Safety – The High Cost of Being A Cost Center

I spoke at the at the Decommissioning & Abandonment Conference in Houston last week.  My topic was how the SEMS requirement for operators to verify the skills and knowledge of their contractor personnel would affect decommissioning work.   (If you want to know more on this, let me know: KenWells@LifelineStrategies.com).

There were some interesting presentations and a few side comments on  decommissioning costs and safety.   On the cost side,  Jonathan Jordan from Independent Project Analysis (IPA) presented the results on a study on costs and schedule overruns in decommissioning.   He said the average project winds up costing about 43% more than estimated, as well as taking about a third longer than anticipated.

Why?  Certainly the weather has a lot to do delays in decommissioning.   But the big cause  may be the difference between profit centers (drilling and production) and cost centers (decommissioning and maintenance).   No matter what the industry, companies tend to invest in the areas that make them money and pinch pennies in the areas that cost them money.

According to Jordan, because drilling is a profit center, oil and gas companies focus resources on cost and schedule forecasting in order to maximize those profits.   Because decommissioning is a cost center, companies don’t invest in planning the way they do on the drilling side.     The irony is that, by not spending money on planning, forecasting and the other keys to cost estimates, companies wind up losing even more money on decommissioning.

What does this have to do with safety?   A disproportionately high number of offshore incidents occur on decommissioning or maintenance of aging structures.   Commonsense say that there would be more incidents because more things can go wrong on older structures, but that may be the easy answer.

Brandon Broom of Lockheed Martin made the very good comment that we simply don’t put as much focus on process safety on decommissioning projects as we do on drilling and production.   Lewis Dennis of Chevron stressed that the earlier in the planning process you focus on safety processes  the better your results.   If you wait until the crew goes offshore and your main focus is on PPE, you have lost the ability to control hazards.

The common thread is that cost centers don’t get the same attention as profit centers and, unless companies make a conscious effort,  that lack of attention can wind up resulting in much higher costs, either in dollars from cost overruns and delays or in human terms in accidents, injuries and fatalities.

Leave a Reply