D-day approaching for UKCS infrastructure

Oil & Gas UK and Decom North Sea held a sell-out Offshore Decommissioning Conference in Dunblane, Scotland, in October. Meg Chesshyre listened in.

Sponsored by Aker Solutions and Wood Group Engineering (North Sea) and delivered in association with the UK’s Industry Technology Facilitator (ITF), the conference’s purpose was to increase awareness of the opportunities available across the industry and to ensure that the supply chain was prepared to meet the challenges presented by the fast approaching decommissioning phase of the UK’s oil and gas infrastructure.

Paul Dymond, Oil & Gas UK’s operations director, and Brian Nixon, Decom North Sea’s chief executive jointly chaired the event – the third in the series (OE August 2009) – which attracted more than 180 delegates. Dymond commented: ‘Industry interest is increasing and this year our focus is on encouraging further integration and expansion of regional capabilities for decommissioning in the UK continental shelf.’ The intention of Oil & Gas UK and Decom North Sea is to take a proactive approach to encouraging collaboration between asset owners and effective communication with the supply chain to enable the industry to realize the full potential of the decommissioning market.

‘This is not business as usual. This opportunity requires us to adopt a different mindset,’ Glen Cayley, newly appointed vice president for the technical division of Shell’s upstream Europe business, told the conference in his keynote address. ‘Cost control will be essential because money that is spent on decommissioning is money that is not spent on growth in terms of recovering oil and gas.’ Stability in the tax regime, particularly as it applies to decommissioning, would be vital.

The three main regions of decommissioning activity in the world – the Gulf of Mexico, the North Sea and Southeast Asia – present different challenges and maturity, Cayley noted.

‘This is not business as usual. This opportunity requires us to adopt a different mindset.’ Glen Cayley, Shell.

The Gulf of Mexico is the most mature area, with over 45% of its installations having been removed and over 40% of its wells abandoned. Activity is currently running at 140 structures and 450 wells per year. The spend is well over $600 million and rising. There is an efficient and innovative supply chain. The region is highly regulated with rigs to reef options.

The decommissioning business is developing in the North Sea. Some 7% of UKCS installations have already been decommissioned, with some major projects such as Maureen, Hutton, Frigg and NW Hutton completed and others – notably Brent and Dunlin – in consultation. Over 30 facilities of varying conditions and complexity have been abandoned. The spend is $500 million a year. Supply chain capability is developing, and the regime is highly regulated with a base case of clean seabed and limited derogations.

Offshore decommissioning is an emerging business in Southeast Asia. There is a limited data base and understanding. Less than 10% of the facilities have been removed with over 100 facilities, again of varying conditions and complexity, abandoned to date. The supply chain capability is at an early stage and regulations are developing.

Gunther Newcombe, vice president decommissioning with BP, gave details of a joint industry study into safety during decommissioning operations, begun in late 2008 and completed this year. The JIP’s objective was to collect, collate and analyse accident and incident data. Newcombe pointed out that there had been over 550 potential incidents, no fatalities, but potentially there could have been 22, which was a matter of considerable concern. A database of decommissioning project incidents, containing over 250 lessons learnt, has been constructed by Safetec.

The next step is to maintain and extend the JIP in ongoing and future projects. Future maintenance and development is championed by the UK’s Health & Safety Executive and Norway’s PSA, but a financial and resource commitment is needed from operators and the supply chain. It is important to capture data in sufficient detail to develop accident rates by activity and to standardise classification schemes, said Newcombe. The intent is for the JIP lessons report to be cleared by participants in the near future and for general availability, but this needs a legal clearance from all current participants†.

Iain Riach, senior decommissioning engineer with Wood Group Engineering (North Sea), gave an update on the industry’s cost estimating guidelines, first issued in 2006 and being updated this year. The new guidelines are currently being finalised by Oil & Gas UK’s Decommissioning Work Group 4 and will be issued shortly. The intention is to capture lessons learned in the period, provide clarification and to make the guidelines more user friendly. ‘The guidelines are advisory not prescriptive,’ explained Riach. ‘It is intended to outline best practice based on industry experience to date and provide: a common framework against which operators can refer their decommissioning cost estimates, a checklist of activities in order that an estimate can be built that is both consistent and complete, a potential framework for future benchmarking.’ It is anticipated that operators in the UKCS will provide estimates in accordance with the principles and practices described in the guideline.

Lump sum ‘too risky’

Aker Solutions’ senior vice president Torleif Gram described some of the company’s recent decommissioning experiences and admitted that the decommissioning of Total’s MCP01 platform had been a commercial nightmare. ‘The complexity of the job had been underestimated,’ Gram noted. There was more hazardous waste (for example, asbestos, isocyanides and hydrocarbons) than defined, poor regularity of platform cranes and weather impact had lead to many restrictions. More man-hours were required. There was significant cost impact as two flotel campaigns were needed and there were changes to the heavy lift programme, although the Frigg decommissioning economics had improved over the past two years. ‘Lump sum contracts do not reflect the inherent risk in the decommissioning business and are just too risky,’ Gram declared.

