Innovative Contracting = Fresh Lease on Life

Torleif Gram, Aker Kvaerner’s Executive Vice President of Maintenance, Modification and Operations (MMO) Europe, sees taking this kind of responsibility as a precursor to a deeper involvement in the support of mature North Sea assets on both sides of the Norway/UK median line and probably, in time, new field developments too. Moreover, get it right with the AH001 and he believes the wind will be set fair for this ambition.

 “We saw a new market opportunity emerging and that was taking on the responsibility for producing assets by becoming duty holder,” says Gram, who has played a pivotal role in establishing the still new subsidiary, Aker Kvaerner Operations, to pursue such opportunities.  “We set up the company in 2003 and the first contract secured was with Total on the Frigg field, though we didn’t get as far as being responsible for the operation itself.”

“It was at a presentation about Aker Kvaerner Operations in February 2004 that I began talking with Alf Frugaard, Asset Manager for Triton, Hudson, Fife Area, Amerada Hess UK floating production assets. We talked for some hours into the evening about the duty holding idea and three months later he called me. We then had a further meeting about it. That was the start of the Field Life Extension Plan.”

Brilliant North Sea Workhorse

At the time, Amerada Hess was considering how best to continue with AH001. The challenge was made all the tougher as the platform was a low-cost solution at the outset, initially for developing the modest Rob Roy/Ivanhoe reservoirs only. It was expected to recover reserves of some 80 million barrels (13 million m³) from the UK continental shelf (UKCS) block 15/21 fields over a period of about 10 years, with first commercial oil flowing in July 1989. Instead today, more than 180 million barrels (29 million m³) and 15 years later, the floater is still at work, with several million more barrels yet to play for. 

Given that AH001 has been a tremendous success all along, the challenge for Amerada Hess’ UK Operations Production Manager, George Hubbard, is to realise that remaining prize as part of a wider ambition for the U.S. independent’s North Sea portfolio. “What we’re doing now on the UKCS is looking at reserves carefully – where we can add value and where we can make the production of hydrocarbons even more cost-effective. In that respect, the AH001 fits beautifully. We’ve already considerably extended the life of Rob Roy and Ivanhoe; we had been looking at abandonment in 2005. Now we’re talking 2007-2008 and a recovery rate from the reservoir in excess of 71 percent.”

 “What we’re trying to do is find ways of continuing the profitable life and extracting the full value of the asset,” says Hubbard. “We think the reservoir is very well understood and it offers no further potential. Also we’ve worked hard to see if there is anything else to tie back to the AH001 or further exploit the (Upper Jurassic Piper) reservoir, though the answer to that appears to be no.”

Historically, AH001 has been owner-operated, but Hess’ approach to its running was already evolving through the 1990s to the point where some personnel were transferred to support new projects like Scott and Triton. It was all part of the U.S. energy company’s strategy to conserve in-house expertise while ensuring the optimum level of manning on the AH001 as production declined. Contract personnel were brought in on a supplementary basis as necessary.

New Way Ahead Crucial

By 2002-2003, it became clear that a new way had to be found to keep the asset viable. Working with traditional contractor maintenance, modifications and operations support was no longer sufficient.

“It was an old lady with production falling and unit operating costs going the wrong way,” says Hubbard. “If we had allowed the situation to continue like that, it would have forced us to decommission Rob Roy/Ivanhoe as early as 2005, or sell the asset. We had to get costs down and we had a very short timeframe in which to do something. We then engaged with Aker Kvaerner to discuss what the possibilities were and we started working the relationship harder to deliver the solution we now have in place.”

Hubbard candidly admits that giving the Aker Kvaerner group day-to-day responsibility for AH001 and its production profile was not a given – Aker Kvaerner had to sell its model persuasively – and that the entire UKCS portfolio was under review at the time. “It certainly wasn’t a done deal. We went through a lot of soul searching as to what we were trying to do strategically with the UK business. We realised that we had to do something different – find a different way of managing the assets. We went through a risk assessment process examining our options, and what to do with the AH001 was just one aspect.”

