SPE 109137
Indonesia Deepwater Field Development Technical, Contracting, and Execution
Challenges
Jafar Korloo, Chevron Corporation
Copyright 2007, Society of Petroleum Engineers
This paper was prepared for presentation at the 2007 SPE Asia Pacific Oil & Gas Conference
and Exhibition held in Jakarta, Indonesia, 30 October–1 November 2007.
This paper was selected for presentation by an SPE Program Committee following review of
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Abstract
The Oil and gas industry has gone through major
transformation over the last six years from relatively quiet to
extremely dynamic market conditions. The dynamic market
condition has introduced new challenges for Operators in
terms of field development cost estimates, biding strategy and
cycles, project schedule, execution, shortage of equipment,
material, and personnel. The same market conditions have
also created challenges for contractors in coping with volume
of the work and staff turnover.
Determination of the best concept for a deepwater field is not
always a clear and an easy task. The final development
recommendation is often strongly influenced by non-technical
considerations such as the market conditions, maximization of
local content, and transfer of technology.
Offshore East Kalimantan, Kutai basin in Makassar Strait is a
major oil and gas region. The conditions in the area are
unique, offering opportunities and challenges in development
of new fields. The water depth in the deep section of the basin
extends to approximately 1900m. The environmental
conditions in the area are benign with exception of strong
persistent currents.
This paper discusses the following topics:
• Typical deepwater development options and
opportunities
• Technical issues unique to the area
• Project sanction challenges
• Contracting issues and market conditions
• Project execution challenges from the FEED stage to
Engineering, Procurement, Construction and
Installation stages
• Schedule related challenges and issues.
Introduction
The development planning stage has the greatest potential to
impact project economics. Once the project moves into the
execution phase, the project team has limited influence on the
project earning outcome through budget and schedule control.
Figure 1 illustrates the impact on earnings at various stages of
the development. To improve earnings, it is therefore prudent
to focus attention on the early field development planning by
evaluation of all options, alternatives and risks. Uncertanties
and risks associated with project development need to be fully
understood and evaluated in order to ensure quality decisions
are made, This is especially true if working in relatively new
regions, applying new technology to a particular region and in
periods of dynamic market conditions. Understanding and
managing the uncertainties and risks are the key success
factors in field development planning.
The main field development steps include:
• Subsurface evaluation, i.e. reservoir modeling
• Determination of subsurface development concept
• Selection surface development concept
• Consideration of maximization of local content and
transfer of technology to the host country
• Health, Safety, and Environmental Evaluation
• Economic evaluation
• Development of project execution plan
• Evaluation of local requirements with respect to
tendering and procurement for various stages of
project
There are several risks associated with field development
planning and execution which must be thoroughly understood
and accounted for during the planning. The key risks maybe
summarized as follows:
• Subsurface assessment
• Market conditions, escalation of costs, and the
challenge to accurately estimate the CAPEX for
projects scheduled to procede several years in the
future
• Complex and lengthy procurement processes with
significant risk of a re-bid situation and the
subsequent impact on costs and schedule
• Lack of competition due to market conditions and
time and effort required to bid major capital projects,
leading to high costs and/or failed tenders
2 SPE 109137
• Availability of qualified and experienced contractors,
material, deepwater construction vessels and rigs
The selected development concept and contracting strategy
should be robust and flexible to minimize and accommodate
the above mentioned risks.
The selection of a floating production system or fixed platform
for a particular development is dependent on a number of key
factors. A development may require a single facility or
alternatively, a combination of several such facilities. In the
assessment of facilities, the concepts can be divided into two
broad categories: the dry and wet tree options.
A dry tree development has the wellheads in air at the deck of
the facility. The wells are drilled and serviced from the
