Selection of the most suitable life extension strategy for ageing offshore assets using a life-cycle cost-benefit analysis approach

Abstract

Purpose A substantial number of production assets in the offshore oil and gas industry are facing operation beyond their anticipated design life, thus necessitating a service life extension program in the future. Selection of the most suitable strategy among a wide range of potential options to extend the lifetime of equipment (e.g. re-using, reconditioning, remanufacturing, refurbishing and adding on safety/process control measures) remains a challenging task that involves several technical, economic and organizational complexities. In order to tackle this challenge, it is crucial to develop analytical tools and methods capable of evaluating and prioritizing end-of-life strategies with respect to their associated costs and quantifiable benefits. The paper aims to discuss these issues. Design/methodology/approach This paper presents a life-cycle cost-benefit analysis approach to identify the most suitable life extension strategy for ageing offshore assets by taking into account all the capital, installation, operational, maintenance and risk expenditures during the extended phase of operation. The potential of the proposed methodology is demonstrated through a case study involving a three-phase separator vessel which was constructed in the mid-1970s. Findings The results from the application case indicate that the capital expenditure (CapEx) accounts for the largest portion of life cycle cost for the replacement strategy, while risk expenditure (RiskEx) is the major contributor to costs associated with life extension. A sensitivity analysis is also conducted to identify factors having the greatest impact on the optimum life extension solution, including oil price, production rate and money interest rate. Practical implications In the past, the decisions about life extension or replacement of in-service equipment were often made in a qualitative way based on experience and judgment of engineers and inspectors. This study presents a “quantitative” framework to evaluate and compare the costs, benefits and risks associated with life extension strategies and subsequently to select the best strategy based on benefit/cost ratios. Originality/value To the best of authors’ knowledge, no studies before have applied life cycle assessment and cost-benefit analysis methods to prioritize the potential life extension strategies in the oil and gas industry sector. The proposed approach not only assists decision makers in selecting the most suitable life extension strategy but also helps duty holders reduce the costs corresponding to life extension execution.

Do life-cycle costing and assessment integration support decision-making towards sustainable development?

“…As, LCC is a technique for a regular economic assessment by identifying and evaluating the economic effects (all direct and indirect costs, internal and external costs), where, the costs of investment, operation, maintenance, and disposal are taken into account "from the cradle to the grave "(ISO14040; Oduyemi et al, 2018;Silalertruksa et al, 2012). In addition, LCC deliberately includes upfront and follow-up costs; consequently, it allows comparing alternatives, supports the evaluation of investments, provides cost savings, and evaluates performance to make appropriate strategic decisions (Animah et al, 2018). More precisely, LCC can result in cost reductions and maximize value (Heralova, 2014;Oduyemi et al, 2018) 1 .…”

Adopting machine learning and condition monitoring P-F curves in determining and prioritizing high-value assets for life extension

“…They showed that cost is a major driver in choosing a suitable end-of-life strategy by most asset managers. Animah et al, (2018) developed a life-cycle cost-benefit approach that takes into account several categories of expenditures during the extended phase of operation of offshore assets, thus aiding asset managers to make informed choices based on calculated costs and benefits.…”

Comparative Study of Structural Reliability Assessment Methods for Fixed Offshore Structures

“…As the oil price has declined, the field of development and operational expenditures have grown in line with enhanced oil recovery [1]. This enhanced oil recovery (reservoir) led to the demand in utilising ageing structures rising significantly beyond their intended design life in order to discover solutions to manage different financial risks [2]. In fact, 65 percent of offshore installations in Malaysian waters were discovered to have outlived their initial design life, ranging from 20 to 30 years [3].…”

“…In agreement with Keprate and Ratnayake [10], degradation has become a primary issue in the oil and gas industry, causing substantial damage and collapse, as well as potentially dangerous working conditions. To assure a longer proper functioning state, oil and gas operators perform regular reassessments at ageing platforms due to the nature of degradation problems [2].…”