Choice of Development Concept—Platform or Subsea Solution?
Valuation of the enhanced flexibility offered by platform-based development solutions and sequential subsea solution is difficult. This leads to the question: Are development solutions being selected without taking sufficient account of option values?
A real choice exists today on a number of discoveries between platform-based or subsea development solutions. Statistics from the Norwegian continental shelf (NCS) show that fields developed with fixed platforms have a substantially higher recovery factor. The potential for a later commitment to improved oil recovery (IOR) is determined largely by the original development solution. Through the use of cases and examples, this paper discusses principles for valuation of the enhanced flexibility offered by platform-based development solutions and sequential subsea solutions. It illustrates that valuing the various types of flexibility is difficult, which leads to the following question: Are development solutions being selected without taking sufficient account of option values?
Technological progress with subsea production has been rapid. Such installations can now be used in most conditions, and costs have been reduced sharply. A real choice exists today on a number of discoveries between platform-based or subsea development solutions. In particular, a subsea facility could be a good solution for fields with small resources or in deep water where the distance to land or to existing platforms is short. The choice of concept is a complex business, with input from many interested parties and technical disciplines. Examples of key developments on the NCS that faced a demanding choice of concept are Ormen Lange and Snøhvit in the Norwegian Sea and Barents Sea, respectively. These fields have been developed with subsea solutions even though that has required long tiebacks to land-based terminals. Platforms were one alternative studied.
Investment in subsea installations is lower, but drilling costs remain high throughout the field’s producing life, and licensees may often have to pay tariffs to infrastructure owners. In other cases, the same partners own both the subsea field and the processing facilities, as with the aforementioned Ormen Lange and Snøhvit examples. If, as in these cases, the development involves a tieback of subsea facilities to a newly built land-based terminal, this will be included as investment in the net-present-value (NPV) calculations. On the other hand, when the choice is to tie back to an existing processing facility owned by the licensee, which could now or over time be used by other projects (owned by the same licensee or others), an opportunity cost must always be calculated for use of the capacity. Fixed platforms offer a number of advantages, which need to have a value put on them. Such installations permit a flexible drainage strategy, particularly if the platform has its own drilling facilities. They offer lower marginal costs for IOR campaigns after a few years of learning lessons on the field, and they normally have higher regularity over their producing life. New recovery technology, which emerges after development has ended, is often easier to adopt when a platform has been chosen.