TECHNOLOGICAL IMPACT IN THE REDUCTION OF OPERATIONAL

PRODUCTION COST
Castro, G.T. - PETROBRAS; Suslick, S.B. and Morooka, C.K. - State University of
Campinas

ABSTRACT

This paper shows the impact of technology evolution in the cost reduction on a
offshore oil production platform. The technology represents a very sensitive variable in most
of projects, specially in deep waters operations. It is possible to find some information about
effects of technology in investment reduction, but it is quite rare to find in the literature
information covering the impact in operational cost reduction.
The methodology employed in this work has two parts. In the first part, a
representative group of production platforms from Campos Basin was selected, then the data
from the last three years of each group was analyzed, finding the cost contribution of each
activity in the total cost. And, the second part involved the measurement of cost reduction
impact for the main technological innovations in the most important activities.
Campos Basin was selected as a case study because it is the most important oil
production region in Brazil. It is responsible for more than 70% of total oil production in the
country and one important deep water production frontier in the world.
From the results in this study, many findings could be observed. Among them, it is
concluded that the total operational cost of workover, subsea operation, workers and material
transport and production platform represents almost 86% of overall costs in the present case,
the platform automation is responsible for a 6% reduction in the operational cost, among
others.

INTRODUCTION

Campos Basin, the main petroleum province in Brazil, is located in the north of the
state of Rio de Janeiro in an offshore area with quite more than 100.000 km2. Subsea
oilfields are between 70 and 140 km away from the coast line close to the cities of Cabo Frio,
Macae and Campos, in a water depth which ranges 80m over to 2000 m.
Campos Basin exploration initiated in 1968 with first discovery in 1974 through the
wildcat RJS-9A at Garoupa field. The first oil produced came from Enchova field in 1977.
Since that, several technological challenges have been overcome. The completion’s record
in Figure 1 indicates the technological evolution through this period.
 Technological challenges was intensified with the 1973 oil crisis. The first offshore oil
discovery in Brazil (1974) occurred just in the middle of the economic disruption, worsened
by the country’s unfavorable external payment balance. Then, levels of oil price justified
intensive exploration and production investments. Main reservoirs were discovered in deep
waters, then investments in technological development needed to be done in order to
produce those fields. COLLINGRIDGE et al.(1) described the similar trend in the North Sea,
where the first field was discovered in the early 70’s and the first oil came on stream in 1975.
During the first part of the 70’s, the increase of reserves and production was
guarantee due to high level of petroleum’s price. However, the excess of supply of some
major traditional producers, following by prices decline and projections indicating slow grow
of demand in the future(2,3), obliged the companies and institutions the adoption of
mechanisms costs reduction.
The above mentioned trend motivated the creation of programs of technological
innovations in offshore regions. Examples of such programs are "CRINE"(4,5) in England, the
"NORSOK"(6) in Norway, "DEEPSTAR" in United States and "PROCAP" in the Brazil(7).
Originally, the efforts focused in reduction of the investment costs, by now the innovations is
also being applied to reduction of the operational costs. According with Skrede(6), there is a
learning process in the organizations that tend to be very focused on the investments costs
to build the facilities, but to be successful it is necessary to build projects with low operational
costs.
The technological evolution can be evaluated by using different variables and effects
and its main motivation for technical change can be changed with time. Many methods have
been applied to assess the economic aspects of the technological programs(8,9,10).
Considering such constraints, the achievements made in technology to guarantee the
production in deeper waters or seeking to reduce the costs of investments will not be
discussed here. This paper will focus in the reduction of operational costs resulting from
technological evolution. In the literature studies regarding reduction of operational cost due to
non technological evolution factors(11) can be found. However, this kind of analysis will be not
considered in this work.
The present paper is divided in three parts. In the first part a scheme for classification
of costs are presented, following by an analysis of sample data extracted from Campos
Basin. The last part include the discussions of results obtained from the technology impacts
on costs reductions in offshore operations.

COSTS CATEGORIES AND CLASSIFICATION

As the main objective of this paper is to study the technological development impact
in the operational costs, it is necessary to give an overview of the main costs categories and
their classification scheme. Although some categories of costs have precise meaning in the
account system, these categories do not conduct to an efficient decision-making.

