Prospects and pitfalls

Time is running short for a collaborative and cost-efficient approach to decommissioning, believes Optimus consultant Stuart Heggie.

Perhaps understandably, governments and operators have put off decommissioning as much as possible. However, given the inevitable wave of decommissioning over the next 30 years and following the results of a recent liability review Optimus Projects carried out on 30 North Sea installations, I believe it is imperative that we draw a line under the past and collaboratively prepare for the inescapable future.

In the North Sea alone, the status quo is widely understood: around 460 installations, over 10,000km of pipeline and 10,000 wells are set to be decommissioned over the next three decades. Around £1 billion is expected to be spent annually in the UK North Sea by 2015. With just 7% of the anticipated work having been completed to date, the opportunities for the supply chain are immense.

Assessing liabilities

As many operators prepare for their first decommissioning, the first issue to address is the assessment of liabilities. Key considerations for any decommissioning project are usually a fixed starting point, clear end-point objectives, legal compliance, minimum environmental impact, maximum safety and commercial risk.

In real terms, what are the advantages of assessing decommissioning liabilities today?

The benefits are manifold:

• the ability to forecast accurately and allocate appropriate funds;
• fixed and known costs;
• early engagement with key contractors ahead of a forecast increase in activity in 2017-22;
• the ability to consider additional abandonment options;
• allows for pre-cessation of production (CoP) decommissioning;
• prevents a resource shortage during peak decommissioning periods;
• removal of facilities in appropriate timelines; and
• flexibility in removal dates, which reduces marine costs.

In light of these, why are operators, contractors and the government still somewhat reticent to tackle the liabilities with a singular focus?

In order to understand the current situation more fully, we need to examine the drivers of these various parties. The UK government's liabilities amount to some 50% of estimated decommissioning costs – so £12-15 billion – making it the largest single stakeholder. Historically governments readily invested in and supported the build construction area of the industry, tightened laws and generally intervened to assist the economy. However, no such foresight or forward planning appears to be in place when it comes to decommissioning liabilities; the industry is required to negotiate largely unchartered waters without a supportive framework.

While some industry players do not see immediate harm in this, it is the taxpayer who will ultimately pay in the form of inflated infrastructure decommissioning prices. Each operator is required to submit a costed decommissioning programme to the UK Secretary of State when served with a section 29 notice (section 29 is activated three years before planned CoP, or five years where derogation is sought). However, operators need to carefully balance their liabilities with options on field life extensions (which have so far moved steadily to the right) and funding availability. Unsurprisingly, operators find it remarkably challenging to assess their true liabilities and build up corresponding war chests to meet these liabilities.

Despite operators having to demonstrate to the government that they have enough cash on their books to pay for decommissioning, there is no provision in UK petroleum law to truly assist, as it is neither prescriptive nor stringent in requiring that amounts are set aside to cover liabilities.

Lack of need translates easily into putting off planning. This, in turn, largely explains the lack of appetite among UK contractors for investing in the necessary infrastructure.

Moreover, as operators quietly question UK contractors' abilities to do the job, the latter have simply not been able to build a sustainable business model around decommissioning. Add to this a never-ending cycle of operators' requests for new innovation to garner yet greater efficiencies, contractors' drive to deliver these, then operators being reluctant to try out what they deliver, and the reasons for this stalemate become clearer still. A light on the horizon is Decom North Sea, set up by Oil & Gas UK to 'tackle the main areas of weakness and the bottlenecks which are inhibiting UK decommissioning supply-chain capability'. Yet, while the initiative has made significant progress in bringing together operators and the supply chain, a series of disconnects remains.

Changing the status quo

It's time to draw a line under what has gone before and realise there are great opportunities for government and operators to save money and for UK contractors to make money by putting in place now the collaborative planning and legislative framework necessary.

Now is the time to change behaviours and attitudes. In the past, asking companies to hoard funds might have been seen as a disincentive to invest. However, as decommissioning becomes a reality, it will be the lack of any coherent strategy to help manage operators' decommissioning costs that will become the deterrent to investment. And while contractors have struggled to make the necessary investment to date, it is also time for them to re-evaluate their approach towards decommissioning projects.

North Sea E&P projects are inherently bespoke due to the challenges of extraction, but there is no reason to approach decommissioning in the same manner. In fact, once a platform is hydrocarbon-free it is effectively a construction site at sea and there are many economies of scale to be reaped by pooling decommissioning lessons. The UK industry should heed the lessons learned in other areas of the world, the Gulf of Mexico for example.

To catch up, we need to leave our respective comfort zones and begin to collaborate in earnest. Many of the suggestions examined in the panel (right) that keep re-appearing in forums and informal workgroups will be familiar. This is not an exhaustive list, but it shows that bottlenecks known to all of us can only be removed with a team effort. OE

Stuart Heggie recently joined oil and gas engineering consultancy Optimus (Aberdeen) as head of its newly formed decommissioning division. Heggie gained technical and managerial experience of decommissioning at both operator and supply chain levels, including providing annual business planning liability estimates across Talisman's assets; technology development and implementation, and NUI conversion for BP's NW Hutton platform; detailed technical and commercial studies of TENAS facilities in Norway; and conducting studies for the decommissioning of Petrom's Black Sea assets.