_Decommissioning in the North Sea - Demand vs Capacity_low-res

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Decommissioning inthe North SeaReview of Decommissioning Capacity


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Review of Decommissioning Capacity | October 2014

Boskalis


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Contents

Executive Summary 4

1 Introduction 7

1.1 Background and Context 8

1.2 Drivers and Influencers 9

1.3 The North Sea in Numbers 101.4 Decommissioning Approaches 14

2 Analysis of Supply Chain Approach 17

2.1 Analysis Approach 18

2.2 Resource Breakdown Structure 19

2.3 Programme 18

3 Market Forecasts 23

3.1 Market Forecasts of Expenditure 24

3.2 Market Forecasts of Activity 30

4 Critical Supply Chain Elements 39

5 Well Abandonment 45

5.1 Overview 47

5.2 Activity 48

5.3 Supply Chain 50

5.4 Health Check 52

6 Topside and Substructure Removal 55

7.1 Overview 57

7.2 Activity 58

7.3 Supply Chain 60

7.4 Health Check 63

7 Topsides and Substructure 65

Recycling

7.1 Overview 67

7.2 Activity 68

7.3 Supply Chain 70

7.4 Analysis 74

8 People 77

9 Context and Considerations 81

Appendix A:References 87

Appendix B:Criteria Scoring 91

Appendix C:Resources 95

Contents


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The O&G Decommissioning sector offers a significantsocio-economic opportunity in terms of job creationin the Scottish, UK and European supply chains,and an opportunity for North Sea based firms toexport expertise to other parts of the world. Thisreport, prepared by Arup and commissioned byDecom North Sea (DNS) and Scottish Enterprise,

seeks to provide an overview of the scale andnature of the decommissioning market in the nextdecade highlighting areas where there are potentialbottlenecks in the supply chain.

There is a need to continue to develop the existingO&G and decommissioning supply chain tomeet future increases in demand associated withDecommissioning in the North Sea. This offersa significant opportunity to the supply chain in agrowth market, and will require a range of highlyskilled and high value capability. A range of activitieswill require innovation in terms of technical andmanagement approaches to drive down the costs

of decommissioning. There are other areas thatwill need significant growth in capacity to meet thedemands of the market.

Executive Summary

The analysis focuses on critical supply chainelements which are resources that are fundamentalto delivering decommissioning projects, andwhich would have the most significant effect onthe deliverability of the these projects if there werecapacity constraints. The critical supply chainelements that have been identified are:

rigs/rigless abandonment infrastructure,

removal vessels for topsides and substructure,

ports/harbours/yards for recycling and

skilled engineering and operational resourcesserving all aspects of the sector.

These are the areas where the supply chain,operators and Government will need to work closelyto ensure that the opportunities are realised. Forother resources the supply chain is more likely tobe able to naturally respond without major external

intervention.A capacity health check for the critical supply chainelements considers available capacity and investmentlead time, investment commitment, pressures/synergies from other industries and capability. Thestudy drew from the experience and expertise of anumber of significant firms currently operating withinthe North Sea decommissioning market. Therewas broad consensus amongst this group that theindustry needed to evolve to efficiently deliver theactivity needed over the next 40 years.

Executive Summary


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A Changing Mind Set

The approaches and philosophy of the Exploration& Production (E&P) market are currently largelyimplemented in the decision making processes ofthe decommissioning market. There is a need for themarket to evolve an approach to decommissioningthat is distinct from that of exploration and production

activity. Recognition of the different drivers andsuccess criteria of E&P versus decommissioningshould enable the market to evolve an approach that

is optimised for their respective projects.

Smoothing the Peaks

Creating accurate estimates of decommissioningexpenditure across the North Sea is challenging.Estimates have been produced in isolation by arange of organisations from the bottom up. Theseshow a broad range in expenditure on a year byyear basis and over the next decade. Operators

are likely to have significantly more flexibility tomanage procurement and programme decisions fordecommissioning activities than in E&P, where a raceto production is imperative. Consequently, the marketis unlikely to procure services in the peaks suggestedby the predicted estimates as the cost to procureresources would increase i.e. the market will smoothout the peaks.

Contracting and Procurement Strategy

Rigidity in contracting and procurement structuresdeveloped to support the E&P market can inhibitoperators and the supply chain from adapting tomeet the demands of the decommissioning market.

Adapting existing procurement strategies to reducerequirements for proof of previous experience will

allow new entrants to the market who may introduceinnovative methods.

Driving Innovation, Driving Down Costs and

Regulation

Innovation can play a role in deliveringdecommissioning in a more cost effective manner.

The nascent market has limited experience focusingon decommissioning activities and is at a stagewhere it can incorporate lessons learnt along withdeveloping new approaches to reduce costs.

The uncertainty in the timescales of the market

opportunity is limiting commitment to drive and investin innovation. The supply chain cites the stop/startnature of the industry as a barrier to investment.

Executive Summary


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1.0 Introduction


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The Cost

Projected North Sea decommissioning activityestimates vary, with the most conservative estimatespredicting the market will require over 30bn ofexpenditure before 2040 in the UK Continental Shelf(UKCS) alone[1]. As ageing assets reach the end oftheir economically useful life it is expected that the

next 5 to 10 years will see a significant increase inactivity, increasing up to an estimated annual spend

in excess of 2.5bn per annum [1],[2],[3].

The Opportunity

The Decommissioning Sector offers a significantsocio-economic opportunity in terms of job creationin the Scottish, UK and European supply chains,and a foundation from which North Sea based firmscan export expertise to other parts of the world. Totake full advantage of this opportunity, the industrymust build on its existing capacity and capability

to service the complex and demanding nature ofdecommissioning work in the North Sea.

The Objectives

This report, prepared by Arup and commissioned byDNS and Scottish Enterprise, seeks to provide aneasily understandable and concise overview of thescale and nature of the decommissioning market. Inparticular, highlighting areas where there are potentialbottlenecks in the supply chain which might impactdecommissioning activity levels.

