Gulf of Mexico operator to refurbish old production platform for reuse on new deepwater project

LLOG Exploration Company (LLOG), a privately-owned E&P company focused on the Gulf of Mexico, has decided to reuse what was previously the world’s deepest floating production platform for the development of its new deepwater project.

LLOG on Wednesday revealed its planned development of the Salamanca production facility, which is comprised of a “uniquely designed” floating production unit (FPU). The unit will be created through the refurbishment of a former, previously decommissioned production facility.

While LLOG has not revealed the name of the production facility it secured for its deepwater project, Genesis Energy, a Houston-based operator of midstream assets, revealed in its 1Q 2022 earnings call on Wednesday it had sold its idled Independence Hub platform to LLOG for gross proceeds of $40 million to service the floating production system for the Salamanca development.

The Independence Hub deep-draft semi-submersible production platform was designed by SBM Offshore to produce from 10 anchor fields. This was the world’s first deep-draft semi and the second one, also designed by SBM, was Thunder Hawk FPU. The 105-foot deep-draft hull, with a two-level production deck capable of processing 850 million cubic feet of gas per day, was built by Sembcorp Marine’s Jurong Shipyard and delivered in May 2006.

The platform was installed in 8,000 ft (about 2,438 m) water depth at the Mississippi Canyon Block 920 in the Gulf of Mexico and, at the time, it was the world’s deepest platform. Operated by Anadarko, the platform started its first gas production in July 2007. However, the production ceased in late 2015 and the platform was decommissioned and removed from the site in December 2019.

Genesis Energy bought the Independence Hub in a package with other offshore Gulf of Mexico pipelines and services business from Enterprise Products Partners in July 2015 for a price of $1.5 billion in cash. The package of assets bought by Genesis included ownership interest in nine crude oil pipeline systems; nine natural gas pipeline systems; and an ownership interest in six offshore hub platforms, including the Independence Hub.

Grant Sims, Genesis Energy CEO, commented on the sale of the platform to LLOG: “The repurposed hub will not only accelerate the date of first oil and reduce the total development cost but will also reduce the environmental footprint of this development relative to the option of constructing a new deepwater production facility. A win-win situation for the producers and us.”

According to LLOG, the FPU will serve as the collection point for production from the joint development of the Leon discovery located in the deepwater Gulf of Mexico in Keathley Canyon (KC) blocks 642, 643, 686, and 687 as well as from the Castile discovery in KC 736. LLOG will operate the development and its partners include Repsol and Beacon Offshore Energy. The facility will be located on KC 689 in approximately 6,400 feet of water.

Both discoveries are expected to be jointly developed through a total of three subsea wells at initial production that will be tied back to the Salamanca FPU. Two of the initial three development wells are planned for the Leon field and one for the Castile field. Initial production from the joint development is expected in mid-2025.

The Salamanca development will be directly connected to Genesis Energy’s 100 per cent owned SEKCO pipeline, which was constructed some eight years ago, for further transportation downstream through the company’s existing pipeline footprint.

The FPU is being refurbished to have a capacity of 60,000 barrels of oil per day and 40 million cubic feet of natural gas per day. By modifying a previously-built production unit, the time and cost to refurbish the unit are greatly reduced compared with the construction of a new facility, LLOG explained.

Furthermore, the project has a significantly positive Environmental, Social and Governance (ESG) impact as it reuses an existing unit compared with the abandonment of the unit, while also accomplishing approximately a 70 per cent reduction in emissions impact compared to the construction of a new unit. All of the major topside repurposing and modifications will be done in the United States. Regulatory approvals required to proceed with the development have been received.

Based on LLOG’s statement, the FPU is being financed through an ownership arrangement with investment vehicles managed by ArcLight Capital Partners, a private equity firm based in Boston, that is focused on energy and energy transition infrastructure.

Leon is a discovery drilled by Repsol in late 2014 on KC 642 and is located about 250 miles southwest of New Orleans in approximately 6,000 feet of water. The discovery well was drilled to a total depth of about 32,000 feet and encountered nearly 700 feet of high-quality net oil pay in multiple sands in the Lower Tertiary where LLOG has significant experience from past drilling and development in the Gulf of Mexico.

The Castile discovery was drilled on KC 736 in over 6,500 feet of water to a total of over 31,000 feet and encountered nearly 400 feet of high-quality net oil pay, also in the Lower Tertiary.

Philip LeJeune, President and CEO of LLOG, commented, “We are excited with this joint development of discoveries. By modifying a previously-built production unit compared with constructing a new facility, we are able to reduce significantly the time and cost to bring these discoveries online.”

LeJeune also reiterated the importance of repurposing an existing unit for emission reduction.

He added: “We are pleased to be able to do the refurbishing of the FPU fully in the United States, utilising local labour. This development will add a significant new source of needed domestic oil and natural gas production when it comes online.”