Joint industry project seeks to address challenges of energy transition, ‘idle iron’

Glenn R. Legge, Endeavor Management

Over the last 50 years, the offshore energy sector has overcome numerous engineering and financial hurdles to push energy production into greater water depths and address significant challenges.

Frequently, these advances were achieved through cooperative strategies involving industry groups, often referred to as joint industry projects (JIPs) or joint industry task forces (JITFs).

These JIPs have dealt with a wide range of technical challenges, ranging from addressing challenges posed by deepwater gas hydrates (2014 NETL JIP) to the use of floating facilities to allow production in deeper water and harsher subsea conditions.

Perhaps the most significant and/or notable JIP studies and recommendations were the result of the 2010 Deepwater Horizon (DWH) tragedy. The American Petroleum Institute (API) created four JITFs to study operating procedures, subsea well control, and oil spill preparedness. These JITFs issued a series of reports following their analyses of the DWH event, including:

Oil Spill Preparedness and Response Report on Industry Recommendations (2011)
Report on Industry Recommendations to Improve Subsea Well Control and Containment (2012)
Industry Recommendations to Improve Offshore Operating Procedures and Equipment (2012).

Similarly, the International Association of Oil and Gas Producers (IOGP) formed the Global Industry Response Group (GIRG), a JIP that studied the lessons learned from DWH and issued a series of industry recommendations to prevent similar disasters.

Perhaps one of the most impactful and unprecedented JIP was the 2010 creation of the Marine Well Containment Company (MWCC), a collaboration between ExxonMobil, Shell, Chevron, ConocoPhillips. The goal of this JIP was to develop a deepwater containment and diversion system following the DWH event. The creation of MWCC played a key role in enabling the offshore industry to overcome the deepwater drilling moratorium in an effective and environmentally responsible fashion.

The offshore energy industry’s use of JIP structures has established an admirable record of conducting E&P operations more efficiently, effectively and safely using combined industry research, resources and technology. The use of JIPs and similar joint industry activities is now benefitting the evolution of energy transition in the US Gulf of Mexico (GoM) and other offshore areas around the world.

The use of JIPs is not restricted to exploration and production projects. Significant energy transition participants such as DNV are advocating the use of JIPs to address CO₂ offshore injection, high pressure non-metallic pipelines for CO₂ transport, and the possible use of salt caverns for hydrogen storage. Similarly, Bureau Veritas has recently promoted JIPs to address energy transition issues related to metal fatigue in offshore wind structures and effective means of monitoring floating wind mooring configurations. The utility and effectiveness of JIPs is thus allowing the offshore energy sector to address evolving challenges in the energy transition arena.

Currently, one of the most significant challenges faced by the offshore energy sector in the GoM is addressing costs associated with decommissioning the increasing amount of “idle iron” – offshore oil and gas production facilities that have reached the end of their lifecycles. As the number of these projects mount, both government regulators and industry officials have begun to focus on “orphan wells” and associated offshore facilities that no longer have a solvent operator to discharge the regulatory plugging/abandonment (P&A) and decommissioning obligations. These regulatory requirements apply to current and former operators, as well as all “predecessors in interest” of the orphaned wells. If the predecessors in interest cannot discharge the decommissioning responsibilities, the costs will likely fall upon American taxpayers.

Offshore decommissioning and abandonment is an immense regulatory, financial and environmental challenge that must be addressed in a technologically appropriate and financially sound manner. In 2015, Endeavor Management was focused on this “just below the horizon” problem and managed a JIP to support global best practice developments for subsea decommissioning, which originated in Endeavor’s work for Petrobras Americas, Inc. (PAI) in the GoM. Endeavor proposed analytical methodologies to streamline time and costs for P&A activities. These ranged from developing economic models to predict P&A costs using different vessel-based techniques, to improving the design of OEM equipment and subsea systems.

Despite these attempts to lessen P&A financial exposures, the projected decommissioning costs have continued to increase at an alarming rate. In January 2024, the General Accounting Office (GAO) issued a report stating that, as of June 2023, operators of over 75% of “end of life” and idle infrastructure failed to meet the BSEE decommissioning deadlines – over 2,700 wells and 500 platforms. The GAO report went on to state that BOEM had approximately $3.5 billion in supplemental bonds to cover “between $40-70 billion in total estimated decommissioning costs” as of June 2023.