production platform either by a stand-alone facility or by
tender assisted drilling. In a wet tree (Subsea) development
the wellheads are at the seabed. They can be drilled directly
from the production facility or from another specialist drilling
facility.
All concepts are in principle suitable for wet-tree operations.
However, for dry trees, the motions of the floating facility
relative to the risers need to be restricted. Risers must to be
tensioned through connections to the deck and/or by buoyancy
cans. Therefore, only concepts with low motions (particularly
heave and roll) are suitable for dry tree operations.
In wet tree situations, production risers and control umbilicals
are usually independently supported or have considerable
flexibility thereby allowing selection of floating system
concepts with larger relative motions.
The export of hydrocarbon will determine whether the facility
will require storage as an integrated to the host platform or as
a separate floating storage unit. Where production can be sent
to a pipeline or adjacent facility storage is not usually
required. However, if production is to be exported via a
shuttle tanker, then storage is required to provide a buffer for
the production.
A simplified field development process is illustrated in Figure
2.
The environment also influences the choice of concept
because it changes the response of the host platform in terms
of the motions and the loads. Indonesia deepwater area in the
Makassar Strait has favorable conditions for consideration of
variety of platform concepts ranging from conventional to
unconventional systems.
Local Environmental Conditions
Makassar Strait, located east of Borneo Island, is a major oil
and gas area in Indonesia. Several oil and gas fields have
been in operations in the shallow water areas along the coast
line. Recent discoveries in the deep sections of the
Makassar Strait have resulted in considerable activities in
planning for development of these prospects. The first one
of such developments which went into operations in 2003, is
the West Seno field installed in 1025m water depth (Figure
3). Most of the new major discoveries are located in the
deep sections of the strait extending to approximately
1900m water depth. The seabed topography formation is
generally consistent in the area. There exists a coral shelf
that runs approximately parallel to the coastline with a depth
of approximately 100m. The water depth from the coral
shelf to the beach deepens to about 250 m depth before
starting to shallow. The deepwater channel is located
approximately 30km from the coral shelf.
Makassar Strait is protected from north by the Philippine
Islands and from the South by Indonesian Islands. The wind
and waves in the area could be categorized as benign. The
waves are generated by seasonal local monsoons winds
which are very directional. The local waves are generally
short waves with short periods of 4 to 8 seconds. The
currents in the Makassar Strait are the dominating factor in
design of deepwater offshore structures and risers.
There is a persistent southward flow through the strait from
the Pacific Ocean on the north through the Java Sea to the
Indian Ocean on the south, which are referred to as the
Indonesian Through Flow (ITF).
The currents in the Makassar Strait are strong and persistent
resulting in challenges in design of deepwater floating
systems, mooring systems and risers. The primary circulation
patterns in the western Makassar Strait are the Indonesian
Throughflow (ITF), an intense southward-flowing current.
Typically the strongest currents are confined to four layers
having high speeds at the surface and at about 150m below the
surface.
Facilities Development Options and Opportunities
Determination of a development concept for deepwater
fields in this area is quite complex and requires
consideration of several key elements to make a quality
decision. The issues are comprised of a combination of
technical and non-technical factors. When considering all
the decision drivers, the best technical solution may not
present itself as the best option. The high level key elements
could be summarized as follows:
• Host location
• Dry tree versus wet trees or a combination of wet
and dry trees
• Technical issues
• Cost estimate
• Bid cycle time
• Economics
• Local content
• Schedule
• Company, partner(s), and local government
approvals
• Market conditions
• Availability of material, deepwater construction
and drilling vessels, construction yards and
equipment, and experienced resources
SPE 109137
Selection of the development concept will be based on
consideration and fine balance of the above key points. The
above mentioned points in relation to Indonesia deepwater
developments will be briefly discussed in this paper.
Development Opportunities