INVESTMENT AND OPERATIONAL COSTS

The total production costs in this paper includes investment and operational costs.
Despite its simplification for not incorporated short-run costs effects, this classification is
commonly adopted in the oil industry. The investments costs are those expenditures made to
acquire a capital assets. The largest portion of investment costs is incurred to initially get the
project started, where frequently production of petroleum does not still exist, generally that
costs are depreciated during the estimated producing life of the asset (project). The
investment cost curve behavior initiate with a pick-up, following by a sill, which reflects some
expenditures made throughout the life of the field.
The operational costs are those that happen during the project-life. They are not
depreciable costs and are used to maintain the whole process in operation. The main items
of this costs are personnel, consumable (diesel, lubricating oils, etc), maintenance and
workover. The operational cost curve is almost a constant value during the project, with a
reduction trend after a certain learning process is acquired, and there is a pick-up in the
abandonment phase. Operational cost fall in two classes: fixed and variable costs. Fixed
costs (labor, materials, supplies, etc) are consumed directly in the production process and it
is proportional to the level of production volume.
As described by DE WART(12), the investment costs have a great influence in the
operational costs and between them exists an inverse relationship. It means that larger is the
investment costs in a project, smaller tend to be the operational costs during the useful life of
this project. The inverse relationship is also true.
Therefore the best project in terms of costs is the one that deal with the investment
and operations costs of a project achieving the minimum present value(or maximum benefit-
cost ratio). This decision goes by several factors, as capital disposable of the company
during the time, among others.

MAIN OPERATIONAL COSTS IN A STABLE SYSTEM

The methodology of the operational costs classification can vary from company to
company, even so, in general they tend to have a quite similar classification. As the objective
of this work is analyze the operational costs reduction, it is necessary to define a basic
classification to permit the comprehension of the data. Preliminary operating costs are
generally more difficult to estimate than investment costs for most petroleum operations. The
relative uniqueness of each petroleum operation with respect to equipments, labor intensity,
location, operational philosophies, etc. makes the estimation of operating costs most
difficulty. For these reasons, this paper use a classification scheme as closest as possible for
those commonly used in the petroleum industry.
Transport = Costs of transport means the value spent with transport of loads and personnel,
using a marine or aerial way, between the port or base of the company operator until the
platforms.
Workover = Workover costs include the rigs, the personnel involved with the operation, and
others. Operational workover cost that has as objective the reservoir different from the
originally produced will not be computed in this cost, and in this case, for being a new area,
investment cost will be considered.
Subsea = It will be considered subsea costs in this classification all the operations that
involves maintenance of equipment that are inside the sea, or "wet", excepted the workovers.
Manifolds’ inspections, leaks repair in hydraulic lines and inspections in jackets of fixed
platforms are some examples.
Reform = In some production platforms are necessary some recovery works or restoration of
some equipments or areas, services as maintenance painting and improvements in the
performance of the process are some of the possible facts that incurred in this kind of cost.
Maintenance = Several non routine services of maintenance are included in this
classification, as revisions in generators, crane, turbo-compressors, and other equipments,
generally accomplished by production platform non-resident personnel.
Production platform = Are listed in this item the whole part of maintenance to keep the
production platform operational condition, such as personnel, chemical products used in the
production process, maintenance of the several systems, among others.

TYPICAL DISTRIBUTION OF THE COSTS IN PRODUCTION PLATFORMS

Considering the several cost types, it is necessary to define a typical production

platforms cost distribution. As the objective of this paper is to detect the reduction of the
operational cost, it is studied the cost types that represent the largest influence in the total
operational cost. Considering a Pareto’s approach, it is feasible to identify the areas of
technological progress that will provoke the largest impact.
To obtain a representative data sample, it is used the model created by VARGAS &
COUTINHO(13), that divides the Campos Basin development in four phases as follows:
Phase 1(08/77 to 07/83) – This initial phase were based on semi-submersible
platforms called Early Production Systems (EPS), all the platforms of this period already left
the location.
Phase 2(08/83 to 08/90) – This period is characterized by the installation of fixed
platforms and the production technology consolidation with semi-submersible platforms, that
became more complex and changed the original name to Floating Production Systems
(FPS).
Phase 3(09/90 to 06/95) – Characterized by the development and consolidation of the
deep water technology and the giant fields production through FPSs.
Phase 4(07/95 to present) - Production peak increase phase using FPSs with great
process capacity.