1.1 Background and Context

The Scope

North Sea O&G resources are extracted fromthe North Sea and proximate areas including theNorwegian Sea and Atlantic Ocean. This area iscollectively known as the North Sea within the O&Gindustry. Four countries have O&G resources rightswhich they exploit in the North Sea. These are

the United Kingdom, Norway, Denmark, and theNetherlands, and it is this area that is the focus of thisstudy.

The Contributors

This report uses a number of existing sources ofinformation to assess the likely scale of demand fordecommissioning services. It then draws on Arupsknowledge of the Sector, along with the expertviews of a range of industry leaders in the field, toidentify and assess critical areas of capability andcapacity. Particular thanks go to the following for their

invaluable insight and contributions:

Aker Solutions

CNR International

Halliburton

Marathon Oil

Royal Boskalis Westminster N.V.

Seaway Heavy-lifting

Weatherford International

Wood Group

Introduction| Background and Context

Note:All references can be found in Appendix A


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1.2 Drivers and Influencers

The market drivers are complex and there are manytechnical, commercial and regulatory influenceswhich will affect the manner in which the market fordecommissioning activity is realised. Understandingthe opportunities and challenges presented byNorth Sea O&G decommissioning is best informedby reviewing the market as part of a much more

extensive whole, including E&P and other competingindustries.

Regulation

A range of international and national legislationsimpact the North Sea Decommissioning Sector.Of these, OSPAR is particularly significant in termsof influencing decommissioning approach.

OSPAR Decision 98/3 prohibits leaving offshoreinstallations wholly or partly in place unless furtherderogation are granted. However, it providescertain derogations to concrete structures and the

footing of large steel jackets weighing more than10,000 tonnes, from the fundamental principlethat decommissioning should result in full removalof the installation. Derogation is not automaticallyavailable and is subject to a detailed assessmentand consultation procedure to determine if there aresignificant reasons to allow the installation (or partthereof) to remain in situ. Furthermore, no derogationis available to steel installations constructed after 9February 1999 (being the date that Decision 98/3came into force).

As a result of the OSPAR ruling, the North Sea willlead global decommissioning practice from a totalremoval perspective.

The Other Industries

Decommissioning offshore installations is onecomponent of offshore industrial activities occurringin the North Sea. These include E&P, offshore wind,marine renewables, power and communicationsnetworks, and port and harbour developments.

Understanding the opportunities and challengespresented by North Sea O&G decommissioningtherefore needs to be considered in the context of

these wider activities.

This broader appreciation will provide a greaterunderstanding of where it competes for resourceswith other offshore activities, and where possiblesynergies exist, notably in the area of transferableskills.

The Global Industry

In terms of expenditure, the North Sea representsan important but modest part of an extensive globalO&G industry, including onshore and offshore activityacross upstream, midstream and downstreamSectors.

The resources supporting the North Sea market tendto be highly mobile and operate in a global, ratherthan local market. The cycles of the global activitywill influence the availability of certain North Searesources.

Asset Life Cycle

Decommissioning is the final chapter of a wholeasset lifecycle, which often stretches back manyyears to initial fabrication and installation, throughmaintenance, refurbishment and production,then into the late life asset management cycle,including cessation of production and ultimatelydecommissioning. The design and managementof the asset through its long life cycle will influencethe approach to decommissioning and providesimportant context for the market.

Interdependent Systems

Individual offshore O&G assets, be they platforms,pipelines, wells or utilities, often interact with andare interdependent upon one another to a greateror lesser degree. While these can introduceadditional complexities to the decommissioningprocess, they can offer opportunities to increasethe decommissioning process efficiency throughintegrated management of systems and processes.

Introduction| Drivers and Influencers


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One of the main challenges in determining the supplychain requirements stems from the heterogeneity ofthe types and designs of structures present in theNorth Sea. This renders a consolidated approachto removal difficult, if not impossible. Indeed, NorthSea infrastructure varies across geographies dueto a range of factors including the nature of the

resources being exploited, the geological conditions,water depth, the technology available and metoceanconditions.

The Installations

There are more than 1500 registered installations inthe North Sea including small fixed steel installationsof less than 100 tonnes, large heavy concrete gravitybase or fixed steel installations weighing up to 0.5million tonnes, floating steel, concrete installationsand subsea steel infrastructure[4].

Excluding subsea steel, there are 715 installations

in the North Sea: the vast majority of theseinstallations are fixed steel (83%) and locatedin the UKCS (53%)[4].

The Age

The North Sea has an ageing asset base, withthe first field having commenced production in1967. The peak ten year period was from 1984to 1993 when an average of 20 installations werecommissioned each year. The yearly peak occurredin 1993, with 38 commissions[4]. The average overthe last ten years has been just over 7.5 a year with

a peak of 13 a year[4]

.

The average age of North Sea installation is 25years. The UKCS has the oldest average asset base,whilst Denmark owns the youngest assets. There arecurrently 245 assets over 30 years old across theNorth Sea[4].

1.3 The North Sea in Numbers

Denmark Netherlands Norway UK

Installations in the North Sea

Number

ofInstallations

300

200

100

0

400

150

50

250

350

450

Country

Fixed Steel Floating SteelFloating Concrete

Concrete Gravity Based Others Source: OSPAR[4]

Others 3%

Concrete Gravity Based 4%

Floating Steel 11%

Floating Concrete >1%

Fixed Steel 82%

North Sea Installation Types(excluding subsea steel)

Source: OSPAR[4]

Denmark Netherlands Norway UK

Average age of North Sea Installations

AverageAge 25

23

21

19

27

22

20

24

26

28

Country

22

24 24

26

Source: OSPAR[4]

Introduction| The North Sea in Numbers


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Decommissioning

Only 12% (88) of NorthSea installations have beendecommissioned to date,reflecting the nascent nature ofthe decommissioning market[4].

