Interview: Industry downturn is an excellent time to be preparing for HPHT developments

Offshore Energy Today has interviewed Mr. Ian Penman, Senior Global Technical Advisor with Halliburton’s Completion Tools. He has over 25 years experience in completions globally in Operations, Business Development and Technology roles, for HPHT applications. We discussed HPHT and uHPHT developments and the UK’s tax allowance for HPHT areas. We also touched upon the current technology challenges in developing HPHT assets, what is Halliburton doing to overcome those challenges, and the outlook for the HPHT developments in low oil price environment.

OET: To start with – what qualifies as a High Pressure High Temperature (HPHT) asset? And how does it compare with a conventional field development?

Penman: It’s kind of changed recently. It used to be that anything over 10k and 300°F was considered high pressure high temperature, but nowadays that’s changed significantly and we’re working on projects that are 15k and 450°F so it’s about 230°C. So, we have that technology available now.

Any of the regular equipment that was considered HPHT back in the day is now benign realistically by comparison. Ten years ago if it was a 10k development it was considered HPHT.

OET: And what is the difference between HPHT and Ultra High Pressure High Temperature (uHPHT) development?

Penman: That’s a pretty good question. I think, because of the new definitions for the API standards, once we go above 15k or above 350°F then we’re considering that HPHT. I guess ultra now is 20k because we’re looking at 20,000 psi equipment nowadays.

OET: Recently, UK’s Oil and Gas Authority (OGA) approved the development of one of the largest gas discoveries of recent years in the UK North Sea, the Culzean, which is an uHPHT field. The Culzean field was among the first to receive and benefit from the UK government’s high pressure high temperature cluster area allowance designed to support the development of HPHT oil and gas project which are economic, but not commercially viable at the 62 per cent tax rate. What is your take on UK’s tax allowance for HPHT?

Penman: Without a doubt this was a great move by the British Government, this is crucial for foreign investment in the UK because Maersk and JX Nippon represents 84% of the investment in Culzean so this is great news for the UK; more investment from abroad and breathing new life into the future of the oil and gas industry in the UK sector. It is also fundamentally important for the skilled UK workforce in the industry, it brings more job stability, and obviously it’s good news for the UK domestic gas supply, being self-sufficient in gas, and many of the North Sea assets are on the decline now.

We are currently in an industry downturn as everybody is aware, but this is an excellent time to be preparing for a major project such as this.

Also, it offers great opportunity for European experience in uHPHT to be used in similar calibre developments elsewhere globally in the future, and I mean that from operators, service companies and individuals standpoint.

The UK has been a major player with the HPHT advances in the industry for many years, with Total Elgin Franklin being one, Shell Shearwater being another, Chevron Erskine, ConocoPhillips Jasmine etc. So this is crucial evolution for the industry in a region that can capitalize on this experience, offering Europe the opportunity to gain this fundamentally important knowledge in HPHT and take that knowledge and best practices worldwide.

The industry can do strange things in a down market, and this may well work to their economic advantage.

From the standpoint of approval, I think this is excellent both for Maersk and for the UK sector, and of course for the HPHT side of the industry. Culzean could provide up to 5% of the UK’s gas consumption by the time it goes online, so as I said great for domestic gas self-sufficiency. We are currently in an industry downturn as everybody is aware, but this is an excellent time to be preparing for a major project such as this. These HPHT projects are planned with a long-term strategy, and the risks and implications of low oil prices are taken into the economic models to ensure long-term profitability obviously. Culzean, being a gas development, is maybe not affected quite as badly as some have been.

Maersk is going to be issuing some of the long lead time invitations to tender in near future for Culzean. In fact, I think some of them are coming out this week. This is undoubtedly good strategy on their part. The industry can do strange things in a down market, and this may well work to their economic advantage.

We are also entering a phase of change in regulatory requirements within the industry. API standards are currently being reviewed and updated by committees to include HPHT annexes. Changes from these revisions to standards are being implemented starting this year and this will almost certainly mean longer and more arduous development testing programs. Doing this, while the industry is at a slower pace than recent years have been, will undoubtedly benefit all parties for sure.

OET: Speaking of downturn in the market, can you tell us a little bit about costs of HPHT developments?

Penman: Well, economic models are considerably different depending on geographical location of the development. In the Middle East for example there are HPHT projects, which are being produced relatively economically, and which can potentially survive longer-term low oil prices.

Deepwater HPHT is a different animal however. These projects must be studied longer term and consider the highs and lows during the production life of the asset. I’ve seen economic analysis of some of the current HPHT projects which shows $50/ bbl cannot only reduce the economic viability of the project, but actually kill it immediately as a negative investment.

As I previously said, the industry is cyclical and usually rebounds quite quickly from a downturn. So, these types of developments are considered as a long-term investment and anticipate oil price fluctuation throughout the course of the project life to ensure and maintain overall profitability of the project.

I’m not personally involved in economics of HPHT, not being employed by an operator, but I have heard operators say that their goal is to be able to produce HPHT projects even with oil at $50/ bbl.

So, from that standpoint, more strategy to standardize equipment as much as possible, joint industry developments and less bespoke solutions are required to make this happen, but I think it’s entirely feasible.

It will be a lot more of that, whereas typically in the past, everything was done bespoke for HPHT. I think we need to get away from that to be able to survive these downturns.

OET: And how will this low oil price environment affect the appetite for HPHT developments?