“Alf Frugaard saw the embryonics of a new version of Aker Kvaerner,” Hubbard continues. “Rather than sticking with what Aker Kvaerner had done traditionally, they were forming a new operating unit. That seemed to fit very well with what we, Amerada Hess, thought we were looking for and the two of us simply worked together, matching our needs against what Aker Kvaerner was looking for and what we thought they could provide. That’s how we forged this relationship to move the AH001 to outsourced duty holder status.”

Safety an Absolute Priority

“First and foremost, we had to continue with a safe operation. Safety was, and remains, an absolute priority at Amerada Hess. That’s why we took a risk-based approach. We wanted to make sure that safety of the asset would be preserved. We also needed to make sure that we complied with our environmental key performance indicators. We didn’t have all the answers as to how to take AH001 forward, nor did Aker Kvaerner – but together as an integrated team is where we saw the strength.”

The basis of Aker Kvaerner’s proposal was to take the maintenance system that existed and, by using a risk-based approach, examine it and see what unnecessary work could be stripped out while still protecting safety, environmental and production issues. The proposal was basically about reducing operational expenditures (opex). By carrying out a reliability-centred review of maintenance and operations on a priority/risk basis, the critical workload requirement was reduced, resulting in a reduction of the offshore manning levels.

“On economics, we have to ensure that the asset is viable at a wide range of future oil prices so that the project is robust,” adds Hubbard. “At today’s oil price, the margins are obviously better.”

That said, where does Aker Kvaerner make its money with such an arrangement that is sufficient to satisfy its shareholders? Gram replies, “The philosophy is that all profits are based on delivery. It’s a performance-based contract, which also takes safety into account in a proactive manner. The heart of it is the reduction of opex, plus maximising production uptime (volumetric efficiency for 2003 was 79 percent versus some 90 percent for 2004). It is not a high-risk contract.”

Walking the Talk to Win-Win

“It depends on having the right management and achieving the right kind of culture, very much focused on safety and really walking the talk,” emphasises Gram. “That way you create a win-win situation, with people on the platform knowing that production will continue for longer than originally anticipated. Under the arrangement we now have, additional people are only on board during campaign-based maintenance, with Aker Kvaerner drawing on its extensive pool of suitable people as needed.”

According to Hubbard, there is nothing more important to the success of the Amerada Hess arrangement than the well-being of the people who made the transfer. Given that AH001 started out with a core Amerada Hess crew of 40, but which has since been reduced to some 30 people, crew buy-in was of critical importance to the new future. The aim was to maximise the retention of knowledge by recruiting into Aker Kvaerner Operations those already experienced in the operation of the facility. Says Hubbard, “Most of these guys have been there a long time and one of the things that stands out is that they show real ownership for the asset. It was important to respect them.”

“We had it there in our change management program. We had to be clear with the crew; we had to communicate carefully with them to explain what we’re doing and why we’re doing it. What we found as a result was a smooth transition, and a lot of it comes down to behaviour and the way the crew has dealt with that.”

Hubbard continues, “By being honest through that process – remember quite a few of them probably didn’t want to leave Amerada Hess – most of the workforce has joined Aker Kvaerner and therefore competency has been transferred successfully. That was fundamental to success. If we had put them in a position where we got the process wrong and they became disenchanted, both Amerada Hess and the crew would have suffered.”

Adds Gram, “Two or three years from now, come ultimate abandonment, they can look forward to a career path beyond AH001 with Aker Kvaerner. If we continue with the success we’re having with this asset, it will then help open the door to similar success with other mature fields, whether it is Amerada Hess or another operator.”

Hubbard is also positive about the future. “AH001 has been a bold step for Amerada Hess. It was our first operated facility in the North Sea and changing the status quo was a challenge. If things continue the way they’re going, it will help firm up our belief that this is a valid operating model for us going forward. Assuming it does ultimately deliver, we may extend the model to future new developments.”