Blowout system costs could hike up to 20% under US rule proposals

New regulations from the Bureau of Safety and Environmental Enforcement could push up the cost of Blowout Preventer Systems by as much as 20% for some operators, Matteo Loizzo, an independent well integrity consultant, said.

Credit: bomboman

The BSEE’s proposed regulations on Blowout Preventer Systems and Well Control should lead to a “convergence” between North Sea and US standards, Loizzo said.

On April 13, Secretary of the Interior Sally Jewell announced the BSEE’s recommendations, which come after lengthy investigations into the 2010 Deepwater Horizon incident.

The measures include more stringent design requirements and operational procedures for critical well control equipment used in offshore oil and gas operations, in particular the Blowout Preventer (BOP), a safety-critical piece of equipment that failed on the BP-operated Macondo well in the Deepwater incident.

In the new regulations, “most major changes concern BOPs”, and “there is a certain number of regulations which will probably have a measurable impact”, Loizzo said.

One proposed change requires BOPs to use two blind rams instead of one, thus changing the “mechanical design” of the BOP, Loizzo said.

The BOP must be “more robust”, but the operator will also need to have more ways of controlling an incident, Loizzo said.

Loizzo estimates this will have a 10-20% increase in the cost of BOP equipment, but “this is not necessarily what I would see as a big impact,” he added. 

“Any increase in functionality will bring cost increases…But if you have a full HPHT [High Pressure High Temperature] BOP, the cost increase will be much higher, I would think”. 

The equipment-related costs would represent a small increase on overall expenses, when rigs cost more than $500,000 per day to operate.

Process changes like longer decision times could also increase costs, Loizzo said.

“Every failed test has to be reported to the BSEE and you have to wait for their decision,” says Loizzo, referring to paragraph 250.746 of the report.

“Cost increases could mostly come from provisions such as this,” he said. 

“The introductions of any new regulations will add further ‘process steps' to a project, and this will undoubtedly mean more time is required,” added Jamie King, Managing Director of the independent consultancy King Petroleum Services.

An increased specification on any equipment is generally acknowledged as an increased equipment cost for the operator, he said.

“I don’t see the impact being necessarily significant, most of the proposed changes should simply be built into the standard maintenance, well design and operations processes. More people will also be required though,” King adds.

Setting the standard

Smaller companies are most likely to be influenced by the new regulations, since bigger companies are already implementing similar principles, Martha Sandia, VP North America & Caribbean at Stork Technical Services, a Netherlands-based asset integrity services firm, said.

Large firms such as BP are considered proactive in terms of well integrity.

BP’s Global Well Organization (GWO) applies a strategic framework to reduce the frequency of events prevention through and, if they occur, to reduce the consequences, through containment and isolation, spill response, relief wells and crisis management.

According to Sandia, oil companies can be more efficient in the way they work by reducing their number of third party providers.

“Less contractors in the platform [and] less interfaces with the customers” lead to “less risks, more efficiency and less costs,” she said.

The BSEE’s rules also focus on cementing rules but “the changes are minor,” said Loizzo. 

Companies such as BP have already internal standards that are “far in excess of what is demanded by the BSEE,” Loizzo noted.

The regulation calls for providing “adequate centralization to ensure proper cementation” and this will not require major modifications to practices, he said.

On this matter, the US is already “more or less aligned with the international best practices,” he said.

Converging continents

If implemented, the regulations on Blowout Preventer Systems and Well Control will see US approach North Sea standards, Loizzo added.

NORSOK D-010, the standards developed by the Norwegian petroleum industry, is considered the reference for well integrity in offshore operations almost everywhere, he said.

“API is moving in a direction of adopting some of the approaches and methods of NORSOK D-010, which in turn is built upon API standards specifications,” Loizzo said.

The new US regulations could prompt the re-allocation of some older equipment from the Gulf of Mexico to fields where regulations are less stringent, according to one Houston-based integrity consultant who has chosen to remain anonymous.

Newer projects would be at less risk but costs will rise for some facilities and the impact will be felt in the next five years, the consultant said. 

If the rules are implemented in the US, similar regulations are likely to be introduced in Latin America, according to Claudio Castañeda, Well Integrity Team Leader at the Colombia-based oil company EQUION Energia.

“We have many new regulations, but one concern is how will the industry ensure that we are in compliance, as well as the regulators?” Castañeda said.

The regulations will help to boost the knowledge-base on deep water drilling, he added.

“Regulations help a lot, especially in areas such as HPHT [High Pressure High Temperature], where we really do not have a clear understanding of what is going on at those new depth and new pressures and temperatures.”

The 60-day window for public comments on the BSEE’s proposals ends on June 16.