This includes 55 fixed steelinstallations, 22 floating steel,3 concrete gravity base and 7others.

Of the 88 installations that have

been decommissioned, onlyseven have had derogationsgranted to allow infrastructureto remain in place. These havebeen associated with installationsin NW Hutton, Frigg andEkofisk. These were all concretegravity base infrastructure withsubstructures over 200,000tonnes. The only exceptionNW Hutton was a fixed steelinstallation where the jacket andtopside were removed and thefootings of the jacket were left insitu.

Installations by Age. Source: OPSAR [4]



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The Geographies

UKCS Southern North Sea, Danish and Dutch Sectors aregenerally characterised by comparatively shallow water (lessthan 60 meters), relatively moderate metocean conditions,and exploit gas resources. They have comparatively lightinstallations[4].

The Norwegian Sector and UKCS Central and northernNorth Sea have deeper water and more exposed metoceanconditions. The platforms are larger and heavier[4].

The Norwegian Sector has proportionally larger installationsin tonnage terms compared to other countries. This is

because the majority are large deep water installations.Norway has a larger percentage of heavy concrete gravitybase infrastructure when compared to the UKCS.

The UKCS area contains a mix of platform sizes with lighterinstallations predominately in the southern area and heavierinstallations moving north.

Despite having a similar number of installations to theNorwegian Sector, the Dutch Sector only has a smallproportion of the total installation tonnage, as the majorityare small installations.

Fixed and Floating Steel Infrastructure Weightin the North Sea

Topside3,068,000 tonnes

Substructure1,687,000 tonnes

UNITED KINGDOM

Topside985,000 tonnes

Substructure675,000 tonnes

NORWAY

Topside

215,000 tonnes

Substructure127,000 tonnes

NETHERLANDS

Topside155,000 tonnes

Substructure

87,000 tonnes

DENMARK

Fixed Steel FloatingConcrete

FloatingSteel

ConcreteGravity Based

Others Subsea Steel

Infrastructure Weight in the North Sea

TotalWeight(Te)Millions

6

4

2

0

Topside Substructure

8

10

3

1

5

7

9

Source: OPSAR[4]


Source: OPSAR[4]


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Topside Weight of Installations greater than 30 years old. Source: OSPAR[4]



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The manner in which assets can be decommissioned is subject to a Comparative Assessment. This assessmentis used to make recommendations to the regulatory authority. It considers the technical feasibility, environmentaland social impact, economic and health & safety implications of all viable decommissioning approaches indetermining the optimal approach. The decommissioning approaches associated with the main infrastructureelements are influenced by the original installation design, and the strategy implemented by the operator.

1.4 Decommissioning Approaches

Well Abandonment

Running, Make Safe & Preperation

Subsea & Site Remediation

Topsides & Substructure Recycling

Operator Project Management & Monitoring

Topside & Substructure Removal

Topsides

Several methods are used for removing installations. The main classifications include:

Piece Small- the installation is dismantled offshore by cutting or dismantling into small sections that areshipped onshore in containers.

Heavy-lift- whole modules are removed in the reverse of the installation sequence and loaded on to flat-topbarges or a crane vessel for transport to the decommissioning yard.

Reverse Float Over- the topside is removed in an approach that is a reversal of a float over installationprocess. Here, the whole topside is cut from the jacket and taken ashore in one piece, with the installationpartly floating during transport.

Single Lift- the topsides and/or jacket are removed in one piece and transported to the decommissioning

yard.

Introduction| Decommissioning Approaches


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Substructures

The main classification of substructures includes:

Steel Installations

Floating Installations (concrete or steel)

Concrete Gravity Bases

The majority of substructures will require total removal.For platforms with the option to apply for a derogation,they can be partially removed or left in place ifapproved.

The main classifications include: Heavy-lift [as explained in the section above]

Reverse Installation [as explained in the sectionabove]

Single Lift [as explained in the section above]

Buoyancy where buoyancy tanks are installed onthe jacket legs to force the platform to the surface

Wells

Plugging & Abandonment (P&A) is the process bywhich a well is closed permanently, usually after

either logs determine there is insufficient hydrocarbonpotential to develop the well, or after production hasceased. Abandonment must be done in a way thatprotects the downhole and surface environment inperpetuity.

All wells must be plugged and abandoned accordingto regulations once no longer in use and theirconnecting platform is being decommissioned. P&Ainvolves plugging off the well generally with cementplugs and salvaging all recoverable equipment. Thestandards applied in terms of expected integrity varybetween jurisdictions. The North Sea has some ofthe worlds most stringent regulations. In this region,

responsibilities for well integrity are enduring and anyfuture failure must be remedied by the operators.

There is a diversity of well infrastructure in the NorthSea which is determined by a variety of technicalfactors associated with the well including type,location, status and geology. Wells are associated witha range of E&P life cycle activities including exploration(identifying resource), appraisal (determiningcommercial viability) and development (extractingresource). Wells ready to be P&A may have beensuspended through installation of a temporary cap.

Alternatively, they may be associated with a depleted

reservoir.

In order to determine the manner by which a wellcan be abandoned, data is collected from the wellto determine its current condition. Depending on theage and history of the well and the quality of records,it can be challenging to accurately determine the wellstate. This creates risk in selecting the appropriateabandonment approach. An approach which canonly be operated in good conditions may reducecosts if conditions turn out to be favourable butlead to significant additional costs if conditions areunfavourable.

PipelinesOSPAR have not made any recommendation forpipelines, and therefore there is no obligation toremove them. Agreement must be obtained fromthe regulating authority on the appropriate approachthrough consideration in a comparative assessment.Key issues to be considered are pipeline cleanliness,stability, extent of burial and impact on other users ofthe sea.

There are diverging precedents in the North Sea.Indeed, some pipelines have been decommissionedin situ, while others have been removed to shore.

Generally, the smaller pipelines which can be moreeasily removed without significantly disturbing theseabed are recovered. O&GUK have producedguidelines on the decommissioning of pipelines.

