• David Armes

How Offshore Oil Rigs Work (video) - Fun Fact Friday

Updated: Sep 17, 2020

Costs of oil production vary significantly from country to country. This means changing oil prices have a profound effect on the nations and their economies. As oil production increases, costs to produce that oil increase. Eventually, the cost to produce an additional barrel of oil are so high that it doesn’t make sense to do so. This point varies by price of oil and costs to extract and can change rapidly as global supply and demand changes.

Oil location has a large impact on the cost to extract. Oil can be found anywhere from the middle of a field where oil derricks can be put in relatively easily to the middle of the ocean where a huge oil rig platform is needed with a 24/7 crew. The investments needed to get the oil out of the ground and processed are still dependent on the current price. The graph below shows how the price of oil matches with the production.

Image Credit: Wendover Productions (screenshot)

Why would a company build an offshore oil rig that costs up to 20 times more than an onshore drilling rig? With an average price tag of $650 million, offshore drilling is an expensive proposition. Well, as good places to drill on land dry up or are already being tapped, people turn to the ocean. There is a lot of oil beneath the ocean floor, so the higher startup cost offsets the long term return. Bigger rig, bigger investment, and more oil in your barrel.

Where are these rigs set up? Usually where other rigs are already drilling such as the Persian Gulf, Gulf of Mexico, or the North Sea. How do they pick the exact spot? Geological surveys and satellite images are used to find the best specific location. The oil rigs are actually towed out to sea and installed. Many people don’t realize that the huge rigs they see out in the ocean are mobile when needed. Common reasons for the rigs to be moved are to go to a new location or simply to be brought back to shore for maintenance. For the most part though, they stay in one place for years at a time. If they aren’t drilling, they aren’t getting oil!

Image Credit: Wendover Productions (screenshot)

Workers generally work 12 hours on and 12 hours off for 2-3 weeks while on board, then take 2-3 weeks off shore-side. The journey is usually via helicopter. These trips back and forth have created an entire industry of helicopter companies with hundreds of choppers travelling to and from offshore rigs. The North Sea oilfield is just off of Aberdeen, Scotland, where a small regional airport is the world’s busiest heliport, or helicopter airport. At least 100 helicopters take off each day on trips to the platforms in the North Sea.

Although people are transported via helicopter, supplies are transported via supply vessels that run to the platforms and back to shore. The oil from the rigs is usually transported to shore via an undersea pipeline. With hundreds of rigs offshore and all the air, water, and undersea travel, you can imagine that Aberdeen is a busy place!

On the rigs, there are four main categories of jobs: production, maintenance, and service. Production workers are involved with the production of oil directly, while maintenance workers upkeep the platforms. Service handles the care of the workers such as cooking, cleaning, or medical service for the rest of the crew. Anyone working on the rig in an offshore capacity typically makes more than an onshore worker. Therefore, as many people as possible work onshore communicating with the workers on the rig who are mostly operational.

Image Credit: Wendover Productions (screenshot)

The rigs offshore can be floating, tied to the ocean floor, or a fixed, basically a huge undersea tower. The tallest undersea tower is the Petronius, approximately 2000 feet, or 600 meters off the ocean floor. It’s the tallest freestanding undersea structure in the world. Petronius was the tallest freestanding structure until the Burj Khalifa surpassed it in 2009.

Is it worth the cost to spend anywhere from $150 million to $1 billion on an offshore oil rig?

Right now, the answer is no, due to oil prices in the $20-30 per barrel range. Offshore rigs are expensive to run and at low prices and low demand, it makes more sense to reduce offshore output and get oil from onshore sources. In short, onshore production is more flexible. However, in the longer term oil prices will likely even back out and offshore drilling will be productive. A second cost that is not often factored in is oil spills. Offshore production can result in serious disasters like BP’s Deepwater Horizon oil spill and subsequent clean up. This additional risk for low reward has resulted in flat growth in offshore oil in the last 15 years.

Overall, oil production is relatively flat over the last 20 years, and is likely to stay at this rate. With the complexity and cost of offshore rigs, expect continued upkeep and new rigs coming online as old rigs are retired.

This article was written mostly with content from “VIDEO: How Offshore Oil Rigs Work” at gCaptain. You can see the original video “How Offshore Oil Rigs Work” by Wendover Productions. Please check them out at the links above. Wendover has many videos on how the world works on everything from aircraft carriers to Coronavirus problems.

Happy Friday!

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