DATA EVALUATION

The distribution of costs is depicted in Figure 2. In order to guarantee an unbiased

sample, it is selected data from a fixed platform of the second phase in the three year period
(2F97, 2F96 and 2F95), a semi-submersible of the same phase (2S), a semi-submersible of
the third phase (3S) and a semi-submersible of the fourth phase (4S). The main trends in the
Figure 2, can be summarized as follows:
• the maintenance costs increase with the life of the platform, and in the fixed platform the
portion of maintenance costs is larger than in the semi-submersible.
• the reform costs show the same trend of the maintenance, and the difference among the
fixed and semi-submersible platform is still larger.
• the workover and subsea operation costs have an inverse trend, decreasing its
percentage weight with the increase of the life of the platform. The reason for the small
percentage of workover and subsea operation in the first year of production of the fourth
phase semi-submersible is because in the startup phase the majority of these
expenditures are considered capital investment and not operational costs.
• the sum of the costs classified as production platform, transport, workover, subsea
operation, represent 86% of the total operational costs.
Comparing yearly the total cost for each platform in Figure 2, it can be noticed that in the
newest platforms the importance of the workover and subsea operation costs tends to be
similar of personnel cost.
The distribution of costs for each production platforms along the years (Figure 3) indicate
that personnel's costs generate the largest impact with an increase trend as the platform
gets older. Based on these data, it can be noted that actions to promote the reduction of
personnel, workover, subsea operation and transport costs, will probably have more
effectiveness in the reduction of the operational cost.
BHANU et al.(14) presented similar cost distribution for fixed platforms operating in India
(almost the same age of 2F), where workover, maintenance and partial maintenance
executed in the production platform reached about 50% of the total cost.

AUTOMATION TECHNOLOGICAL IMPACT

Several actions have being taken to optimize personnel's cost in the whole petroleum
industry. Reduction of hierarchical levels, functions with multiple skills (operate and execute
maintenance) are some examples of managerial actions that allowed improvements in this
area. Even so, it can be considered the industrial automation as the contribution of the
technological progress with a big impact in this sector.
In Campos Basin, the automation started in the fixed platforms, with prevailed
technology at that time (1983). This system had a local pneumatic control and a control room
with dedicated panels (shut-down, fire, and gas), all the electric information was centralized
in these panels. This previous system had some disadvantages as: great amount of cables;
local pneumatic control, which generates a lot of maintenance and keeping an operator for
each operating system; use of semi-graph panel, big and very expensive, with little
modernization options, among others.
In 1987, with the implementation of the Northeast Pole, some technological
improvements were introduced. The main implementations were the control of mesh by
electronic devices centralized in a control room and interlock of safety for programmable
logical controllers.
A rapid increment of technological developments for Campos' Basin is observed
beginning 1992 with arrivals of deep water platforms. These new concept production platform
systems used new technologies such as remote units for data acquisition with drastically
reduced amount of cables for the control room; control of mesh for programmable logical
controllers; standardization of the systems allowing better use of the human resources; no
use of semi-graphic panel now using graphic stations with supervision software, among
others.
Recently, the improvements introduced by problem diagnosis system MODIG
(Diagnosis Module), system based upon "knowledge" previously "learned", facilitates to
make the previous diagnosis of a problem, and it guides the operator to take preventive
actions, avoiding and isolating problems. This system, in a vessel separator for oil
production, screens several variables and it can detect the beginning of a separator level
oscillation. It analyzes the oscillation and it gives automatically the diagnosis of a eventual
abnormality in order to help the operator, avoiding an eventual high or low level shut down.
New production platforms in Campos Basin are designed with an advanced
automation system. When the improvements justify the investment needed, the oldest
platform systems also has been modified and new automation systems has been introduced.
CASTRO & PLATENICK(15) compared the automated platforms (advanced systems)
with the no or little automated platforms in Campos' Basin. In this work, the ratio of number of
employees divided by the oil process capacity was used to allow comparisons with numbers
of employees independent of the size of the platform (Figure 4). It can be verified that the
automated platforms have proportionally 20% less people.
In conclusion, it is observed that 47% of the total operational cost is due to "platform
production costs" (Figure 2), and in the other hand, personnel's cost represents 54% of that
amount (Figure 3). Then, it is possible to conclude that the industrial automation allowed an
average reduction of 5% in the total operational costs. Other advantages such as the
operational efficiency and safety increases are not included in the present study.