Combination of local low wave heights and short periods
creates a number of opportunities for utilization of non-
conventional types of floating structures and components.
For example on the West Seno project which consists of a
wellhead TLP (Tension Leg Platform) with 28 dry tree risers
and an FPU (Floating Production Unit), Figure 3. The site
conditions allowed the following first in the industry
concepts:
• Locking off TLP dry tree risers to its deck
eliminating the use of conventional tensioners
resulting in a considerable cost saving
• Utilization of Steel Catenary Risers with a barge
type floating system
• Drilling Tender Assist coupled with a floating
structure (TLP)
Dry Tree Concepts
One of the main design issues with a dry tree floating
system concept is the relative vertical motion (heave)
between the trees and the platform. The risers/trees are
fixed to the earth while the floating system can heave and
translate. The dominating factors contributing to the relative
vertical motion between the floating structure and the trees
consists of vessel heave and riser drawdown arising from the
floater excursions. Field proven dry tree floating system
concepts are typically Spar or TLP type structures providing
low heave response or heave constraint type floaters
respectively. The local short wave heights and periods
allow consideration of non-conventional dry tree floating
system concepts such as dry tree semi submersibles and dry
tree barges which may result in lower CAPEX, higher local
content and possibility of creating more competition and
easier tendering.
Dry tree concepts may be of the drilling and production type
platforms with either fully integrated drilling rig or based on
a drilling tender assist concept. The drilling tender assist
concept is based on coupling the tender assists vessel with
the host platform. The rig is transferred and erected at the
site from the tender assist vessel. This concept could result
in substantial savings as all the drilling support power,
equipment and fluids are located and supported from the
tender assist vessel.
West Seno field was based on a drilling tender assist
concept. The tender vessel was moored to the TLP for over
two years without any unplanned disconnection.
Wet Tree Concepts
Wet tree concepts do not share the complexity of managing
the interface between the production risers/trees and the
floating system. The main technical related challenge is the
3
design of relatively low cost riser systems. The West Seno
field is a good example of this application where it presents
the first application of steel catenary risers with a barge type
floating production unit.
In the current market condition, the main challenge with this
concept is securing deepwater drilling, installation, and
pipe-lay vessels. The latter two are also common issues
with a dry tree type concept. Typically these types of vessels
will have to be secured up to three years in advance in a
non-competitive type with escalating day rates due to
limited availability.
Host Location
The host or the platform could either be located near the
wells in the deepwater area or on the shelf at a distance from
the wells. Shore based option is not generally practical in
the area due to flow assurance issues, high costs of laying
multiple long distance flow lines, and substantially reduced
hydrocarbon recovery.
The presence of the coral shelf with relatively shallow water
within approximately 30km from the deep section creates an
opportunity to consider locating the host platform on the
shelf with a Subsea tie-back from wells to the platform.
The opportunities and threats presented for each of the
alternatives are summarized in Tables 1 to 3.
Dry Tree versus Subsea development
The decision between dry tree solutions versus Subsea is
usually a simpler one. The key drivers could be summarized
as follows:
• Can all the drill centers be reached from a centrally
located platform
• Workover requirements and its frequency
• Unlike Subsea developments the dry tree type host
platforms are usually space constraint requiring
multilevel type topside decks. Health, Safety, and
Environmental issues concerning flaring, high
pressure compressors, and simultaneous drilling
and production operations
• Ease of tendering and local content
Site Specific Technical Challenges
The site technical challenges are those associated with the
deepwater and the shelf.
Seabed Hydrates
The seabed in the deepwater areas beyond depth of 1000m is
intermittently covered with hydrates at the surface and a
continuous layer at a depth of approximately 100m below
the surface. This provides risks with respect to foundation
and anchoring system as well as well casing.
Currents
Currents in the area are quite strong from surface to a depth
of about 500m below the surface. The strong currents are
4 SPE 109137

