Braced for the North Sea bow wave

September 1, 2012

Whisper it quietly, but the long-promised dawn of serious and sustainable North Sea decommissioning sector activity may have arrived at last. Extensive planning and preparation are currently under way in the sector as countries around the North Sea get ready for an abandonment and decommissioning activity bow wave. Decom North Sea chief executive Brian Nixon sets the scene.

The recent changes announced by the UK Treasury regarding tax relief for decommissioning are expected to provide certainty of government contribution to each UK North Sea decommissioning project. This will clearly provide greater assurance over liabilities and help to stimulate late life acquisition, but also give greater confidence to those operators that are approaching the end of economic field life. While never wanting to increase the pace of decommissioning, it is to be hoped that this announcement will also result in a steadier rate of activity in the market, provide companies with more confidence and encourage the pace of investment and innovation within the industry.

This tax relief will assist the whole industry particularly the smaller breed of operators working in the North Sea and will encourage more asset sales with prospective buyers now being assured of government support when the assets reach the decommissioning phase.

It is too early to see any measurable impact from the Budget announcement, but several operators are known to be progressing steadily with their plans. The industry is seeing a ramp up in the sector with some contracts recently awarded, a number of important invitations to tender expected soon and lots of study and analysis work going on in the market place.

Next year is expected to see the submission of more decommissioning programmes for approval by the regulators, more plugging and abandoning (P&A) of wells, the award of some major contracts for transportation and onshore disposal, and some further decommissioning projects of subsea and southern North Sea assets.

Current regulations dictate that manmade structures in northwest European waters require to be removed at the end of their economic life, unless there are very specific reasons why they should be left in situ. Programmes often slip due to multiple reasons for the owners/operators of offshore oil & gas production facilities choosing to defer the start of the decommissioning process.

Decommissioning projects are expensive and there is no return on the expenditure. New technologies have been successfully introduced over the years resulting in numerous fields producing far beyond their original design life. The ability to target and exploit marginal satellite reservoirs has increased significantly over time, and at ever greater distances from the host facility. The processing or transportation of third party oil or gas can also defer decommissioning. Decommissioning projects are complex, with technical, safety and environmental challenges, and so rigorous and detailed planning and options appraisal add to the time taken to finalise the strategy for each bespoke facility. Current regulations do not drive the start of the removal process, so there is no time pressure.

member craneDNS member company Perenco UK's Welland gas production platform was removed in 2011.

Growing awareness

Despite this, there is growing awareness in the countries around the North Sea that the industry is facing a bow wave of decommissioning activity in the coming years, as evidenced by the amount of planning and preparation currently under way in the sector. Professor Alex Kemp from the University of Aberdeen estimates the cost of decommissioning some 550 fixed, floating and subsea installations in the UK Continental Shelf alone to be £30-36 billion between now and 2040. On the one hand this represents a sustained business opportunity for the industry, and on the other hand a cost to the operators and UK Treasury, of more than £1 billion per annum.

mapping outDecom North Sea is mapping out the facilities, service types and technologies that are required in each phase of the decommissioning cycle.

The industry is responding positively to this approaching programme with significant attention being directed to the planning and preparation of individual decommissioning programmes. Different and often contradictory conditions safety, environmental, social, technical and economic influence the strategy proposed for each project, calling for rigorous comparative assessments to be undertaken by operators with their various takeholders and contractors to ensure optimal balance.

A lot of work is under way researching new technologies and techniques. A recent industry workshop organised by Decom North Sea (DNS), the European decommissioning industry forum, highlighted the following areas where innovation or improved technologies would benefit the performance of decommissioning programmes:
Mapping of hazardous materials, including techniques for identifying, quantifying and tracking wastes such as heavy metals, naturally occurring radioactive material (NORM), asbestos, mercury etc through each phase of a decommissioning project.
Cleaning of process equipment and pipelines, including improved flushing techniques, separation and storage of fluids, and the development of an industry standard for cleanliness.
Legacy and monitoring of sites following completion of decommissioning, including remote inspection, long term leach rates of drill cuttings, and the possibility of accelerating the degradation of jacket footings (if granted a derogation).
Removal methods, including cutting technologies, jacket dismantling options, new designs for heavylift and transportation vessels.
Well plugging and abandonment, including possible alternatives to expensive drilling rigs, cutting techniques, verification of subsea cuts, new barrier materials etc.

The associated business opportunities over the next 30 years are many and varied, and it is important to recognise that decommissioning expenditures will be in addition to the capex and opex investments which will continue to be made by the industry.

DNS is mapping out the facilities, service types and technologies that are required in each phase of the decommissioning cycle.

DNS will shortly introduce an interactive map of the North Sea to highlight onshore yards that are active, or planning to become active, in dismantling, accompanied by a description of each facility (water depth, length of quayside, lay-down area, licences etc). A second phase of this web-based map will provide a forecast assessment of available capacity at each yard to assist operators and contractors to select the most appropriate facility for their project. Yards from Norway, Denmark, the Netherlands and the UK will be featured.

It is becoming increasingly clear that decommissioning should be recognised and incorporated as an integral part of the asset life cycle, and not treated as a separate project tagged on at the end of field life. There is a clear need for careful maintenance and integrity of offshore assets right up till the end of production, particularly if the decommissioning process may not start immediately offshore infrastructure is likely to deteriorate quickly in harsh environments. This is particularly true if there is a chance of reducing the negative net present value (NPV) of the asset by refurbishing and reusing plant, equipment or components.

Decommissioning should be fully considered at the design stage, throughout the productive life, and during modifications and shutdowns, resulting in reduced risk and costs. Similarly the sector stands to benefit significantly if decommissioning is built in to career development programmes for engineering graduates, project managers, commercial managers and technicians alike there are seriously exciting career opportunities for a wide range of disciplines, but the opportunities need to be promoted through education, training and development programmes.

In terms of current activity, the Department of Energy & Climate Change (DECC), the UK regulators, are understood to be reviewing some 18 decommissioning programmes, and expect to receive a further 20 in the coming months. In support of this significant workload DNS is facilitating the development of two standard templates for these programmes, one covering assets that may attract a derogation and a second for assets that will not, and these will be completed this summer.

brian nixonEur Ing Brian Nixon, CEng, FIMechE, FEI, is chief executive of Decom North Sea, which represents the North Sea’s oil & gas decommissioning industry and has around 200 members drawn from across the sector. Nixon worked for engineering firms such as Motherwell Bridge and Wood Group before entering the public sector in 2001 on secondment to the British Embassy in Angola as first secretary, oil & gas, followed by a lengthy spell with Scottish Enterprise as director of energy. He joined Decom North Sea at the beginning of 2010.

The templates will provide guidance to operating companies on the development of their plans for each complex and unique project, while providing DECC with submissions in a more consistent format and hence easier to review, compare and contrast.

Since its formation in early 2010, DNS has witnessed a clear demonstration that its member companies are setting out on this programme of complex projects in a highly professional and reputable manner, with every possible care being exercised.

DNS facilitates close co-operation and encourages collaboration and innovation between North Sea operators and the industry through regular events, seminars and share fairs to help members benefit from the considerablebusiness opportunities within the decommissioning market. OE

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