With many UKCS assets reaching end of life and the latest estimates putting a forecast spend on decommissioning of £35billion by 2040, it is an increasingly important sector for the supply chain. Approximately £31.5billion of this will be to decommission existing installations and £3.5billion to decommission new developments.
High oil & gas prices, improved recovery technologies and fiscal uncertainty have all played their part in deferring decommissioning projects. Given that only 57 structures are reported to be either decommissioned or in the process of being decommissioned to date, the UKCS sector can still be considered to be embryonic.
However, ageing structures must inevitably reach the end of their economic lifespans, production rates will decline through time, and with recently announced tax relief deeds allowing greater clarity in decommissioning decisions, a maturing of the UK sector seems imminent.
Against this backdrop, we at Decom North Sea worked with Scottish Enterprise and Accenture to produce what is the most detailed assessment of the current state of the sector.
The research was designed to obtain the industry’s perceptions of the state of readiness in the industry and looked at key aspects of decommissioning activity in the coming years and made what is believed to be the first independent assessment of current industry capability.
With recently announced increased investments in new capital developments, sustained levels of operational expenditure, a ramping up in offshore wind developments, and growing activity in decommissioning, the report not surprisingly highlights areas where capability is likely to be particularly tight. Examples include management and engineering staff, drilling rigs for wells P&A, and vessels (including heavy lift).
It is estimated that the total cost of UKCS decommissioning in the next five years alone will be around £4.5billion, focusing on 40 platforms and their associated wells, pipelines and subsea structures, across 80 fields. To put this figure in context, according to the report, latest estimates for the same period show that total decommissioning costs in arguably the world’s most mature petroleum province, the Gulf of Mexico, will amount to around £3billion – considerably smaller than the UKCS figure.
Decommissioning spend across the UKCS will vary by region, with the Northern North Sea and Central North Sea having considerably higher costs per asset than the Southern North Sea. This is due to multiple factors such as heavier structure weights, greater water depths, longer distances from shore and more hostile weather conditions. With operators generally undertaking their first decommissioning project, different strategies and contracting approaches are likely to emerge which will also affect the costs from one decommissioning project to the next.
The different phases of the decommissioning value chain bring varying degrees of complexity and costs, with the well abandonment phase forecast to account for more than 40% of total costs, while the suspension cold phase is forecast at less than 1%.
A major cause for concern in the sector is the demand on people resources. The research suggests that there is an average gap of 35% between actual and desired capability across the supply chain but the expectation is the impact can be reduced if action is taken to play to the strengths. The report makes some detailed recommendations in areas such as removal, disposal, well abandonment and cleaning & decommissioning.
The North Sea supply chain is welcoming huge new development projects such as Clair Ridge and Mariner, major investments in offshore renewables and opportunities in countries facing similar pressures, such as Norway. Contractors and service specialists currently enjoy a choice of market sectors to pursue, and decommissioning must be portrayed as an attractive long-term business opportunity if we are going to build the capability, capacity and efficiency required for this major programme of activity.
One way of promoting the exciting career and business opportunities highlighted in the research is to stimulate better training and transferring of skills and capabilities from other sectors such as nuclear decommissioning, ex-military personnel, marine and salvage industries. We are exploring these initiatives with partner agencies.
Bundling of services is another key. If the correct conditions can be arranged, it has been proven to reduce the overall cost of operations through achieving synergies in areas such as project management, logistics, HSSE management and even back-office functions. Collaborating across different skills pools may also act as a catalyst for further innovation as suppliers share techniques, processes and learnings to help further improve operations.
Decom North Sea was established to represent the North Sea’s oil & gas decommissioning industry, and we have grown to have more than 220 members drawn from the full range of companies and organisations active in the sector.
We pride ourselves on facilitating the development of models, guidelines and templates aimed at improving industry efficiency, containing costs, encouraging economic benefit and maximising residual value. Currently, we are spearheading a number of initiatives to support the decommissioning industry, including a streamlined template for the submission of decommissioning programmes.
The industry standard template was produced following collaboration with the Department of Energy and Climate Change (DECC) and a working group of our member companies (BP, Talisman, CNRI, Marathon Oil, GP Decom and Optimus Decom), with additional input from Perenco and Wood Group PSN. It is aimed at helping industry to get its decommissioning plans authorised more quickly and easily by DECC.
We have found that collaboration is key to success in the decommissioning industry, and also affects the ease of doing business. Reducing the cost to decommissioning, encouraging innovation and improving interface management will all help operators to move forward more confidently with their decommissioning projects, helping to increase activity and generate some much-needed continuity in the sector.
If smaller niche suppliers can be convinced of the benefits in forming alliances, they could share risks and bid for work with less exposure. There would also be scope for more innovative contracting models, which would be of interest to operators and contractors alike.
Collaboration and knowledge sharing will be the focus of our annual flagship conference (in partnership with Oil & Gas UK) which is coming up in October, giving delegates the opportunity to hear details of this and other research into the sector as well as examples of successful collaborations. The conference is being held in St Andrews from October 1-3.
Brian Nixon is chief executive of Decom North Sea
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