dominant factors in design of risers and deep draft floating • Drilling rigs, particularly deepwater rigs
systems. The variability in current speed makes the • Offshore installation and construction vessels
prediction of extreme events and fatigue conditions • Fabrication
extremely challenging with perceived some level of • Engineering and Project Management
conservatism. An example of such an event is the • Steel
assessment of pre installation and post installation and • Equipment
recorded current data at the West Seno site. During the
• Construction labor
development stage of the project, the current measurement
though the water column was continuously measured for 13
The rapid increase in cost has resulted in project delays due
months resulting in more than 20,000 current profiles. to requirements for budget adjustments and approvals, and
These data were used to extrapolate the extreme 100 year
re bid situation. In addition to delays, the high cost
return currents. Shortly after installation of Seno TLP and
environment has also resulted in cancellations of the
FPU, a riser Vortex Induced Vibration (VIV) measurement marginal fields.
program was initiated which also included current
measurements from surface to the seabed. The simultaneous
Increased demand for higher energy by the developing
VIV and current measurement program was for duration of countries has resulted in high oil prices which is a prime
3 months. During this period current speeds equal to the
factor for the increase in capital development costs.
statistically derived 100 year currents were measured.
Skilled Resources
The physics of currents in the area are quite complex with
The 1980s downturn in the industry resulted in departure of
little correlation between the surface and deep currents.
experienced engineers and project managers from the oil and
Despite site specific long term measurements and other
gas industry. This also impacted desire and interest of
similar long term current measurements in the area, there
university graduates to enter the oil and gas industry and
exists some level of uncertainty in generation of design data.
willingness of university students to peruse engineering
degrees in this area. Earlier reduction in work force and
The Shelf
lack of replacement and addition of newly graduates has
The shelf consists of coral type structure; for the most part resulted in an aging work force and shortage of experienced
the limited data suggests that it is made up of dead coral.
engineers and project managers.
The coral deposit is a considerable source of uncertainty for This situation has created a constraint on capacity and
foundation design of jackets. The design requires soil borings
ability of contactors meeting the high demands, particularly
at precise pile locations. In the event of experiencing
in the highly specialized deepwater arena.
unacceptable soil properties, several soil borings at other
locations are taken until a suitable location is found. This
To add to the problem, the high demand has generated an
entails a long and costly process with high levels of
unconstructive competition between contractors to attract
uncertainties in the findings. experienced engineers and project managers by way of
offering high salaries and generous signing on bonuses.
The approaches from the basin to the shelf consist of ragged
This has caused a high rate of employee turnover resulting
escarpment with potential unstable soil conditions. Routing in escalation in cost, lack of continuity in the work force,
multiple flow-lines up the escarpment requires identification
and impact on the quality of work product.
of suitable corridor which impacts the field layout and
CAPEX.
From operator’s perspective, typically the contractor’s
proposed key project team leads are reviewed and selected
Flow Assurance
during the bidding phase. Considering the dynamic market
Due to low bottom temperatures, flow assurance challenges
conditions, by the time the contract is awarded, some if not
are common for most of the deepwater fields. Long distance
the entire selected key leads may have already moved to
tie-backs such as locating the host platform on the shelf other companies. This may result in a lesser desired team
create difficulties in managing the flow assurance.
managing the work.

