Commercial Drivers for

Production Handling Agreements

Presented by Cory Loegering

Mariner Energy, Inc.

March, 2005
Goal
• Identify the Technical, Operational and
Commercial issues required for a successful
Production Handling Agreement (PHA)
between the host platform owners and a third
party producer.
Key Messages

• PHA often drives critical path for project sanction

• You are guest on the host facility – Act like one!
• Host operator often simulates tieback operators
economics
• Easier if host operator has equity in subsea project
• Trade-off between economics and risk
• Production controlled by terms of PHA
• Successful PHA is good deal for both parties
Small Operator Risk Philosophies

• Spend as much time on risk management as

profit optimization.
• Spread the risk to the party that can best
understand and mitigate the risk.
• Do not take on any risk that cannot be
insured.
Risk Management is the Key to Success
in Deepwater!
Small Operator Business Plan

• Utilize existing infrastructure

• Progression into Deepwater
• Field Developments
• Shelf Platform
• Complex FPF’s
• Construct a Host
 Mariner’s Progression Into Deepwater
M ANGUM GARDEN BANKS 179 MUSTIQUE DULCIMER BLACK WIDOW FALCON HARRIER DEVILS TO WER
MC 357 GB 17 9 GB 240 GB 367 EB 966 E B 5 79 E B 760 MC 773
op op op op op
APIA CRATER LAKE SHASTA OCHRE PLUTO KING KO NG SWORDFI SH ACONCAGUA
GB 73 MC 36 6 GC 136 MC 66 MC 71 8 GC 47 2 VK 962/917 MC 305
op op op op op op
-0’

375 ’W. D.
1 .5 MI LE
700’ W. D. -1,000’
TI E - BA CK 720’ W.D.
2. 7 MI LE 720’ W.D.
1997 (a, c) 7.5 MILE 832’ W.D. 860’ - 1,040’ W.D.
TIE - BACK 3.5 MILE 11.5 MILE
TIE - BACK TIE - BACK 9.5 MILE 1,125’ W.D. 1,144’ W.D.
20 00 (a, c) TIE - BACK
1998 (a, c) 200 2 (a, c) TIE - BACK 14. 0 MILE 7.0 MILE
1996 (a) 1995 (a) TIE - BACK TIE - BACK
1999 (a, c) 200? (b, c)
-2,000’
1, 840’ W.D.
3.5 MILE
TIE - BACK
2000 (a)
2,710’ W.D.
Lege nd 28 .4 MILE -3,000’
TIE - BACK
- S ubs ea Comple tion 1999 (a)
3,400' W.D.
30 MILE
- Spa r 2 003 (b, c)
(a) Produ cti on Comm enced 3,850’ W.D. -4,000’
(b) Expected First Product ion 15.5 MILE
(c) Explorat ion Di scov ery TIE - BACK
2001 (b, c) 4,200’ W.D.
op Mari ner Operate d 42 .0 MILE
TIE - BACK
20 04 (b, c)
4,750' W.D. -5,000’
8 MILE
TIE - BACK
2004 (b, c)
5,610’ W.D.
2003 (b, c)
-6000’

-7,000’

7,100’ W. D.
55 MILE
TIE -BACK
2002 (b, c)
Simple Shelf Platform

PLATFORM
541’ WD

DUAL 4-1/2” UMBILICAL

FLOWLINES TERMINATION
2.9 MILES DIRECT HYDRAULIC ASSEMBLY
CONTROL UMBILICAL

SUBSEA
FLOWLINE TREE
JUMPERS GB 73 WELL No. 1
FLOWLINE
TERMINATION 700’WD
SLEDS
Complex Mini-TLP
Finding a Host

• The Search
• Flow Assurance
• Courting a Host
• Timing
• Expression of Interest/Letter of
Intent to Process
• Fees
• Capacity
• General Terms and Conditions
The Next Level - Feasibility

• Technical and Mechanical

• Operational
• Commercial
• Economic
Technical and Mechanical Issues

• Process Capacity
• Process Additions and Upgrades
• Fluids Compatibility with Host
• System Operating Pressure
• Risers
• Export System
• Deck Space
• Motion Characteristics of FPF
Operational Issues

• Who will operate facilities?

• Host
• Producer
• Producer Requirements
• Production reports
• Producer platform access for maintenance
• Use/sharing of transportation
Operational Issues

• Routine Operations to be Performed by Host

• Minor maintenance
• Monthly, quarterly and annual testing
• MMS reporting
• Maintaining Inventory
• Spares
• Chemicals
• Incompatibility
• Vendors
Commercial Issues

• Timing
• Timing of available capacity
• Contracting a host – post or pre-drill
• Construction activity
• Life of Host
• Make-up of the Integrated Project Team
The Team in action.

Subsea
Team

Project
Manager

Subsurface
Team
Commercial Issues –
Construction Phase
• Design – Engineering selection
• Installation – Contractor and vendor selection
• Commissioning
• Production Facility Ownership
• During production
• Post-production
• Abandonment
• Subsea
• Host
Commercial Issues –
Production Handling and Processing
• Production Capacity
• Producers firm capacity rights
• Operators prior commitments
• Priority of production
• Receipt and redelivery points
• Ownership vs. custody
• Quality requirements
• Measurement and allocation
• Commingling
• Limitation or cessation of operations
Commercial Issues –
Production Handling and Processing
• Deferred revenue reimbursement
• Initial installation
• Future construction
• Downtime
• Commitment
• Notice of planned shutdowns
• Proration of costs
• Payment related shut-ins and shut-in conditions
• Production balancing
• Economic limits for host
Commercial Issues -
Platform/Facility Operations

• Standard of performance
• Producer liaison
• Permits
• Payment of employees, consultants
and subcontractors
• Repairs – authority limit
• Emergency
• Risk of loss
• Future access
Commercial Issues –
Compensation and Payments
• Fees
• Processing
• Ratchet down
• Operating fee for routine operations
• Fixed monthly
• Percent of Host platform operating costs
• Minimum fees
• Non-routine operations
• Adjustments to fees
• Common equipment accounting
• Statements and billings
• Audit rights
Commercial Issues –
Termination

• Term of PHA
• Termination rights
• Effect of termination
Commercial Issues –
Force Majeure

• Suspension of obligations
• Notice
• Resolution
• Operator replaces/refurbishes
• Producer replaces/refurbishes
• Producer option to purchase facility from
Operator
Commercial Issues –
Insurance Coverage

• Construction Phase
• Additionally Insured
• Waivers of Subrogation
• Knock for knock
• BAR
• General liability
Allegheny and Lay
Vessel Solitaire
Commercial Issues –
Insurance Coverage
• Post Construction
• General liability
• Protection and indemnity
• Pollution
• Excess liability
• Physical damage
• Premiums and deductibles
• Subcontractor
Commercial Issues -
Indemnification

• Operator/Host
• Producer
• Third party
• Pollution
Commercial Issues –
Miscellaneous
• Description of facility and additions to be made
• Schedule of insurance
• Production allocation methodology
• Measurement standards for production
• Producer production forecast
• Industry/Host standards for construction
• Routine operations
• Construction and Installation Schedule
• Export system requirements
Economic Drivers

• Capacity
• Fees
• Processing
• Operating
• Export system
• Process capital requirements
• Tieback distance
• Capital requirements
• Affect on reserve recovery
• Gravity/quality adjustments
• Timing of initial production
Economic Drivers

Looking for
the right
solution