Decommissioning an oil rig (A beginner’s guide)

In this post, we outline the what, why, and how of the decommissioning of an oil rig.

Let’s drill into the details.


What is an oil rig?

An oil rig is any kind of apparatus constructed for oil drilling.

Oil rigs are divided into two main categories – onshore and offshore.

Onshore oil rigs include:

  • Drilling rig – an apparatus for on-land oil drilling; and
  • Oilwell – a wellbore from which oil is extracted.

Offshore oil rigs include:

  • Drillship, Semisubmersible, Tender Barge – floating apparatus for offshore oil drilling;
  • Jackup Rig – a legged / self-elevated drilling vessel for offshore oil drilling; and
  • Oil Platform – an apparatus for offshore Oil Processing and Production.


What is oil rig decommissioning?

Decommissioning an oil rig is the process of ending or partially ending operations at the rig.

There are three kinds of decommissioning for offshore oil platforms: Hot (or warm) stacking, cold stacking, and total decommissioning.


Warm stack or cold stack?

  • Hot (or warm) stacking involves paying a skeleton crew to stay on the rig and conduct regular maintenance to ensure a smooth reactivation when the equipment is once again in demand and brought back online.
  • Cold stacking is the equivalent of shutting down a factory in manufacturing – the rigs and equipment are packed up and stored, and employees tied directly to the operation of the equipment are laid off.


Why do oil rigs get decommissioned?

The main reason oil rigs get decommissioned is that the prices of oil (and gas) are too low to enable these rigs to operate profitably.

The other reason is that the oil wells have run dry.


How much does it cost to decommission an offshore rig?

According to Bloomberg, it costs roughly $40,000 per day to warm stack a rig, while cold stacking costs significantly less, at $15,000 per day. On an annual basis, service providers can save over $9 million by deciding to cold-stack a rig rather than warm-stack it.

There is no one correct answer when it comes to deciding on whether to warm-stack or cold-stack a rig. Individual service providers must make their own decisions based on their own analyses of costs and risks.


New approaches to handle totally decommissioned offshore rigs

For oil platforms that are totally decommissioned, the previous approach was to totally dismantle the entire infrastructure and restore the seabed to its pre-lease condition.

However, new approaches have been proposed, including turning the underwater part of the platform into artificial coral reefs or facilities for fish and oyster farming and repurposing oil platforms to hotels, resorts or casinos.



Now we’d like to hear from you.

Do you think it is better to completely dismantle a totally decommissioned oil platform or repurpose the infrastructure for new uses?

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