Introduction| Decommissioning Approaches


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Boskalis


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2.0 Analysis of Supply Chain Approach


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2.1 Analysis Approach

The approach to the analysis of the decommissioningsupply chain taken in this report is explained below.

Market Forecasts of Expenditure Trends

A review of existing industry estimates of overallanticipated decommissioning expenditure wasundertaken to understand the likely range of activity

over the next 5 to 10 years in the North Sea.This information is found in Chapter 3.

Critical Supply Chain Elements

This involved identifying the critical supply chainelements on which the detailed assessmentwas undertaken. Critical supply chain elementsare resources that are fundamental to deliveringdecommissioning projects, and which would havethe most significant effect on the deliverability of thedecommissioning projects if there were capacityconstraints. It is on these elements that a detailed

activity analysis was undertaken. This information isfound in Chapter 4.

Market Forecasts of Activity Trends

These estimated the level of activity expected foreach of the critical supply chain elements whichwas informed by the overall expenditure trends. Thisinformation is found in Chapter 3.

Supply Chain Capacity Review

This consisted of a detailed review of the capacity ofthe existing supply chain for the critical supply chainactivities. This information is found in Chapters 5 to 8.

Capacity Health Check

A capacity health check analysis was essential todetermine the critical supply chain elements. Theanalysis considered the following parameters:

Available Capacity & Investment Lead Time - theexisting capacity of skills and resources against

expected activity and the duration it takes tobuild any capacity shortfall.

Investment Commitment - the progress andcommitment made by the supply chain to buildnew capacity to meet any shortfalls.

Pressures/Synergies from other industries - theopportunity or threat of analogous industries.

This can result from competition from resources/skills, or supporting the investment case to buildcapacity.

Capability - the competence of the industry to

support the decommissioning market.It is distinct from capacity as it does not relateto the volume of capable resources to meetthe predicted demand. The classification ofcapability is derived from the assessmentcommissioned by DNS and Scottish Enterprise[5].In this report, the industry and supply chain wasconsulted on their perceived capability to providedecommissioning services as per the Oil & GasUK (O&GUK) Work Breakdown Structure (WBS).

Each critical supply chain element is attributed ascore of Low to High (Low, Low/Medium, Medium,Medium/High, High) for each parameter. The scoring

is based on subjective criteria which are detailed inAppendix B. The capacity health check is found inChapters 5 to 8.

Analysis of Supply Chain Approach| Analysis Approach


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A common language in decommissioning has been developed by O&GUK through the production of their WBS.Activities associated with the decommissioning programme have been characterised in 11 categories which aredefined.

This report uses an aggregated version of the O&GUK WBS which focuses on the resource requirements. SomeO&GUK categories have been combined where there is commonality in the resources that support the activities.

This categorisation has been termed in this report as the Resource Breakdown Structure (RBS) to differentiate itfrom the O&GUK WBS.

The relationship between the 2013 O&GUK WBS and the RBS can be seen in the figure below.

2.2 Resource Breakdown Structure

Well Abandonment

Facilities / PipelinesMaking Safe

Topsides Preparation

Topsides Removal

Substructure Removal

Subsea Infrastructure

Site Remediation

Topsides andSubstructure Recycling

Monitoring

Fac

ilityR

unn

ing

/Owners

Cos

ts(Pre

NU/NUI)

O

pera

tor

Pro

jec

tManagemen

t

Operator ProjectManagement &

Monitoring

Well

Abandonment

Running, MakingSafe & Preparation

Topside &Substructure

Removal

Subsea & SiteRemediation

Topsides &Substructure Reuse

& Recycling

ArupResource Breakdown Structure

2013 O&G UK WBS

The resources associated with each element of the RBS aredetailed in Appendix C.

Work Breakdown Structure

Analysis of Supply Chain Approach| Resource Breakdown Structure


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The decommissioning programme commences with the management of the asset during late life, and lasts al l theway to the monitoring of the seabed once the asset has been decommissioned. The diagram below shows theRBS activities in a programme format.

The programme duration depends on the technical complexity of the project as well as a range of commercialconsiderations. A typical project is often carried out in parts with several periods of inactivity, rather than acontinuous activity flow and so individual project programmes can vary significantly.

2.3 Programme

Late Life Operations andAsset management

Subsea Infrastructure

Topsides & SubstructureReuse or Recycling

Facilities Running, Owners Costs

Well Abandonment

Facilities, PipelinesMaking Safe

TopsidePreparation

TopsideRemoval

SubstructureRemoval

Site Remediation

Monitoring

HydrocarbonFree

CoP

Analysis of Supply Chain Approach| Programme


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3.0 Market Forecasts


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Available market forecasts indicate that theoverall decommissioning expenditure in theNorth Sea could be between 1.1bn and2.6bn per annum, and is estimated toreach over 17bn for the period between2014 to 2022[1], [3].

The UKCS is likely to be the largest sector

of the North Sea decommissioning market,although Norway is expected to contributea significant proportion of activity as the endof the decade approaches. Denmark and theNetherlands are likely to contribute a muchsmaller proportion of activity.

3.1 Market Forecasts of Expenditure

20222014 2015 2016 2017 2018 2019 2020 2021

Annual Estimated North SeaDecommissioning Expenditure

EstimatedExpenditure(M)

1,500

1,000

500

0

OGUK Insight 2013 ReportUK

Mackay 2013Norway

Mackay 2013Denmark & Netherlands

2,000

2,500

3,000

Source: Oil & Gas UK[1], Mackay Consultants[3]

Market Forecasts| Market Forecasts of Expenditure

20222014 2015 2016 2017 2018 2019 2020 2021

Annual Estimated North SeaDecommissioning Expenditure

Estim

atedExpenditure(M)

1,200

800

400

0

1,600

2,000

600

200

1,000

1,400

1,800

Source: Oil & Gas UK[1], Mackay Consultants[3]

OGUK Insight 2013 ReportUK

Mackay 2013Norway

Mackay 2013Denmark & Netherlands


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Predicting Decommissioning Activity

Accurate estimation of decommissioning expenditureis challenging. Forecasts have been produced by anumber of organisations to estimate the profile ofdecommissioning expenditure in the North Sea overthe next decade. These estimates are substantiallydiverse both in the short and long term.