‘If we combine our skills we’ll do far better than if we do things separately.’ Gunther Newcombe, BP

‘Lump sum contracts do not reflect the inherent risk in the decommissioning business.’ Torlief Gram, Aker Solutions

Research conducted by Robert Gordon University Oil & Gas MBA students, commissioned and mentored by Accenture, was outlined by RGU’s Deji Awodiji and Accenture’s Mike Smith. As part of their course, the students investigated contracting strategies used to date for decommissioning. They found that parties, operators and contractors, were working to their own agendas, but that they were willing to look at alternatives and adopt greater collaboration.

The students found that operators prefer a fixed price contracting model as it brings certainty of cost and low risk and that contractors prefer a cost- plus model to share the risk, however this forces them to low margins. Both parties are open to the idea of using different contracting models along the decommissioning project lifecycle, based on the level of risk and knowledge of each phase. The consensus is a move towards both risk and reward and incentivised models across a phased project. The contracting strategies were then debated in four interactive workshops.

Alex West, decommissioning and business expansion manager for Wood Group Engineering (North Sea) commented: “Although 7% of UK’s assets have been decommissioned, contractors are not routinely making money; that is a recipe for contractors to disappear from the industry and operators are routinely dissatisfied with performance whether that be safety, other scope- related performance issues or cost and schedule achievement, so there needs to be something different.’

The link between salvage and decommissioning activities was made by Moya Crawford, who chairs the Society for Underwater Technology’s salvage and decommissioning committee. The SUT will be holding a conference in London on 14 December themed: ‘Identifying the synergies between decommissioning and wreck removal – the What, When, Where and How of dealing with large steel structures.’ The keynote speaker will be Hugh Shaw, the UK secretary of state’s representative for maritime salvage and intervention, who will talk on technology and skills transfer between salvage and oil and gas sectors.

John Campbell, technical director of OGP (International Association of Oil & Gas Producers), described OGP as its members’ window on the international regulatory authorities. He said OGP had set up a new decommissioning committee, chaired by BP’s Gunther Newcombe, in part to prepare for the Ospar quinquennial review in 2013. Earlier Ospar reviews in 2003 and 2008 had maintained the status quo (on the basis of no experience and no technological advance), but would 2013 be the same, or would the regulations be tightened? ‘There are still in excess of 5000 structures offshore, along with associated pipeline and cable infrastructure and in some cases cuttings piles,’ said Campbell. ‘These represent a significant liability for the owners/operators.’

Summing up, Gunther Newcombe said that in terms of safety the track record in decommissioning was improving. There was a need to share lessons and to invest in phase two of the JIP. He felt there had been incredible co-operation at the conference. There was a real partnership between Decom North Sea and Oil & Gas UK, but there was also need for a wider North Sea engagement involving trade associations and people in Norway and the Netherlands. ‘The industry needs to be joined up right across the North Sea so that it can have conversations with regulators such as Ospar in an informed manner,’ said Newcombe. It was also important to think global and look at other industries such as salvage and nuclear, he added.

Decommissioning of Total's 30-year old Frigg DP2 jacket was completed by Aker Solutions in 2008.

‘The [industry’s cost estimating] guidelines are advisory not prescriptive.’ Iain Riach, Wood Group

There are still in excess of 5000 structures offshore . . . a significant liability for the owners/operators.’ John Campbell, OGP

‘We would like a lot more about cost and timing, but we have a number – £28 billion – for decommissioning of the UKCS and we have a cost breakdown behind that,’ observed Newcombe. ‘I think Oil & Gas UK and Decom North Sea working together will in the coming months get an even deeper understanding.’ The work breakdown would also feed into benchmarking, allowing comparisons to be made between past and future projects. He felt that people’s knowledge level had been lifted at the conference, on the cost picture, on contracting strategy.

He thought that if further work was carried out into contracting strategy it needed to be more structured. The models needed a clear frame, and a clear language that people could understand. He liked the 1 + 1 = 3 concept which emerged in the conference’s alliancing workshop. ‘If we combine our skills we’ll do far better than if we do things separately.’

There was a wide range of capability and skills available in the supply chain, but trying to create a steady state of work was important, otherwise the skills base would be lost. Decommissioning wasn’t sexy. ‘Maybe the public image is that we are a bunch of scrap merchants,’ said Newcombe, adding that in his experience this was certainly not the case. Decommissioning involved high technology, a high commitment, he added. His own experience from BP’s NW Hutton project was that 98% of the materials were recycled and, out of that 28% were re-used.

‘The challenge for all of us, in government and in the industry is to prepare ourselves along with the operators and the supply chain to ensure that this multi-billion pound opportunity is safely realised,’ secretary of state for Scotland, Michael Moore, told the conference. ‘As a government we are committed to working with you as key partners, and where you think there are issues about the regulation of technology or any other aspect of regulation that might get in the way, we need to know about it,’ Moore added.

‘In Scotland we are already seeing headway made with the Shetland Decommissioning Consortium and the partnership between Lerwick Port Authority and AF Decom.’ Shell was making plans to decommission Brent and had awarded a contract to Production Services Network. He added that as secretary of state for Scotland he was a member of Pilot and looked forward to attending the first meeting. He said that his government was committed to simplifying the tax system and ensuring that the UK remained competitive across the world. OE