WORKOVER AND SUBSEA OPERATION TECHNOLOGICAL IMPACT

As already shown in the data analysis, the costs classified as workover and subsea
operation represents 25% of the total operational costs. Several technological developments
has been carried out in this area, Main developments are described, as follows.

CONCEPTION OF FLOATING SYSTEMS OF PRODUCTION

The Campos Basin first production system in operation, the Enchova Early
Production System, consisted of a semi-submersible platform with a very simple processing
plant (the gas was flared). Only one well was produced and the production stream flowed
through a subsea test tree (EZ tree) suspended by the drilling rig, inside the blowout-
preventer (BOP) stack. It used a drilling riser and a conventional surface tree at the rig floor.
After processing, the crude was transferred through a floating hose to a nearby moored
tanker.
This same system was enlarged with the use of another semi-submersible, and the
first satellite well, using a wet christmas tree, a flexible line and riser in free hanging
configuration.
The second production system was Garoupa/Namorado, that consist of eight wells
with dry completion trees, enclosed in an atmospheric Well Head Cellars, connected to a
atmospheric manifold with two botton-articulated towers, one to produce to a processing ship
and the other to offloading. This system presented some problems, like a bad towers
performance, that ended with a high operational cost.
The present conceptions have a tendency to produce many wells (distributing the
operational cost of the platform among them), through flexible risers and much more efficient
submarine systems. That technological evolution was fundamental for the development of
the deep water fields in Campos Basin(16).
PROBLEMS WITH PARAFFIN

Producing wells from waters even deeper and more distant from the production
platforms, thermal changes along the pipeline from the wellbore at the sea bottom to process
plant in the surface, the temperature difference between crude oil inside pipeline and the sea
water outside causes the beginning of paraffin deposition in the production lines. This kind of
problems may clog the line, and with the continuos diameter reduction, can provoke the
interruption of production.
The solution for the first case of blockage was the line substitution, generating the
following operational costs: around US$ 1,000 per meter for substituting production flexible
line, and about US$ 50,000 per day for pipe laying support vessel to pick up the clogged line
and lay a new flexible line. If it is considered an operation with a well 1 km distant from the
platform during one week, it would provoke a cost impact of US$ 1,350,000. Moreover, if 2,5
interventions per year is necessary, this operation would spend about US$ 3,5 millions per
year per well.
In 1992 a process to dissolve the paraffin formation was developed in order to clean
the production line (SGNTM). This system is based on a exo-thermal chemical reaction(17). An
intervention with SGN has an average duration of one day and it costs around US$ 70
thousands. For the same well mentioned before, if it is needed five operations with SGN per
year, it implies in a cost reduction bigger than US$ 3 millions per year for each well.
The definitive solution developed for almost eliminate this operational cost is the
thermal isolation of the production lines, that reduces the rate of paraffin deposition and the
development of several pig types to remove the paraffin formation periodically from inside the
pipelines.

REDUCTION THE NUMBER OF WELLS

Several reasons, such as problems with DHSV and leaks in hydraulic lines, can
conduct to the need of workovers or subsea services. Therefore, all technological evolution
that reduces the number of wells in a project tends to reduce the workover and subsea
operation costs, and in consequence several hundred thousands dollars per satellite well can
be saved.
Horizontal and multilateral wells are examples of technologies that reduced the
number of wells, then the use of those reduces operational cost. As this reduction depends
of the project for each field, it is very difficult to measure the impact in the operational cost.