The estimates are underpinned by assumptionsof the costs of decommissioning activities and theprogramme in which activities are delivered. There isinherent uncertainty in both areas:

The timing of decommissioning activities isinformed by an economic analysis whichconsiders the revenue generated from the assetin terms of productivity and market value of theresource, the costs to operate and maintainthe infrastructure and the capital costs ofdecommissioning. Current trends have seenO&G prices increase, while technology innovationhas allowed for improved extraction, increasingthe life span of ageing infrastructure

The costs of decommissioning generally havenot to date been reliably predicted, due to the

nascent stage of the industry. The evolvingmarket has significant potential to reduce coststhrough applying innovative approaches thatreduce costs and simplify operations.

Data from the Norwegian, Danish, and Dutch Sectorsare significantly less detailed and less robust thandata from the UKCS. Although these Sectors havefewer installations than the UKCS, they cumulativelyrepresent almost half of the O&G infrastructure in theNorth Sea.

Profile of Market Activity

There are further limitations in decommissioningestimates which are built from a bottom-up analysisbased on individual operators independentlydeclaring their expected decommissioning schedule.

These estimates suggest that activity will ramp up inthe next decade with a number of peaks and troughsin activity.

However, the market is inherently different to that ofE&P activities. In E&P programmes, delays directlyimpact the timing of subsequent revenue flows

and programme drivers are highly significant inprocurement decisions, resulting in an industry thathas a peaking profile.

For decommissioning, programme delays defercapital expenditure and often have a relatively lesssignificant detrimental impact on project economics.

As a result, operators are likely to have higherflexibility to manage procurement and programmedecisions, and are unlikely to procure in peak periodsso there will be a flattening of the peaks and troughswith the decommissioning market flexing.



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Interaction with the Wider Supply Chain

The vast majority of resources utilised by the decommissioning market are not wholly specialised to thoseactivities. A number of critical supply chain elements support other offshore industries such as E&P, offshore wind,subsea cabling, and marine renewables. The mobility of resources means that the impact potential of local andglobal activities on decommissioning supply should be considered. Indeed, decommissioning spend over the nextdecade is expected to be a small proportion of overall O&G market, both in the North Sea and globally. Thereforeexpenditure in this area is likely to be a key influencing factor in the delivery of North Sea decommissioning.

Forecast Annual UKCS DecommissioningExpenditure

EstimatedExpenditur

e(M)

1,500

1,000

500

020222014 2015 2016 2017 2018 2019 2020 2021

OGUK Insight 2013 Report

Oil and Gas UK Activity Report 2014

Kemp 2014

Mackay 2013

2,000

2,500

Forecasts of Expenditure in the UKCS

O&GUK undertake a comprehensive surveyof estimated spend and activity in the UKCS.Their members estimate that 10.4bn ofexpenditure will be incurred by 2022[1]. This isapproximately 30% of the decommissioningcosts in the UKCS estimated to 2040[1]. Thisspend is associated with the decommissioningof 2,300km of pipelines, over 130 installationsand 800 wells[1].

However, there is significant uncertainty withregards to the spend that will actually beincurred, due to confidence in the estimatesof both costs and timing of individual

programmes. Comparison of O&GUKanalysis with other trend analysis showsa significant range in both the annual andaverage forecasts. The largest annual varianceis over 1.2bn and average range is over0.5bn[1],[2],[3],[6].

Forecast Annual Average UKCS Expenditure(2014 - 2022)


1,200

800

400

0

OGUK Insight 2013 Report

Oil and Gas UK Activity Report 2014

Kemp 2014

Mackay 2013

1,600

2,000

600

200

1,000

1,400

1,800

Overall Average

Annual Average

Source: Oil & Gas UK[1][6],Prof. Kemp[2]Mackay Consultants[3]

Source: Oil & Gas UK[1][6], Prof. Kemp[2]Mackay Consultants[3]

Market Forecasts | Market Forecasts of Expenditure


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Running, Making Safe& Preparation

Expenditure in each of the six RBScategories is biased toward Well

Abandonment which accounts for 46%of the average spend over the period.

Two categories; Running, Making Safe& Preparation as well as Topside &Substructure Removal, account for afurther 40% of spend, with the remainingcategories accounting for only 14%[1].

Within each of the RBS categories, trendsof spend proportion vary over time as theoverall projects profiles change from a

bias to early stage activities (such as WellAbandonment), to later activities (such asmonitoring)[1].

Estimated Annual UKCS Expenditure

Operator ProjectManagement & Monitoring

PercentageofTotalExpenditure

70%

60%

50%

40%

30%

20%

0%20222014 2015

Well Abandonment

2016 2017 2018 2019 2020 2021

10%


Topside & Substructure Reuse & Recycling

80%

90%

100%


1,000

800

600

400

200

0

1,200

1,400

1,600

Total Expenditure

Resource Breakdown Structure AverageUKCS Expenditure (2014 - 2022)

46%

1%

18%

22%

8%5%

Well Abandonment

Topside &Substructure Removal



Topside & Substructure Reuse & Recycling

Operator Project Management & Monitoring

Source: Adapted from Oil & Gas UK[1]





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The data shows that the overall trends in peaksand troughs is not applicable to all RBS elements.

Topside & Substructure Recycling and OperatorProject Management & Monitoring are relativelyconsistent through the period. Whereas Well

Abandonment shows a sharp decline to 50%of its peak to 2022. Topside & SubstructureRemoval grows to a peak near the latter endof the programme. This shows that the overalltrends relating to growth and decline will not beconsistent across all elements of the RBS[1].

