus Drilling Rigs and Engineering services. Or to assist with inspection and evaluation of any warm stacked or cold stacked drilling rigs. Feel free to contact any of the following:

Kyle Durden | Manager of Special Projects

Gulf Copper & Manufacturing Corp

14825 St. Mary’s Lane Suite 200, Houston, TX 77079

O: 281-752-4835 | C: 281-639-4662 kdurden@gulfcopper.com

 

Leonard Hale | Vice President

GC Energy Services

14825 St. Mary’s Lane Suite 200, Houston, TX 77079

O: 409.641.2508 | C: 409-682-8645 lhale@gulfcopper.com

Founded in 1948, Gulf Copper & Manufacturing Corporation, an employee-owned company, repairs and refurbishes marine vessels and offshore rigs and fabricates ancillary components for marine, offshore, subsea and alternative energy markets . The company operates strategically located shipyards, dry-docks and fabrication facilities along the U.S. Gulf Coast. Gulf Copper serves the oil and gas, drilling, and marine transportation markets in addition to the United States government.

GC Energy Services is a division of Gulf Copper. GC Energy Services provides global project support with structural welding, high pressure and low pressure pipe welding, SS welding and passivation, electrical services, scaffolding, non-destructive testing services (NDT), quality assurance services, and inspections.

Leonard Hale, PMP

 

 

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