FLOWLINE CONNECTION SYSTEMS AND LAY-AWAY COMPLETION

The connection systems and the lay-away completion methods had a great evolution,
besides turn viable produce wells in deep waters, it allowed a reduction in the time of the
operations and the number of equipments such as ships and rigs involved, which reverted in
a large operational costs reduction.
To better reach deeper waters, the lay-way guideline completion method was
developed. Few years later an improvement, a lay-way guidelineless, was tested with
success, but the method still requires the presence of both completion rig and the pipe laying
support vessel at the same time and at the same location, which may led to eventual delays.
The new vertical connection procedure was successfully tried out. This system allows
to connect flexible pipes direct to any subsea equipment in deepwaters, and utilization of a
guidelineless methods with dynamic positioned vessels are required for this case. This
operational procedure was designed with three main purposes: to provide an alternative for
second-end connection, to eliminate the need of simultaneous operation of two equipments
and to enable the pipe laying vessel to make the flowline connection, instead of depending
on the drill-string of a dynamic positioned rig(18).
The horizontal christmas tree is other advance in technology which reduces costs.
For this christmas tree it is allowed to make workover without removing the tree. Then, the
time of intervention is reduced.
 These new methods, saving time by using of rigs and ships for interventions, may
represents an important savings in the operational cost.

TRANSPORT TECHNOLOGICAL IMPACT

The transport consume around 15% of the operational cost and has logistic
importance. The transportation has a support role for other core activities in the plataforms.
So, the reduction of transport costs is very closed with the reduction in the main costs,
production platform, workover and subsea operation.
The transport costs can be divided by activity type, as subsea operation, workover,
production platform and others.
The data analyzed in the present study indicated that the transport for production
platform has an average impact of 35% on the total cost of transport (Figure 5). The impact
of personnel’s transportation varies from 70% to 35% of the production platform transport
cost (Figure 6).
In the following, linear relationship for the costs are considered. 15% of the total costs
are taken into account for transport (Figure 2) where 35% of this amount had been spent
with the activities for the production platform (Figure 5), and 56% of this production platform
transport cost has been used to worker’s transport (Figure 6). With these considerations, it
can inferred that the cost of the production platform personnel transport represents about 3%
of the total cost. As in an automated platform there is less 20% people, it can be concluded
that impact on automation will generate approximately 1% in reduction in the total operational
cost. As shown in the Figure 5, almost 47.5% of the transport costs are relative to personnel,
equipments and others materials for provide workover and subsea services.
Therefore, the reduction of the operational costs of transport, obtained with
technological innovations, happens mainly with the reduction of the demand sectors
(production platform, workover and subsea operation).
The use of supply boats with dynamic positioning is a rare example of particular
technological evolution in transportation. This technology innovation creates an increase in
operations efficiencies, allowing a 15% of reduction in the cost of load and water transport,
even considering a higher daily rate than that for conventional supply boats.

OTHER ITEMS FOR REDUCTION OF OPERATIONAL COSTS

Fortunately the reduction of the operational costs is not limited to that main items.
The following are examples of other items that could be considered.

BOOSTING SYSTEMS

Electrical submersible pumps for satellite wells, subsea multiphase pumps, subsea
separation systems, among several other innovations are empowering an additional energy
to the produced oil and gas, between the wellbore and the surface production unit. It make
possible the production of wells more distant from the production platform unit which will
contribute to reduce the total number of platforms needed in a new project.

SUBSEA MULTIPHASE FLOW METER

Subsea multiphase flow meters has been developed for petroleum industry use
during the last years. As precise data about real flow conditions at the wellhead during the
oil production can be measured, oil elevation process can be estimated more precisely, and
it can increase elevation process efficiency such as the gas lift. It also represents a potential
operational cost reduction, because it can eliminate the well test flowline (avoiding pig
operations) and a test separator vessel (avoiding maintenance and personnel costs).
NEW MATERIALS AND EQUIPMENT PERFORMANCE

The use of new materials optimizes and improve the quality and resistance of
equipments (avoiding reforms and restorations). The equipment performances are also other
item where technological evolution has an significant impact in the operational costs
reduction. Even so, as it was described in the analysis of the current costs (Figure 2),
maintenance and reforms are not the areas that cause larger operational costs impact.