Forecast of Expenditure in Norway

Norway has 19% of the North Sea installations,and approximately a third of the number in theUKCS[4]. There is a paucity of data regarding

the likely decommissioning expenditure for theNorwegian Continental Shelf (NCS) as comparedto the UKCS.

The Norwegian Climate and Pollution Agency(NCPA) estimates the costs of decommissioningthe entirety of the current infrastructure in theNCS to approximate 160bn NOK (16bn)[7].

This represents about half of the UKs estimatesto 2040. While the Norwegian Oil and Gas

Association (NOGA) has predicted conservativeestimates up to 2018, analysis undertaken byMackay suggests a total spend of 7.3bn up to2022, which represents over 55% of the total

NCS estimated spend[8],[3].

This is a more front loaded profile than for theUKCS, which expects only 30% of costs incurredto 2022. The assets based in the UK are onaverage older than in the Norwegian Sector,which suggest significantly different assumptionsof asset life have been made in the two Sectors.

2022

Estimated Annual Norwegian Continental ShelfDecommissioning Expenditure

NOGA

EstimatedExpe

nditure(M)

1,200

1,000

800600

400

200

02013 2014 2015 2016 2017 2018 2019 2020 2021

Mackay 2013


Source: Mackay Consultants[3], NCPA[8]


Estimated Annual UK Continental ShelfDecommissioning Expenditure


700

600

500

400

300

200

020222014 2015 2016 2017 2018 2019 2020 2021

100


Operator ProjectManagement & Monitoring

Well Abandonment


Topside & Substructure Reuse & RecyclingSubsea & Site Remediation


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Market expenditure provides an understandingof the likely levels of overall activities predictedin the North Sea. However, to understand therequirements of the supply chain it is necessary tounderstand the characteristics of the infrastructurethat is planned for removal in more detail.

There is limited publically available information

on individual installation decommissioningprogrammes. It is therefore not possible to buildthis understanding from the bottom-up. However,analysing the general characteristics of the NorthSea Sectors provides insight into the infrastructurethat could be removed in the coming decade.

Steel Activity

Fixed steel installations and the topsides ofconcrete gravity base installations are most likelyto require a removal vessel to decommissionthe topside and substructure either by lifting

or reverse float over (a method where a vesselis semi-submerged and positioned under theplatform, and the lift is achieved by de-ballastingthe vessel). The remaining installations are eitherself-propelled or can be towed requiring lessonerous intervention.

The UK and Norway have an estimated 4.5million tonnes of steel associated with fixed steelor concrete gravity base topsides which will a lleventually need to be decommissioned[4].

The other North Sea countries account for only0.6 million tonnes or 12% of the total North Seasteel removal requirements[4].

The largest steel substructure is the 45,300tonne YME MOPUStor installation[4]. However,the majority of substructures are significantlylighter, with 64% under 2,000 tonnes. The largesttopside for a fixed installation is the 53,000tonnes Gullfacks C[4]. Again, the majority ofsubstructures are significantly lighter with 62%under 3,000 tonnes.

3.2 Market Forecasts of Activity

Removal Requirements of Fixed Steel andConcrete Gravity Base Topsides in the North Sea

Fixed Steel InstallationsSubstructures

Weight(Te)Millions

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0Denmark Nertherlands Norway UK

Fixed Steel and Concrete GravityBased Installations Topsides

Source: OSPAR[4]

Weight of Fixed Steel and ConcreteGravity Base Topsides

South(Refers to areasbelow 55 degrees LAT)

North(Refers to areasabove 55 degrees LAT)

58,000

Source: OSPAR[4]

Source: OSPAR[4]

Market Forecasts| Market Forecasts of Activity

Weight of Fixed Steel Substructures

58,000

South(Refers to areasbelow 55 degrees LAT)

North(Refers to areasabove 55 degrees LAT)


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Across the North Sea, steel decommissioning isestimated to average around 150,000 tonnes perannum up to 2019 and over 270,000 tonnes perannum between 2020 and 2022. Excluding steelassociated with floating installations, this figurecould be around 100,000 tonnes per annum up to2019 and over 150,000 beyond.

The decade from 1984 to 1993 was theperiod when the most infrastructure by weightwas installed in the North Sea on an annualaverage basis with over 240,000 tonnes of steelinstalled every year[4]. This volume of activity is

commensurate with estimated activity over thenext decade. This suggests decommissioningactivity could be comparable to peak installationactivity.

In the UKCS, it is estimated that nearly 440,000tonnes of steel associated with topsides andsubstructures will be removed in the periodbetween 2014 and 2022[1]. This equatesto approximately 9% of the existing steelinfrastructure in the UKCS.

The timing of decommissioning activit ies in theNorwegian Sector is considered more uncertain

with limited published analysis available. TheNCPA have estimated that between 50,000 to80,000 tonnes of steel a year will be removed untilaround 2020[7]. The Agency then expects a steepincrease to around 200,000 tonnes after 2020.

This estimate seems surprisingly high as it equatesto the removal of nearly 50% of the existing steelinfrastructure in the Norwegian Sector by 2022.

The Dutch and Danish Sectors are even lessquantified, but likely to only contribute a smallproportion of total North Sea steel removal activity.Estimates made by Arup suggest a total removal

of the order of 30,000 - 40,000 tonnes between2014-2022, or 5-7% of their existing infrastructure.

Estimated Annual Steel Removalin the North Sea

UK (North - Refersto areas above 55degrees LAT)

Weight(Te)Thousands

400

350

300

250

200

150

100

50

02014 to 2019

inc. Floating

2014 to 2019

excl. Floating

2020 Onwards

inc. Floating

2020 Onwards

excl. Floating

NorwayUK (South Refersto areas below 55degrees LAT)

All Others

Source: O&G UK[1],[9] ,NCPA[7]

Market Forecasts | Market Forecasts of Activity


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Well Abandonment

Platforms vs Subsea

Wells are either co-located with a platform and havebeen drilled from a permanent installation to whichthe well is directly connected, or subsea and drilledfrom a mobile installation and tied back to a localplatform. Platform wells may be abandoned using theplatform as an operational base. If the original drillingrig is still present, it can be refurbished and reused toabandon the well. Alternatively, a rig can be retrofittedto the platform, or a rigless alternative can be used.