On a positive note, this situation in the North America and

Challenges in Cost Estimation Europe has resulted in development of emerging of strong
Oil and gas developments have experienced substantial
young Asia and Southeast Asia oil and gas engineering
increase in cost in recent years and continue to escalate. The centers having detailed engineering capabilities. However,
deepwater sector has particularly shown an unprecedented
it will take several years before level of experience reaches
cost increase primarily due to deepwater construction and
to a point to fulfill the current shortage and demand for
installation vessels, drilling rates, high demand for experienced engineering and management skills.
fabrication yards, equipment, and demand for experienced
engineers and project managers. The main attributes could
be divided into the following sectors:
SPE 109137
Fabrication Yards
Fabrication yard availability throughout the globe has been
extremely tight. The deepwater platforms require special
type of equipment and fabrication facilities comprising of
heavy lift capabilities and quay side with ample depth to be
able to accommodate the loading and transportation of the
platform. Most of these types of yards had modified or
expanded their capability from the ship/tanker fabrication.
Consequently, construction of production platforms and
other type of offshore structures are competing for yard
space with the strong shipbuilding industry. The demand for
tankers has been increasing exponentially since the 1990’s
(Figure 4).
This competition has resulted in premium fabrication rates
and difficulty in securing a fabrication slot for simple and
low cost fabrications such as barge type structures.
Steel and Equipment
After a steep increase the price of steel has stabilized.
However, considering that the oil and gas industry needs
consist of less than 5% of world steel, and expanding
economies of developing countries with high demand of raw
material, the delivery schedule of steel plates to meet
development schedule has become critical.
In general, after the down turn, the specialized equipment
manufacturers did not expand their capabilities in time to
meet the growing demand. To meet project schedule, the
long lead equipments such as compressors, gas turbines
generators, and riser flexible joints will have to be ordered
well in advance of EPCI (Engineering, Procurement,
Construction and Installation).
Local Content
The goal of every operator is to execute the project in the
host country or maximize the local content to the extent
possible. However, for the deepwater projects there are
limitations on possibilities. In terms of experienced
engineers and project managers, this is a worldwide
problem, and it is more difficult locally as to date there have
not been many deepwater projects in SE Asia or continuous
level of deepwater activities to justify developing the
required local resources.
In terms of construction capabilities for deepwater projects,
it requires major investments on fabrication facilities,
equipment and development of international management
and supervisory skills.
It should be pointed out that there are already several
internationally recognized fabrication facilities available in
the SE Asia.
Contracting, Execution and Schedule
Procurement guidelines are designed to ensure that a fair
and competitive process is in place for qualification and
selection of a contractor.
For major oil and gas development projects, from discovery
to beginning of procurement for the EPCI stage could take
from 5 to 10 years. Considering the previous discussions on
5
market conditions, this does not provide much incentive to
invest scarce resources on the development of marginal
fields. For the non-marginal field, the development concept
must be robust enough to tolerate main risks in the reservoir
estimates and market conditions. The execution model,
contracting strategy, local content and local regulations
often play a major role in selection of the development
concept. The best technical solution may not alwaysoften be
the best overall development concept in terms of execution
and other non-technical issues.
To carry out the economic evaluation, during the
development planning stage several cost estimates are
developed with different levels of accuracy at different
stages.
The “funding estimate” is developed at the end of Front End
Engineering (FEED) stage. This becomes the basis for
progressing the project to the EPCI stage. To commence the
procurement process, company, JV partner and government
approvals must be obtained. To award the contract, the
lowest bid of the qualified contractor can not exceed the
approved budget by more than 10%. Prices exceeding 10%
require lengthy approval processes resulting in a re-bid
situation.
The typical EPCI bid cycle for major oil and gas projects is
around 18 months. Considering the dynamic market
conditions and rapid increases in costs, from end of FEED
stage to contract award the current market has demonstrated
that there could be 70% difference between the funding
estimate and the lowest bid price (Figure 5). This large
difference may result in cancellation of some projects and
for others it requires an updated estimate, approvals of new
budget, and re tendering. This results in delays in the first
production and potentially a lower level of interest by
bidders to participate in the subsequent rounds of bidding.
Adding to this problem is the restriction of FEED
contractors not being able to participate in the EPCI stage of
the project. The deepwater projects require highly skilled
and experienced engineering capabilities and very often the
concepts and/or components are of proprietary nature. Most
of these skill sets are limited to contractors who are
interested in detailed engineering, construction, and
installation of the facility. Thus the level of accuracy of cost
estimate or design of deepwater facilities developed by a 3rd
part contractor during the FEED may not be at the desired
level.
Conclusions
• Deepwater arena is a highly specialized sector with
many technical challenges
• Experienced and skilled resources have not kept pace
with the industry demands; aging/retiring work force.
Experienced engineers and project managers will
continue to be in short supply
6 SPE 109137

• In this dynamic market condition it is extremely

challenging to develop deepwater oil and gas field
particularly in the SE Asia region.
• There remains a high level of uncertainty in
prediction of first oil/gas date
• Project execution strategy and local requirements
play an important role in determination of the
development concept.
• The tendering process, although sound, is not
flexible enough to handle deepwater special
extraordinary circumstances. This may lead to not
creating a truly competitive contracting
environment
• Lengthy tendering bidding processes and approvals
may often result in lack of interest by the bidders
resulting in less competition and consequently
higher bid prices.
• Difficulty in obtaining 3 competitive bids for major
contracts. Contractors can be selective on bidding,
resulting in lack of competition and higher prices
• Specialist deepwater equipment in very limited
supply
• Shortage of available contractors, skilled
management, skilled labor, materials, and specialist
deepwater construction and installation, deepwater
drilling rigs, fabrication and equipment will
continue to dominate the market.

