Offshore Construction

Law and Practice

Stuart Beadnall, Simon Moore

• Publisher: Informa Law from Routledge
• Year: 2021
• ISBN:
  9781000489446
• Edition: 2
• Topic: Law
• Subtopic: Maritime Law
• Index: Law

This updated book provides practical guidance on avoiding and resolving disputes in the construction of offshore units and vessels, including FPSOs, drilling units, OSVs, FLNG, FSRU and fixed platforms. Written by a leading team at Stephenson Harwood, it covers the entire construction process from initial concept right through to installation, at each stage commenting on typical contract terms and offering expert advice based on real-life examples.

With 30 per cent of the world's oil and gas production coming from offshore areas, the construction of specialist vessels to perform offshore operations is a crucial part of the industry. However, with exploration and production being performed in increasingly exacting locations, the scope for disputes arising from cost overruns, scheduling delays and technical difficulties is immense.

This second edition has been updated to include new case law as well as a new chapter on financing. The existing chapters will feature more information on payment mechanisms and on transportation and installation. This unique text will be of enormous assistance both to legal practitioners and offshore construction professionals including project managers, financiers, insurers and subcontractors.

CHAPTER 1

Introduction: understanding offshore construction

DOI: 10.4324/9780367855574-1

A Introduction

1.1 This book is concerned with contracts for designing, building and installing units or platforms or vessels or facilities, for the exploration, development, production and decommissioning of offshore oil and gas fields. Some of these are delivered at the shipyard. Some are installed and commissioned in the field. All are designed during the construction contract period for a particular purpose. They may be drilling units required for operations in harsh conditions or deep water. They may be floating production units required for particular fields, or fixed platforms with the same purpose. They may be required to perform specialist functions such as multipurpose pipelaying and well completion operations.

1.2 In this chapter we define and describe the types of structure that the book will cover and look at the history and evolution of a typical offshore construction contract.

(i) Identifying the issue

1.3 Is it a ship? It may look like a ship. Equally, however, it may be square or cylindrical. Or it may look like a floating refinery.

1.4 It may be built in a shipyard. It may be registered on a ship registry. It may comply with maritime regulations. And it may be referred to as ‘she’. Does it matter what it is called? Well, if you had an issue with it, or were trying to draft the construction contract, it might.

1.5 If it is a ship, you, the reader, may use a book on shipbuilding and hope it has some of the answers to your queries. If it isn’t a ship, you might use one of the books on building and engineering contracts to find the answers. You would have to use your imagination in some areas, for example, when it comes to delivery of the non-ship in 5,000 feet of water, but surely the legal principles are the same? In both situations, you would be likely to find yourself some way short of the answer.

1.6 If things go badly wrong during the design and construction of these types of vessels, the remedies typically found in either shipbuilding or onshore construction contracts may be of little assistance. A shipbuilding contract may leave the vessel in the hands of the shipbuilder, in the expectation that it will be sold to a third party and realise at least a substantial portion of its market value. But a vessel built for a particular location or specific purpose would have no market value. In contrast, an onshore contract would, inevitably, leave any unfinished work in the hands of the Company on whose site the work is performed. The Company would bring in a new contractor to finish the work. That remedy is effective in an offshore contract only if the Company can take possession of the unfinished work and also have it completed at a suitable location, which is easier said than done.

(ii) Terminology

1.7 So it does not necessarily matter what we call it, but it does matter what the shipbuilder and the buyer can do if things go wrong. Not that we call the buyer a buyer, as that sounds like a sale of goods situation and this is construction. So we call him/her/it the Owner or the Company (for reference we will use Company), and we call the product of the work to be performed works, permanent works or units, or anything, apart from a ship. Even if it is one.

1.8 As the shipbuilders are not just building, we shall call them the Contractors. We shall consider later in this chapter whether to call the contracts EPC/EPIC/EPCI. We are not concerned just with floating platforms, but also fixed platforms, and the issues relevant to fixed platforms are mostly the same: They also have to be designed, fabricated, delivered, installed and commissioned. They are subject to the same difficulties in the event of substantial variations to the work. At some point they may have to float, even though they are never ships.

1.9 We have talked about this not being a ship. It may help to discuss what a ship is. A ship is defined in the Merchant Shipping Act 1995 as a vessel used in navigation. ¹ It does not need to be capable of its own propulsion (although many of the units we are describing are). Most of the units are accepted on ship registers. The authors are not aware of anything that requires ships to have a pointy bit at the front, even though they are, of course, easier to navigate if they do. A typical FPSO unit (floating production, storage and offloading) is a ship, whether she likes it or not.

1 Section 313.

1.10 Having solved that mystery, we now turn our sights to the weightier topic of how to design and build units successfully for exploiting offshore oil and gas reserves, while there is still an appetite to exploit them. In case there is no longer such an appetite, we do make reference to vessels used for windfarm installation.

B The vessels

1.11 We have called the book Offshore Construction: Law and Practice. Offshore construction is the usual expression for the contracts we are describing. However, we are not primarily concerned with construction offshore, such as laying and connecting pipes. We are primarily concerned with the construction of units for use offshore. We have explained how the legal content of offshore construction contracts may vary according to the similarity of the vessel, on the one hand, with conventional commercial seagoing vessels, and at the other extreme, with an onshore processing plant. If the basis of your contract and vessel starts at one extreme, the further you go towards the other extreme, the more complicated and bespoke the contract becomes. There are, nevertheless, particular complexities that arise even in the more conventional types of vessels. We set out below the main families of offshore vessels, with characteristics of each which need to be addressed in the legal terms. These are discussed in greater detail in Appendix A.

(i) Offshore support vessels

1.12 These include platform supply vessels, Anchor Handling Towing Supply vessels (AHTS) and other platform support vessels such as standby vessels or Emergency Response and Rescue Vessels (ERRV). Vessels having tug responsibilities are required to achieve specific bollard pull capability. Although the design of the vessels may not be bespoke, the vessels may be required to comply with the offshore safety standards of a nominated jurisdiction. A key issue in the construction contract is the allocation of responsibility for ensuring that the vessel complies with those standards, together with the allocation of costs and delay for any variations to the specification required for such compliance.

(ii) Construction and subsea support vessels

1.13 These may include pipelaying vessels, well intervention vessels and heavy lift barges. Many will be of bespoke design, intended not for operation in a particular jurisdiction, but in order to provide the Company with a competitive advantage. Again, variations to the specification may be required in order that the vessel may meet the requirements of its first employment. Such variations may be required for compliance with local standards, but also in order to achieve a particular task. For example, a heavy lift decommissioning vessel had to be extended after being built but prior to delivery, in order to lift the first platform for which the vessel had been employed.

(iii) Jackups and fixed platforms

1.14 A jackup vessel is capable of navigation, but operates as a fixed platform on location. Its function may include drilling, accommodation or windfarm installation. It may be bespoke to the extent of the Company wishing to impose its own design to obtain a competitive advantage. The key legal issue to be addressed in the construction contract is responsibility fo...