Platform-based operations are significantly moreflexible and lower cost than their mobile alternative.Encountering unexpected conditions is also generallyless of a concern than for subsea wells, as operationsare more easily suspended.

Subsea wells can also be abandoned using a mobilerig such as a drill ship, semi-submersible or jack-upvessel. A light-weight intervention vessel can alsobe used if a rigless methodology is opted for. Thewater depth and metocean conditions of well locationboth influence the appropriate methodology andsubsequent vessel requirements.

Rigs vs Rigless

Wells can be abandoned using either rig orrigless approaches. A rig based approach usesvessel or platform drilling rigs, adapted to recoverdownhole equipment and plug the wells. Riglessalternatives can be utilised for some or all partsof P&A operations to reduce the number ofexpensive rig days. However, the condition andtype of well dictates the potential to use a riglessapproach. Currently rigless operations have been

biased towards platform based operations due totechnology constraints and operators risk appetite.Due to the limitations of rigless methodologies, costscan dramatically increase if unexpected conditionsare encountered and a rig needs to be deployed tocomplete the abandonment. Technology innovationand increased demonstration of rigless approachesis likely to reduce these risks and increase their use inthe future with consequential cost reductions for webabandonment activities.

Market Forecasts | Market Forecasts of Activity


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Suspended SNS / CNS / IS

Activity

It is estimated that there are more than 8,200wells in the North Sea that are active orsuspended and awaiting P&A. The majority ofthese are located in the UKCS, accounting for61% of wells[9] [10] [11] [12] [13].

There is significant publicly available datafrom the UKCS in terms of the technicalcharacteristics of well infrastructure andplanned decommissioning activity whichcan be used to inform the understandingof demands on the supply chain. The otherSectors have a paucity of data. It is thereforenecessary to make assumptions in termsof the relative activity based on known datain terms of geographical characteristics,infrastructure volume, spend and activityprofiles.

Activity in UKCS

It is estimated that there are close to 5,000wells requiring abandonment in the UKCSof which around 18% (more than 800) willrequire abandonment in the next

decade[9], [1]. Approximately 80% of all wellsin the UKCS are associated with a platform,but the next decade will see a proportionatelylarger number of subsea wells to platformwells being abandoned, compared to the longterm[9].

Of the wells expected to be decommissionedin the next decade, there is a relativelyconsistent and even split between wells inthe South and Central North Sea comparedto the Northern North Sea. This is the casefor both subsea and platform wells. This will

influence vessel selection as water depthand metocean conditions differ across theseregions.

Subsea Wells Platform Wells

UKCS Wells to be Decommissioned

Number

ofWells

3,000

2,000

1,000

0

4,000

1,500

500

2,500

3,500

4,500

Well type

Completed NNS Suspended NNS

Unclassified

Total UKCS Wells tobe Decommissioned

SubseaWells910

Platform Wells3725

SubseaWells258

Platform Wells552

Wells to beDecommissioned

in the UKCS (2014 - 2022)

Source: Oil & Gas UK[9]Source: Oil & Gas UK[1]

Source: Oil & Gas UK[9]


Wells in the North SeaUK

Netherlands

Norway

Denmark

Source: DECC[10], NPD[11], DEA[12], NLOG[13]

5000

2330

550

375

Completed SNS / CNS / IS


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Activity in Norway

There are over 2,300 active wells in the NorwegianSector of which only 140 have been suspended[11].

There is limited information regarding the planneddecommissioning programmes for these wells, or ifthey are associated with platforms or subsea.

The nature of the Norwegian Sector water depthsmeans that the wells are likely to all be in deeperwaters, therefore requiring intervention by semi-submersible vessels or drill ships, rather than jack-upvessels.

The Norwegian volume of activity could be assumedas roughly half of the UK activity inferred fromthe knowledge that they have only 40% of theinfrastructure, but that their spend and steel removalactivity profile suggest a more aggressive spendprofile than the UK. In the absence of publisheddata, it could be assumed that Norway has similarcharacteristics to the UK in terms of demands for rigsversus rigless solutions. However, further analysisof the characteristics of the wells may affect thoseassumptions.

Activity in Denmark

There are nearly 380 active wells in Danish waters[12].Denmark has been focusing on the P&A ofsuspended wells which has resulted in only a verysmall number remaining suspended, all of which haveP&A plans approved by the Danish Energy Agency(DEA). Across the Danish North Sea, only 3 subseawells exist with all remaining wells being platformbased.

The nature of the Danish Sector water depths meansthat the wells are likely to be all in shallower watersrequiring intervention by jack-up vessels rather than

semi-submersible vessels or drill ships.Activity in Denmark is likely to be more biasedtowards rigless approaches than the overall UK profiledue to the low number of subsea wells. However,the spend profiles combined with the proportion ofinfrastructure suggests that activity will represent lessthan 10% of the level occurring in the UKCS.

Activity in Netherlands

There are nearly 500 active wells in Dutch watersof which approximately 10% are suspended[13].

There is limited information regarding the planneddecommissioning programmes for these wells, or ifthey are associated with platforms or subsea.

The nature of the Dutch Sector water depthsmeans that the wells are likely to be all in shallowerwaters requiring intervention by jack-up vessels orlightweight intervention vessels (LWIV) rather thansemi-submersible vessels or drill ships.

In the absence of published data, it could beassumed that the Dutch Sector would have similarcharacteristics to the UK in terms of demands forrigs versus rigless solutions. Further analysis ofthe characteristics of the wells may impact thoseassumptions.

