Salvage and the Nature of Residual Value

Was anything salvaged from the wreck?

Salvage means “rescue” and as such may refer to anything that might be saved from total destruction. The word salvage almost exclusively was applied to the salvage of ships at sea in distress or in danger of sinking. In business terms, the word salvage or the salvage value of something is the estimated value of an asset at the end of its useful life. In maritime language, salvage was the compensation paid to the rescuers. Anything that has been put to good use that would otherwise have been wasted is salvage. Most of the terminology comes originally from marine or maritime usage, but the term of salvage has been adapted to other areas as well:

Automobile or vehicle salvage – wrecked cars are often salvaged for the various parts of it that are reusable when removed from the wreckage.

Data Salvage – the process of extracting data from damaged, failed, corrupted, or inaccessible primary storage media.

Salvage material – generally any material that might have been damaged through accident, weather, or mishandling as in train wrecks, truck wrecks, and flood or wind damage to warehouses.

Salvage archaeology – an archaeological survey and excavation carried out in areas threatened by construction or development.

Salvage therapy – medical treatment for those patients not responding adequately to first line treatment.

It seems to come back to the same meaning in any case and that is the value of leftovers from whatever fate it experienced whether trauma, regular usage or time. A tried expression is “one man’s trash is another man’s treasure” and was probably expressed the first time when a salvager was looking over a shipwreck on a reef. You can bet the likes of Robinson Crusoe was pleased to find a workable kerosene lamp, a musket, or a torn sail to make a tent on his deserted island while searching the ship breaking up in the surf and reef.

The author has been involved in salvage for many years. In the case of the oilfield, much infrastructure was put in place to accommodate the booms that came with a discovery well in the great oilfields of Texas, Oklahoma, and Louisiana from 1920 to 1960. All of those wells, pipelines, storage facilities and pumping stations are currently being dismantled due to the material having come to the end of its useful life. Whether it has value at that life end depends on the cost of removal and the value as a commodity. Other definitions for salvage or salvageabiiity or salvageable is the act of saving something from damage or destruction or the rescue or use of any found or discarded material or to gain (something beneficial) from a failure: she salvaged little from the broken marriage. Salvage might best be described as the proceeds from the sale of salvaged goods or property..

It takes an entrepreneurial mind to successfully work in the salvage business or one with a trader’s mentality with resourcefulness to determine various types of usage for the same product. The most common practice in the world is the dismantling of automobiles to salvage the various metal components whether ferrous or non ferrous. In recent years, the dismantling of laptop and desktop as well as mainframe computers to recover many precious and or rare metals has been attractive to many in the Far East economies.

Oil and gas wells are often “plugged and abandoned” after the wells or depleted of recoverable oil and gas and the well bore or no longer useful. In this process, the pipe that has been inside the well bore that is not cemented in place is extracted. This is done after the apparatus of the valves and pumps and meters on the surface are removed. Special equipment is needed to perform the dismantling task. It is done in much the same way as it was installed and sometimes the same expense or equivalent is incurred for a removal process. Oftentimes around a formerly producing oil and gas well, there is associated equipment such as oil and gas separator apparatus, pumps, transfer pipe, valves, storage tanks, heater mechanism equipment and engines. In all cases these are of strong metal construction and are not easily damaged in the removal process.

On one occasion our company bought a group of wells to be salvaged and “plugged and abandoned”. There was associated equipment and that was recovered. In addition, there was an eight mile 8 5/8” outside diameter pipeline that had carried gas from the wells when productive to a larger transmission pipeline. The line was required to remove and the salvage operation commenced, although we had never removed pipeline from the ground for salvage purposes. The operation was successful and we found a ready market for the pipe as it was rethreaded and used again for downhole casing pipe in new wells. This one accidental salvage job created the pipeline recovery business that our company specializes in.

On another occasion, we bought a forty-mile pipeline for the intent of salvage for the same purpose as above of making surface casing for new wells. The company we bought the pipeline from required us also to dismantle the large storage tanks on each end of the pipeline. One of the tanks had a 50,000-barrel capacity while the other had a 200,000-barrel capacity. We took on the job only to find the larger tank of the two had eighteen inches of crude oil in a sludge-like form on the bottom of the tank. We learned how to clean the tank of the oil by removing the sludge and using a centrifuge type apparatus to remove the impurities and then we heated the entire substance. This made the stuff viscous enough to pump and transport and sell the oil. We made $15,000 from the sale of the crude after clean up and then we cut the tank plate along the seams in marketable sections. At this point, the steel plate was good and clean and of various wall thicknesses and readily marketable. With commodities like steel or oil, markets are not difficult to find.

Other Commodities

Our company has had many situations where the cost of removal or salvage was greater than the value of the recoverable assets and we declined the job. The most common of these exist when the labor costs outweigh the material value after salvage. Sometimes the value is not there and the sometimes environmental hazards or labor issue intensity is so great as to nullify any potential gain from the sale of the salvageable material. Other times, the material is not salvageable because of the uneconomic cost of removal or the logistics of removal prevent the job from being carried out. We have encountered pipelines that were so filled with sludge type oil residue, that neither the line nor the oil could be removed economically. The answer is to leave it in place or the responsible party has to pay to remediate the situation or else it just remains where it sits. Sometimes there is not enough quantity of a material to justify mobilization to commence a job. I get calls on a daily basis from a landowner who wants a segment of 800’ or 350’ or the like of pipeline remove from his property that was left by a pipeline company or oil and gas gatherer who left a system in place after a field depleted.

Fixtures

There are at times jobs that have no salvage or residual value, at least on a positive scale. After a bathtub is installed in a bathroom, the bathtub essentially becomes a fixture of that bathroom and is there to stay as long as the bathroom is operative or until the structure is torn down or the bathtub replaced. When replaced, the salvaged bathtub has no value whatsoever and has in reality a negative value when the cost of removal and disposal is considered. Oil and gas well are drilled with steel casing set in the surface to a depth of 200 feet to 2000 feet and cemented in place to protect shallow water sands from drilling mud contamination and oil, gas or salt water which might contaminate these sands if allowed to migrate upward without protection by the casings. The casing becomes a fixture to the oil or gas well whether the well is productive or not. Many pipelines essentially become fixtures, especially sewer lines, smaller water lines and some oil and gas product lines. Most all pipelines laid under waterways, bays and river crossings become fixtures, as they are basically uneconomic to remove plus a danger to the structure of the waterway. Environmental issues are always in play. Railways will seldom allow pipelines to be removed from crossing as the removal could disrupt the integrity of the rail bed.

Methods and care

An operator on a track hoe costs the same to dig up steel pipe as it costs to dig up PVC, ductile or cast iron pipe. The chances are the PVC, ductile, or cast iron pipe will not survive the advances of the hoe no matter how careful the operator. The result is the destruction of the material and the removal becomes only an expense with no salvage or residual value for the material. There are some materials that are not salvageable and a contract must be let to remove at a cost in order to do away with the material if it is to be removed.

Summary

Salvage operators can be found for most any kind of demolition operation. There is expertise in removal of wiring, concrete, plastic or PVC and virtually any other type of material to be separated or eliminated. The question becomes whether or not it is positive or negative in cost to the owner. Will a salvage operator be willing to remove a material or substance at a profit to he or the owner or will he expect to be paid for his labor and equipment. Each situation must be examined individually.

Markets determine the feasibility of projects. A plant demolition project that would have been profitable for an operator one season could be a costly and cost ineffective endeavor another season.