Strong storms smashed through the Gulf of Mexico during the past couple of years, and statistics say the offshore oil and gas industry will face more of the same this year in a cycle that will continue through 2010.
Operators and service companies figure they can put their money to better use by preventing damage to offshore platforms and rigs than by paying insurance companies premiums that will climb up to 400% for partial reimbursement.
The offshore industry paid an average US $450 million in insurance premiums in 2004 and 2005, said Frank Costa, president of AIG Oil Rig, speaking at the Global Energy Risk Implications: Post-Hurricane Symposium sponsored by Benfield Corporate Risk in Houston.
In contrast, Ivan caused $1.4 billion in offshore insured damage in 2004, Katrina registered up to $4 billion in insured damaged last year, and Rita caused as much as $4 billion more damage. That doesn't count deductible costs and uninsured damage.
"The primary cause of damage to both offshore and onshore property is wave action or water damage," said Bill Rothhammer, president and chief executive officer of Bateman & Chapman. "We've seen wave heights in the plus-65-ft (20-m) levels, which tend to take fixed-leg structures (such as jackup platforms) and put a tension force upon the bottom decks, lifting them up, snapping the legs or bending them as the waves roll through. The waves do not really seem to affect most of the deepwater projects; the TLPs (tension-leg platforms) have in general fared very well from wave action as they are flexible, and some of these can move within a 500-m (1,640-ft) radius.
"A second point of damage, which is most expensive, would be sea floor instability, mud slides. The cost there is primarily more of a business interruption or a contingent business interruption. We see the costs higher to that side of the claim than we do on the physical damage side," he added.
Burt Durel with Benfield said insurers now are looking at a 400% increase in premiums for offshore property and equipment, a 65% to 100% increase in well control, a 25% to 40% hike in liability insurance, and "anywhere from 300% to 400% rises on business interruption - if you can buy it."
Prof. Mark A. Saunders, lead scientist for Tropical Storm Risk at the Benfield Hazard Research Center at University College, London, United Kingdom, painted a mixed picture for the future. On the down side, he said, there's a 79% probability of above-average hurricane activity in 2006, and an 82% chance of above-normal landfalls by hurricanes. "Current enhanced hurricane activity will continue to at least 2010," he added.
On the up side, the chance of four or more intense hurricanes affecting the Gulf of Mexico offshore in the next 2 years is only one in 200. He also said that, since 1900, only 12 hurricanes have exceeded Ivan's intensity in the Gulf of Mexico.
The effect on Gulf of Mexico operations already has been significant. Ivan destroyed seven platforms and one drilling rig. Katrina added 47 more destroyed platforms and four rigs, and Rita scored a final blow as it destroyed 66 platforms and four more rigs.
Ivan damaged 20 platforms and four rigs. Katrina damaged 20 more platforms and nine drilling rigs, and Rita extensively damaged 32 platforms and 10 rigs. In addition, Ivan set five rigs adrift. Katrina tore 6 rigs from their moorings and Rita set 13 more rigs adrift, according to the Minerals Management Service (MMS).
As late as February this year, nearly 11% of the Gulf's 819 manned platforms still were not manned, but all 134 rigs were working.
Production continued to suffer, as well. According to the MMS, 364,195 b/d of oil production, or 24.27% of normal daily production of 1.5 million b/d, still was shut in during early February. Gas production suffered, too, with 1.55 Bcf/d of gas, or 15.5% of the Gulf's 10 Bcf/d, still offline.
Between Aug. 26, 2005, and Feb. 8, 2006, the Gulf lost 124.5 million bbl of oil and 631.3 Bcf of gas production because of the hurricanes.
Much of that lost production was caused not by the inability of the operators to produce but by the inability of the infrastructure to support production. All three storms disturbed subsea pipelines, while Katrina and Rita took a lot of refineries and other onshore support services offline.
Following Ivan, the MMS initiated studies to address the more serious hurricane problems. Those studies included loss of station by floating drilling units, toppling of drilling and workover rigs, the integrity of fixed offshore platforms, and an assessment of pipeline design.
Except for drilling units, the organization didn't focus studies on safety for people; there were no deaths or injuries. It also didn't single out offshore floating production platforms. Some were damaged, but none of them moved in spite of the ferocity of storms with peak sustained winds reaching 175 mph.
Noble Corp. has made a series of moves to beef up hurricane resistance for its rigs. Listing improvements in the Noble Link company magazine, the company said it began installing Purple-Finder global positioning systems on its mobile rigs. The system sends latitude and longitude locations and speed and direction of movement at pre-selected time periods. As Katrina and Rita blew through, the company knew the location and movement of each rig every
15 minutes.
Drilling Superintendent Therald Martin said the company also is installing I-Snitch systems to back up the PurpleFinder. The I-Snitch system tracks wind and vessel motions and other environmental conditions. That tells the company, after a storm, what the rig has been through and will help it find weaknesses and prevent future damage.
It also is improving the safety of company jackup rigs. "Engineering and operations must work together to make sure we check air gaps, loading and soil conditions for our jackups. We need good information so we can avoid problems if we have to evacuate," added Dave Beard, vice president, project engineering.
Recognizing the danger of free-drifting rigs that dragged mooring lines and caused hundreds of millions of dollars in damage to pipelines and other infrastructure, the company decided to make sure its rigs stayed put.
"The MODU (mobile offshore drilling unit) mooring line failures are clear evidence that current best practices for the Gulf of Mexico MODU mooring design require a step change. We need higher design standards to mitigate safety, environmental and financial risks to the offshore industry," said Kurt Hoffman, vice president of marketing.
Noble has created a capital program to provide that mitigation. "We planned the changes to the Noble Clyde Boudreaux after Hurricane Ivan, but Katrina and Rita raised the bar for our premium fleet," said James Day, president, chairman and chief executive officer of Noble.
Instead of using Deep Star 10-year storm mooring criteria in line with industry best practices for floating rigs, the company will use Deep Star 100-year storm mooring criteria used on floating production platforms. None of those platforms broke free from mooring lines during the hurricanes.
Noble calls its higher standard NC-5, and it should provide 1,000-year safety for its rigs.
Under the new standard, the company's Noble Clyde Boudreaux will be upgraded to 16 mooring lines using an eight-point traction winch/windlass wire chain arrangement coupled with an eight-point traction winch pre-set wire system. Noble will complete the modifications before delivering the rig to Shell in the first quarter next year.
On its three-column EVA-4000-class rigs, the Noble Paul Romano, Noble Amos Runner, Noble Max Smith and Noble Jim Thompson, the company will increase the number of mooring lines from three per column to four per column. It also will increase the wire size and chain strength. Modifications on those rigs will be completed this year.
The industry must continue to study and upgrade hurricane preparedness.
In a talk last year, Gordon Wilkinson, general manager, business development, Americas, for J. Ray McDermott, said hurricanes pose an ever-growing threat to US production as larger, more complex platforms in deeper water farther from shore produce more hydrocarbons.
At the same time, the industry uses fewer design engineers armed with more and better computers working on more complex systems. With safety of people and production as the paramount priorities, he said, design companies are looking more seriously at 100-year and even 1,000-year hurricanes and the design criteria they need to handle potential damage.
As the industry moves into deeper water, the logistics of moving people and equipment will become more critical, he said. The availability of dynamically positioned construction vessels will become essential for hurricane repair and mooring, and riser inspections and repair will be increasingly expensive.

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