Due diligence surveys and rig inspections - assessments conducted by the Minerals Management Service on offshore oil facilities

World Oil, July, 1998 by David Robin

Seeing a Minerals Management Service (MMS) helicopter land on your rig is like seeing blue lights in your rearview mirror. However, like the policemen who are protecting us, MMS rules and regulations are designed to protect the safety of personnel and our environment. In order to be proactive, Chevron USA elected to have outside mock MMS inspections from a third party company. The operator also implemented a dally structured routine inspection designed to eliminate the possibility of routine occurrences of violations of MMS rules and regulations. Outside mock MMS inspections are performed every six weeks or at the start-up of a new well, whichever comes first.

A due diligence survey is an inspection or audit of a field or lease that is for sale. It is conducted to determine if there are any hidden liabilities or potential problem areas which may exist and that are not readily evident to the purchaser.

The survey should be conducted by individuals or teams who are knowledgeable about day-to-day field operations, and all of the equipment necessary for those operations. Equally important is a complete knowledge of regulatory rules, regulations and operating procedures imposed by governmental agencies.

Procedure. An inspection tour of the facility is conducted, noting the general structure information. A few of the items inspected are: structure condition; lifesaving equipment; pipeline working pressures and operating pressure range histories; production equipment and its condition; compressors and their capacities; types of product metering; and engines and their maintenance histories.

Potential problem areas concerning the above are realized by intense scrutiny of past records - this is by far, the most important area of concern. Without the availability of these records, a quality due diligence survey cannot be accomplished. For example, a due diligence survey was conducted at the request of Stone Energy on a prospect under consideration. The following areas of concern were noted in the review of the structures involved.

Area 1. While making a visual inspection of the structure and associated production equipment, it was noted that extensive patchwork had been performed on the underside of the water clarification unit (precipitator). A review of the structure and maintenance records revealed a report by an X-ray company which had been contracted to do an evaluation of the production process vessels.

The report indicated, in part, that due to the patchwork that was performed and lack of documentation on the repair being performed by a code welder, the precipitator could no longer be considered a coded vessel under the ASME boiler and pressure vessel code. The discovery of these records indicated that a replacement of this vessel would be required. Aside from replacement cost, the production downtime associated with the replacement could be substantial.

Area 2. A bent and broken structural member near the boat landing was noted in the course of the inspection. A replacement of this structure member would require mobilization of a construction and welding crew; and a substantial outlay of resources would be required.

Area 3. Excessive corrosion on structural support beams on the upper portion of the structure was noted. Damage to the supports indicated an in-depth evaluation of the weight load requirements. These requirements are a factor in determining the size of a workover rig that could be supported by the structure.

Area 4. As per CFR 250.142, a Level 3 inspection is required of the underwater structural members every six to ten years. During the review of required MMS documentation, it was discovered that the Level 3 inspection was due. Because of the magnitude and cost of this type of inspection, a bid price could have been renegotiated, resulting in a significant cost savings.

The above review indicates that a properly executed due diligence survey is a valuable tool designed to expose hidden flaws and give the prospective purchaser an in-depth knowledge of the properties being offered for sale.

Inspection need examples. Due to the increased activity in the Gulf of Mexico, some drilling contractors are experiencing a shortage of trained personnel. Consequently, unfortunate accidents have occurred, which could have possibly been avoided with properly trained personnel.

In one example, after having accomplished required testing/calibration of the atmospheric gas detectors on a Chevron USA rig, an MMS inspection took place. Armed with the knowledge that the gas detection equipment had been tested the previous week, the company representative felt confident of positive inspection results. However, during the inspection, the gas detectors in the mud pit room were found to be inoperable. After investigating this incident, it was found that newly hired roustabouts had unknowingly directed a high-pressure water stream onto the gas detector sensor head, rendering it inoperable. This helped the Chevron personnel involved realize that an outside mock MMS inspection would be a valuable tool in their efforts to stay in compliance with MMS rules and regulations.