Penman: I don’t think it’s affecting it at all, this is just a glitch on the radar. Everybody that was planning HPHT projects is still planning HPHT projects. With the cyclical nature of our industry, by the time we’re developing this the oil price will be back up again. So, there’s no slowdown. It can sometimes squeeze the brakes on it a little when we’ve got some of these HPHT projects that are being looked at, but I don’t see any slowdown to be perfectly honest.

It’s built for the long-term, it’s planned for the long-term…

Most of our development team are working on HPHT equipment now so that’s indicative that there is no real slowdown in HPHT. It’s built for the long-term, it’s planned for the long-term, so oil prices are something that’s the nature of our business and I don’t think that, realistically, the low oil price will affect it too much.

We’ve seen economic models, but I think they basically look at the whole project based on the low barrel oil price for this, which is completely unrealistic as we know that usually it dips and rebounds really quickly. So I think, for a lot of the operators, that’s the model that they are building. I don’t think that the current downtrend in the industry is really affecting HPHT that badly.

OET: What are some of the most successful HPHT developments and how long does it usually take for a field like that to be developed?

Penman: Speaking about Culzean there, I think between discovery and going online it’s going to be approximately ten years. But I guess it would be potentially longer depending on reservoir temperatures and pressures.

As I said, 15kpsi and 200/ 230°C we’re doing that now, the technology is available today, and projects in that category are being planned and executed right now. Anything beyond that would be a longer-term strategy and if it’s been discovered recently, then we may be seeing that that’s something for development by the end of the decade.

Every sector of the industry has its challenges…

You asked about some of the projects that have quite been successful; I would say a Gulf of Mexico project like Thunder Horse has been a long-term one and has been extremely successful for BP. There are a number in the UK that I have mentioned before like Elgin Franklin and Shearwater that have been entirely successful developments. We gained a lot of knowledge on these projects and we’ve used best practices and some of the equipment going forward from there.

OET: Extremely high pressure and temperature call for technology that can withstand it. So, what are the current technology challenges in developing HPHT fields?

Penman: Well, let me talk specifically about my area; downhole completion equipment, that’s what I know most about. Every sector of the industry has its challenges, even within completions the challenges are fairly broad.

Temperature regimes are probably the biggest challenge, each 10 deg C increase is a major hurdle to overcome. Metallurgy yield can be relatively easily increased to contain pressure. We’re frequently using 125 and even 140ksi material nowadays, however temperature derate is a significant issue driving us to use more noble metallurgies to contain pressure at higher temperature so it’s more expensive obviously. Also, elastomeric sealing is extremely sensitive to temperature. Most elastomeric compounds that we use in hot environments now, even those which perform excellently at high temperature, start to get very mobile when pressure is brought into the equation. As we get hotter, we’re driven to much more complex elastomers which are significantly more expensive. Some of the ones we use are tenfold more expensive than those.

Industry standards are ever evolving, getting more complex and safety margins are ever increasing.

Then there’s testing and qualifying the equipment at these temperatures, it’s a huge investment to build facilities to enable testing at these high pressures and temperatures. Some of the 3rd party testing facilities that are available here in the US really have to gear up to be able to test to these new limits.

We touched on API and the regulatory changes that are going on so this is also a huge challenge. Industry standards are ever evolving, getting more complex and safety margins are ever increasing. So, upgrading existing equipment I mentioned using equipment from the Thunder Horse that is being used on many HPHT developments, but now we have to test in higher regimes and we don’t know this technology is even capable of getting there.

So sometimes, complete equipment redesign is necessary, new concepts and features need to be brought into the equation and environmentally test these components to these higher pressure and temperature regimes.

OET: What is Halliburton, as one of the largest oilfield services companies in the world, doing to overcome these challenges?

Penman: We are experimenting with metallurgies which are relatively new to the industry to formulate base lines for their suitability long-term. Material testing to see how it performs with frequent cyclic loading, replicating years of in-service stresses is extremely important. Also, new elastomeric compounds are being developed and tested to see what the effects of long-term use are, and how resistant the elastomers are to higher temperature and pressure exposure for the life of the well.

In fact, most of our development ongoing today is for the current and near future HPHT market. The technology changes based on knowledge, experience, R&D qualification and finite element analysis is steadily gaining momentum.

Like many industry facilities, we were near to outgrowing our test capabilities, so we made a huge investment to construct new state of the art testing facilities in the US and in Singapore. These were designed to take us into the foreseeable future of uHPHT testing within the industry to anticipate changes and more stringent testing. So, we’ve made that investment recently to get there.

OET: You are a keynote speaker in the HPHT Developments session during Offshore Energy Exhibition and Conference 2015 that will be held in Amsterdam next week. What are your expectations from this gathering? In brief, can you tell us what will the attendees learn from your presentation? 

Penman: Well, I’m a European and I’ve been involved in many European operators’ HPHT before. However, being based in the U.S., quite a lot of what we’re doing on a daily basis  and the meetings that we attend are for the changes that are happening in the API side of the things.

It’s a long process and it needs careful planning…

So hopefully, I will be able to bring that into the conference and make some of the European operators aware of what’s going on over here and what it means for a service company developing equipment for the HPHT market in the domestic U.S.

So that’s the main thing I’m hoping to bring to it and make people aware of the timelines required for developing HPHT equipment. It’s a long process and it needs careful planning. So, I think to portray that message that these regulatory changes do require a lot more testing to be done and it takes longer time to get equipment from being tendered to the tender award to the equipment being on site because we develop for market demand basically. We don’t have prototype equipment sitting there ready to go; it’s basically developed and tested specific to the project and it’s making the European operators aware of what that timeline is and that’s what I hope to bring to the conference.

Offshore Energy Today Staff