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Modular Construction in the Oil and Gas Industry

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Over the last three decades, operators throughout the oil and gas industry have elected to build
larger, more fit-for-purpose facilities. This has subsequently led to an increase in the number of
projects experiencing schedule delays and cost overruns. With crude prices at or above $100 per
barrel these issues, while problematic, were often economically justifiable.

In more recent years, however, as producers have struggled to maintain profitability amid the long-
term price slump, cost cutting and schedule reduction have become critical. One strategy companies
are using to cope with these challenges is modular construction.

Modular Construction Benefits

Modular construction involves prefabricating equipment and systems into modules offsite in a
controlled manufacturing facility. Once constructed, the modules are delivered to the building or
production site where they can be installed and commissioned. This approach offers a number of
advantages over traditional stick-built methods of construction where the majority of work is
performed onsite. A few of these include:

Reliable Access to Skilled Manpower – Modular construction offers access to the type of workers
required to build large-scale facilities. This is particularly critical in the oil and gas industry, where the
pool of experienced tradespeople such as welders and electricians can be limited. With a stick-built
approach, securing skilled craft workers can often inflate costs due to the need to provide travel
allowances and/or housing accommodations. In many instances, an offsite module fabrication
facility can be selected in a region or country where the labor supply and demand relationship is
more balanced, allowing the operator to take advantage of lower rates.

Shorter Development Schedule – Modularized construction can reduce a project’s development
schedule, and it does so in a number of different ways. First, by assembling modules using
prefabricated parts offsite in a designated facility, the chance of running into delays caused by
weather or other environmentally-related factors is minimized. Second, building offsite also affords
operators the advantage of being able to perform work on multiple areas of a facility
simultaneously. This is not always possible when using the traditional stick-built approach,
particularly when it comes to offshore facilities, as the amount of workable space onsite is often
limited. Third, by performing work offsite, operators can remove certain activities from the
schedule’s critical path and reduce the chance of trickle-down delays.

Improved Quality – Prefabricating modules also provides a number of advantages with regards to
quality control and assurance. In an outside onsite environment, metal expansion and contraction
caused by variations in temperature can impact the integrity of welds. This is in contrast to plant
fabrication offsite, often performed indoors, where weld reject rates are substantially lower.
Prefabrication also allows for testing of modules before arriving onsite. In doing so, any problems
with equipment or systems can be identified and quickly resolved, significantly reducing costs during
the installation and commissioning phase of a project.

Increased Safety – Prefabricating facility components reduces the number of individuals required to
be working onsite, which can simplify construction activities and increases overall safety. This is
especially the case with expansion and/or upgrade projects, as it reduces the need to perform
construction work in close proximity to ongoing facility operations. Moreover, prefabrication can
minimize the need to shut down parts of an existing plant, leading to less downtime and increased
production.

Modular Construction Offshore

Modularization has become particularly prominent in the offshore oil and gas industry because the
offshore facility development cycle is longer, riskier and more expensive.

The typical development cycle of a conventional offshore floating production system (FPS) is
anywhere from five to seven years from concept to first oil. However, through the increased use of
modularized construction and standardized designs, many operators have been able to reduce time
to first oil and improve the overall operating flexibility of their facilities.

One example of this can be seen with the Delta House FPS in the Gulf of Mexico’s Mississippi
Canyon. The project is part Delta House Field Development Project, a joint venture between LLOG
Exploration and Blackstone Energy Partners.

Unlike the conventional development approach taken by most FPS operators, which involves drilling
appraisal wells and studying reservoir composition prior to design and construction, work on Delta
House began before any specific pressure, volume, temperature and production data was available.
This required topsides contractor Audubon Engineering Solutions to implement a scalable, “one size
fits most” modular design able to handle a range of hydrocarbon profiles.

Audubon also standardized approximately 85% of the topsides, which further improved the overall
flexibility of the platform and allowed for design modifications during the construction process.

The use of standardization and modularization, along with other unconventional techniques,
ultimately allowed Delta House to achieve first oil in April of 2015 – just three years after
construction on the facility commenced and roughly 2-3 years earlier than other comparable
platforms in the Gulf of Mexico.
Modularization Challenges

Modular construction does not come without drawbacks.

One of the biggest challenges associated with prefabricating modules offsite is transportation.
Because modules typically consist of multiple pieces of equipment ancillary piping, control systems
and other components on a single skid, size and weight can be significant. This often poses logistical
issues, which can increase complexity and inflate costs.

For instance, modular construction may be a solution for projects located in remote regions where
skilled labor is difficult to secure. However, as special planning and transportation measures are
required to safely deliver modules to the site. Delivery is made even more difficult in the winter
months, as many routes to remote areas are closed or simply not suitable for heavy-haul operations.
This was evident on the ExxonNeftegas Sakhalin Island Onshore Processing facility in Chayvo, Russia,
where subzero temperatures and blizzard conditions forced the EPC contractor, Fluor, to schedule
module deliveries in the summer months.

In addition, because modules have to be integrated to allow for transportation and lifting, they have
little extra space on the skid or module for ongoing operation and maintenance. While this is not
always an issue, it sometimes can create difficulty when the module has to be serviced due to the
fact that there is a limited amount of workable room for maintenance personnel to access
components, especially on the inner sections of the skids.

Modular construction techniques have been used throughout the oil and gas industry for many
years. However, with increased pressure on operators to reduce development schedules, cut costs,
and become more efficient—their use in both the onshore and offshore arenas is becoming more
common. This may well continue to be the case as the industry copes with low commodity prices
and looks for ways to maintain profitability.