References

1. Gde Pradnyana (BPMIGAS), Jafar Korloo

(Chevron) - “Design and Development of Ultra
Deepwater Floating Production Facility For Makassar
Strait, Indonesia,” 2005 DOT

2. Jafar Korloo (Unocal), Jared Black (Unocal), Chunfa

Wu (SEA Engineering), Hans Treu (SEA
Engineering) – “Design and Analysis of West Seno
Floating Structures,” 2004 OTC, Paper 16523

3. Maritime Reporter & Engineering News - Summer

2007 edition)

4. RS Platou, “2006 High ordering activity in the new

building market
SPE 109137 7

Table 1: Shelf Platform

Opportunities Threats
• Shallow water - simple jacket concept
• Foundation issues on the coral shelf
design
• Potential for high local content • Live coral marine environmental issues
• Longer flow lines from trees to platform
• Routing the flow lines up the escarpment to the shelf
• Reduced hydrocarbon resource recovery due to
longer distance to the wells resulting in poorer
overall project economics than deepwater options
• Flow assurance
• Requires multiple platforms i.e. production,
accommodation, and flare

Table 2: Deepwater Subsea (wet tree) Development

Opportunities Threats
• Simple mooring system • Riser system
• Local capability for fabrication of large hull resulting
• Simple hull form
in limitation on local content
• Potential for high local content
• Higher resource recovery
• Improved flow assurance
• No offshore storage and offloading, export
via pipelines

Table 3: Deepwater dry tree development

Opportunities Threats
• Integration and interface of the dry tree risers to the
• Integrated drilling and/or tender assist
host
• Most dry tree concepts are based on proprietary
• Higher resource recovery
designs
• The FEED contractor can not bid or be part of EPCI.
• Improved flow assurance
An issue with proprietary concepts
• Limitations on drilling reach
• Seabed hydrate issues related to foundations of the
platform and top tensioned risers.
• Presence of strong currents; design of risers and
challenges in design of deep draft floaters
• Complex mooring system
• Costly transportation and installation
8 SPE 109137

Figure 1: Project Life Cycle Impact on Earnings

High
Impact on Earnings 100%

Expenditure
Impact on Expenditure
Earnings

Low 0%
Development Planning Execution Operations
SPE 109137 9

Figure 2: High Level Field Development Flow Chart

Reserves
Reservoir Management
Environmental Conditions
Product characteristics
Field Architecture
Process Requirements
Field Flow Assurance
Development Drilling and Work-over

Platform Function

Platform Location

Production Drilling & Production

Riser Design
Flow Assurance

Trees

Shuttle tanker
Access to Pipelines
Wet Trees (WT) Dry Trees (DT) Shore base Infrastructure

Export
Platform Function
Production Rate
Storage and Topsides Weight
Offloading Pipelines
Drilling
Riser System
Mooring and Foundation
Export
Safety
Platform Concept Fabrication
Transportation and Installation

FPSO (WT) Shelf Jacket (WT)

FPDSO (WT/DT) TLPs (WT/DT)
Multi-Function Barges Barges Hull type FPUD (WT)
(WT/DT) Single Column Floaters (WT/DT)
Single Column Floaters Multi Column Floaters (WT/DT)
Semi/Deep Draft (WT/DT)

HES Considerations

CAPEX & OPEX

Life Cycle Economics

Local Content Evaluation

Procurement Considerations
Execution and Staffing
10 SPE 109137

Figure 3: West Seno TL and FPU Installed in 1025m water depth

Figure 4: Total tanker orders in terms of DWT vs. year

% Increase in Total Tanker Orders since 1997

400%

350%
% Increase in DWT Orders Since 1997

300%

250%

200%

150%

100%

50%

0%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Year
SPE 109137 11

Figure 5: Lowest bid price versus cost estimate at the end of FEED

% Difference between Owner's Estimate at the

end of FEED and Lowest Bid

80

70

60
% Difference

50

40

30

20

10

0
2002 2003 2004 2005 2006 2007
AFE Approved Year