One potential option to deal with this growing decommissioning burden in the GoM is to repurpose these structures into clean energy projects. Fortunately, the JIP process, which has been used effectively to address challenges of deepwater exploration and reducing significant decommissioning costs, is equally effective in charting the course for developing strategies for repurposing these platforms.

In 2023, an energy industry program began studying the feasibility of repurposing fixed structures in the GoM for green hydrogen, wind energy and/or CO₂ injection and subsea storage in the vast saline reservoirs. The program, known as Repurposing Offshore Infrastructure for Clean Energy (ROICE), is being carried out at the University of Houston’s Energy Center and led by Dr. Ram Seetharam and members of a JIP – the ROICE Program Collaborative (RPC). RPC members include stakeholders from the energy industry, various academic and national research labs, and other entities interested in offshore energy transition in the GoM. Endeavor Management and other RPC members provide substantive technical, financial, regulatory and commercial input for development and implementation of the ROICE Program, which is funded, in part, by federal grants from the DOE and other federal and state agencies.

The purpose of the RPC is to develop industry standard protocols and procedures to:

Extend the life of offshore oil and gas structures that are near cessation of production for use as alternative energy projects. These structures will have to undergo partial decommissioning involving plugging/abandoning wells, removal of hydrocarbon processing equipment, and other non-essential structures.
Use such structures to provide cost effective and functional facilities for green hydrogen production and/or wind power generation and/or CO₂ injection sequestration activities.
Allow current operators, investors and surety bond holders to extend the useful life of appropriate offshore structures and defer the subsequent decommissioning/abandonment costs for a 20 to 25-year period during which the platform is functioning as an energy transition facility.
Work with the US Department of Interior’s:

--Bureau of Ocean Energy Management (BOEM) to determine the new regulations for utilizing offshore leases or Rights of Use and Easement (“RUE”) for energy transition activities on the OCS.

--Bureau of Safety and Environmental Enforcement (BSEE) to determine the regulatory requirements that BSEE is currently promulgating for the offshore energy transition sectors involving Green H2, wind and/or CO₂ injection/storage.

Address the need to repurpose existing pipelines or construct new pipelines, to service repurposed green hydrogen, wind and/or CO₂ injection/storage operations.

Similar to previous offshore energy sector JIPs, the ROICE industry collaborative is utilizing its industry-wide resources and decades of experience to determine:

How the offshore energy transition sector will anticipate and address new offshore regulations in a safe, practical and cost-effective manner.
Determine which existing conventional offshore oil and gas structures can be utilized for ROICE projects based upon:

--Age/capability/functionality of the structure

--Location of the structure relative to pipelines that may be refitted to use of H₂/CO₂ transport

--Suitability of the structure to be partially decommissioned through the removal of hydrocarbon processing and other non-essential equipment, and the resulting extension in the structural “work life” of the platform

--Cost-effective installation of equipment/structures for the alternative energy applications, pursuant to newly promulgated regulations of BSEE, BOEM and the US Coast Guard

--Analysis of the levelized costs of repurposing the structure v. the generation of revenue through sale of Green H2, wind power and/or 45Q (CO2 storage) or 45V (Green H2) tax credits.

Creating the commercial framework for energy transition projects utilizing existing structures including:

--Extension of final decommissioning costs for 20-25 years

--The operator’s participation in the ROICE project as an operator or a non-operating interest holder

--The ability to participate in 45V or 45Q tax credits and attract ESG oriented commercial capital investment.

The RPC has provided presentations at various offshore energy conferences in 2024, including the Offshore Technology Conference (OTC), the Offshore Well Intervention Conference, and the Oceantic Network’s IPF conference. The 2024 OTC presentation focused on the developing regulatory structure for energy transition projects in the US GoM and ROICE’s levelized cost projections for specific projects. The ROICE RPC has been invited to provide a follow up presentation at the 2025 OTC, to update the industry on the commercial frameworks for structuring and financing ROICE Green H2, wind and CO₂ injection/sequestration projects.

The offshore energy industry has a remarkable track history of addressing technical, functional and regulatory hurdles by coming together and cooperating as JIPs. Historically, the energy sector has been able to continuously innovate, adapt and overcome functional and financial hurdles in deepwater offshore exploration and production. Joint industry projects have been a key part of those advances of the years. The ROICE Program Collaborative JIP will look to maintain that tradition as it seeks to simultaneously address the dual challenges of energy transition and idle iron.