CONCLUSIONS

The major development in oil technology is the increasing ability to operate in very
deep waters beyond the continental shelves. It could be possible due to improved success
rates to find oil reservoirs and reductions on exploration and production costs obtained with
introductions of the new technological innovations. A great deal of industry research
continues on ultra deep water study and how to control and reduce costs in the operations
and achieve a high productivity of wells. This trend will probably continue in the near future,
due to the low oil prices trends and the sophistication and availability of technology
developments.
Based on the studies carried out, classifying costs according to categories presented
and considering Campos Basin platforms shown, it is concluded that the production platform
costs represents 47% of total operational cost. Considering the workover, subsea operation
and transport costs achieves 86% of total operational cost.
It is also concluded that the recent technological developments has also significant
impact in the total oil production cost where automation represents 6% in cost reduction from
total operational cost, paraffin deposition control represents a cost reduction of more than
US$ 3 millions per year per well, workover and subsea operation have been saving millions
of dollars per year for each well. Technological innovations as horizontal wells, boosting
systems, among others, reduces the number of platforms and implies in a great impact in the
total operational cost.

ACKNOWLEDGEMENTS

The authors wish to thank the colleagues from the E&P-PETROBRAS for their
contributions, support and cooperation. Thanks are extended to PETROBRAS for permission
to publish this paper.

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 Figure 1 - Completion’s records evolution.

COST DISTRIBUTION
100.00%

OTHERS
90.00%

80.00% MAINTENA
NCE
70.00%
C REFORMS
O 60.00%
S
SUBSEA
T 50.00%

S 40.00%
WORKOVE
R
30.00%

TRANSP.
20.00%

10.00%
PROD.
PLAT.
0.00%
2S97 2S96 2S95 2F97 2F96 2F95 3S97 3S96 3S95 4S97 4S96
PLATFORM PER YEAR
Figure 2 - Typical distribution of the costs in production platforms.
 PRODUCTION PLATFORM COSTS

100.00%

90.00%

80.00%

70.00%

60.00%
COS TS

50.00%

40.00%

30.00%

20.00%

10.00%

0.00%
2S97 2S96 2S95 2F97 2F96 2F95 3S97 3S96 3S95 4S97 4S97
PLATFORM AND YEAR

MATERIAL PERSONNEL SERVICES SUM (M+P+S)

Figure 3 - Detailing the production platforms costs along the years.

7,0
E
M
P 6,5
L
O 6,0
Y
E 5,5
E
S 5,0

/
4,5
P

µ = 2 , 48
E 4,0
R
3,5
P

µ =2
R 3,0
O
C 2,5
E
S
2,0
S

C 1,5
A
P 1,0
A
C 0,5
I
T 0,0
Y
PLATFORMS
AUTOMATED NO AUTOMATED
Figure 4 – Comparison of automated platforms and the no-automated, using the index
number of employees divided by the oil process capacity (the circles and squares
represents all the platforms at Campos Basin in this time).
 % TRANSPORT COSTS IMPACT OF
PRODUCTION PLATFORM AND WORKOVER & SUBSEA OPERATIONS

70.00
60.00
50.00
40.00
30.00
20.00
10.00
0.00
2S97 2S96 2S95 2F97 2F96 2F95 3S97 3S96 3S95 4S97 4S96

prod.plat. "workover"+ subsea

Figure 5 - Impact on the total cost of transport (personnel, water, diesel,

equipments and others materials) for production platform and workover & subsea
operations.

PER SON N EL'S TR AN SPOR T IMPAC T

70.00%
65.00%
60.00%
55.00%
50.00%
45.00%
40.00%
35.00%
30.00%

2S97 2S96 2S95 2F97 2F96 2F95 3S97 3S96 3S95 4S97 4S96

Figure 6 - Personnel's transport impact on the production platform transport

cost.