19 May 2020

How Cold Stacking Can Help Save Money for Inactive Oil Rigs

Huge sea vessel in docks with docking equipment and cranes in shot
 

Covid-19 has already created a heavy knock-on effect on the demand for oil.

In fact, the pandemic has wiped out almost a third of global oil demand through lockdowns and travel bans. 

Last month saw the prices of crude oil barrels crash to a historic low, prompting a price war so that oil companies could combat financial struggles.

And alongside this, offshore drilling contractors are experiencing contracts being ended. It’s left many companies with inactive drill rigs and with serious question marks over how to handle them. 

A downturn such as this hugely changes the dynamics of utilization rates of manpower and equipment. And it’s often tricky to estimate or measure the duration.

The good news is, there are options out there that help offshore drilling contractors tackle inactive oil rigs, saving money in the process.

What is Warm Stacking?

Warm stacking is where a rig, platform, or drillship is taken to port but kept running in a similar state to as if it was operating. Lights will be left on, engines will be up and running and there is a far smaller crew on board.
 
Warm stacked rigs can be ready to go when needed. 

What is Cold Stacking?

Cold stacking a rig means the hatches are battened and the crew is greatly reduced to either zero or just a few key individuals. The rig is then ‘stored’ in a harbor, shipyard, or designated area offshore until it needs to be activated.

On a warm stacked rig, a minimal crew stays on board the rig and it’s effectively on standby, ready for work. In contrast, a cold-stacked rig allows its owner to save a significant amount of money by crew reduction and fuel spend.

But steps will need to be taken to protect the cold stacked rig while it’s out of action. Remember, the ocean is a hostile environment where there’s humidity, salt water, and intense battering from the weather. 

Even in a relatively short period of time, cold stacked drilling rig conditions, as well as that of cold stacked oil rigs, can deteriorate. This means a cold stacked drilling rig or cold stacked oil rigs might not be available when needed, or need expensive repairs before redeployment. 

More modern rigs are more technically sophisticated. The more complex the electronics and computer systems the greater the risk to degradation during a cold stack. Insurance companies also will need to be comfortable with the state which drilling contractors are leaving their assets to ensure that they perform as expected when back on contract.
Cold stacked rigs are virtually abandoned, so preservation becomes the primary focus. 
 

Warm Stacked VS Cold Stacked 

You will need to use all of your experience and contacts to try and determine how long the rigs might be idle. 

Warm stacking is the best option if the rig is inactive for a short period, as it can be redeployed pretty quickly. For uncertain situations or instances where the rig could be out of action for a longer period of time, cold stacking is the best option.

It’s fair to say that the financial cost of cold stacking is higher in the beginning because protective and preemptive maintenance tasks need to be performed. 

However, warm stacked rigs run the risk of turning into poorly preserved cold stacked rigs. The problem is that over longer periods of time, maintenance activity on warm stacked rigs tends to decrease and equipment starts to deteriorate.   

Beware, low maintenance, and little preservation is the worst formula for rig stacking, whatever method you choose.

What are the Costs and Risks?

There’s a high level of technical complexity associated with drilling rigs offshore, so it’s not always certain what will happen when equipment is turned back on following a long shutdown.
 
But, there are ways to mitigate these operational risks by intelligently cold stacking, but proper planning and preparation can only mitigate a portion of the risk.
A 2016 article in Bloomberg says that on average it costs roughly $40,000 per day to warm stack a rig. Cold stacking costs far less, coming in at $15,000 per day.
 

Things to Watch Out For with Cold Stacking

The art of cold stacking takes experience. Here are our tips for what you need to make happen. 

Dehumidification and cooling

Equipment can get damaged quickly due to excess humidity and climbing temperatures. You will need to use temporary air conditioners, chillers, dehumidifiers and air handling units to control the climate and dehumidify equipment. 
 
A mechanical refrigeration approach can also be efficient at removing humidity in offshore environments for cold stacked rigs. For instance, during the last downturn, Transocean cold stacked several rigs by tempering the space instead of adding heat, providing a 35-40% reduction in power capacity.
 

Logistics Matter

You need to prepare to search for solutions that accommodate smaller onboard spaces. Areas with limited deck space, for example, could use industrial air conditioners with high static blowers. 

These units are bigger in size and by design, move larger amounts of air towards a longer distance. 

The securing of duct work, cabling and drain lines on the ship decks should also be carefully considered.  

Conclusion

To reduce operational costs during one of the most uncertain times the industry has faced is a necessity. 

Because of this, cold stacking is an effective choice for drilling contractors who want to survive. 

Temporary power and air conditioning rentals that control the climate to protect your equipment are ideal. 

The outlook is unpredictable, but cost-saving through cold stacking is something you can control.