The spend profiles combined with the proportion ofinfrastructure suggests that activity will represent lessthan 10% of the level occurring in the UKCS.



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Published Plans

There is a paucity of published data on decommissioning dates from operators. Data published by OSPAR andthe North Sea regulators identifies a total of 32 installations likely to cease production and/or be removed in thecoming decade [4], [14], [15], [16]. These include 29 fixed steel installations and 3 concrete gravity base. 67% of theplatforms are located in the deeper and more exposed waters in the northern areas of the North Sea.

UK Norway Denmark Netherlands

Miller

Brent A

Brent B

Brent C

Brent D

Goldeneye

Kittiwake A

Thames AV

Thames AR

Thames AP

Brae A

Brae B

Brae EastMurchison

Little Dotty

Big Dotty

Albuskjell F

Edda

Ekofisk A

Ekofisk G

Ekofisk S

H-7

Hod

Huldra

Valhall PCP

Vest EkoFisk

YME MOPUStor

Cecilie

Dagmar

Rolf

Svend

Q8-B

K10-B

Weight of North Sea Platforms Expected tobe Decommissioned (2014 - 2022)

TopsideWeight(Te)

1,000,000

100,000

10,000

1000

100

Substructure Weight (Te)

100 1000 10,000 100,000 1,000,000

Concrete Gravity Based Fixed Steel

Source: OSPAR[4], NPD[14], DEA[15], DECC[16]

The following plots show the relative topsideand substructure weights for the 32 identifiedplatforms. The larger the circle, the sooner theplatform is planned for removal.



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The identified platforms equate to approximately1.2 million tonnes of infrastructure of which540,000 tonnes is fixed steel or concrete gravitybase topsides. This equates to an annualremoval of approximately 54,000 tonnes of steel.

These figures are about two thirds of the valuesidentified by O&GUK and NCPA up to 2020.

This suggests that there are plans for additionalplatforms to be decommissioned in the nextdecade, which are not in the public domain andthese estimates appear conservative.

The weight distribution of these 32 installations,

as shown in the graphs, show a broad spreadof installation sizes. This is despite the factthat the overall North Sea asset stock includesa significantly higher proportion of smallerinstallations in the more sheltered areas of thesouthern North Sea. This suggests that the earlydemands for decommissioning are going to bemore evenly spread across all the weight ranges,with a disproportionately higher demand forlarger capacity vessels depending on the removalmethod.

Weight of Topsides for Platforms Expectedto be Decommissioned

South North

NumberofTopsides

8

7

6

5

4

3

2

1

0

Weight (Te)


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4.0 Critical Supply Chain Elements


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Identification of the critical supply chain elementshas been based on Arups experience and viewof the status of the industry and informed throughconsultation with the industry expert panel.

The following critical supply chain elements havebeen established as those most likely to impacton the delivery of cost effective decommissioningprogrammes, with potential to require marketintervention to ensure their capacity is secured.

They are parts of the supply chain which are knownto have:

demands from other maritime and otherindustries

known shortages either in the past or expectedin future, are specialised and not easilysubstituted by alternatives, and

challenges in growing capacity

The critical supply chain elements identified are showin the table referenced to the resource breakdownstructure.

ResourceBreakdownElements

Critical SupplyChain Elements

Generic CriticalSupply ChainElements

Operator ProjectManagement &Monitoring

NoneConsideredCritical

EngineeringSkills

OperationalSkills

WellAbandonment

Drilling Rigsor Rigless

Alternatives

Running

Making Safe &Preparation

None

ConsideredCritical

Topside &SubstructureRemoval

RemovalVessels

Subsea & SiteRemediation

NoneConsideredCritical

Topsides &SubstructureReuse &

Recycling

Ports, Harboursand Yards

Rigs and Rigless Alternatives for

Well Abandonment

Rigs or rigless alternatives have been identified asa fundamental aspect of the well abandonmentprocess and cannot be replicated through anotherprocess. This resource has significant pressures fromE&P activities as the same infrastructure is utilisedfor drilling activities and is mobile across the globalmarket. This market is volatile and the spot prices forthis infrastructure is vulnerable to market demand.

The capacity floats to meet an unpredictable demandand decommissioning activity will need to competewithin this challenging market.



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Removal Vessels for Topside and

Substructure Removal

Removal vessels are a critical part of thedecommissioning process and their cost andavailability will have a substantial impact on the overallcosts of the process. It is likely that vessels withlift capacities of up to 500 tonnes and significantlyhigher will be utilised by the market regardless ofthe approach to removal. They are not unique to thedecommissioning market and are utilised for E&P aswell as offshore wind markets.

The capital costs of a new vessel are significant,and vessel operators will require a substantialcommitment to invest in new capacity. The latest newspecialist heavy lift vessel, the Pieter Schelte wasover 10 years in development and was supportedby an investment case from markets other thandecommissioning. Although smaller vessels for piecesmall operations will be significantly less expensiveand quicker through the planning process, theywould need to be developed in greater volume todeliver the same level of work of the larger vessels.

Ports, Harbours and Yards for Topsides and

Substructure Recycling

Although operators could potentially utilise ports,harbours and yards from the global market to carryout decommissioning activities, this would likely beat a significant cost penalty to decommissioning.

This is not because it would impact recycling costs,which are only a small proportion of overall costs, butbecause it would impact on removal costs throughincreasing vessel costs. It would also reduce thepotential for local socio-economic benefits throughcreation of jobs in the North Sea local markets.

The capital cost of upgrading major infrastructure can

be substantial and generally requires high investmentcertainty to make commitment. In addition to thisthe timescales can be extremely protracted, with theduration to realise significant new infrastructure fromdesign and development to construction potentiallytaking up to a decade for a contentious development.

Engineering and Operational Skills for all

areas of Decommissioning

Skills capacity is an issue that crosses all aspects ofthe decommissioning process, and was commonlycited as a potential concern and constraint. Thechallenges to grow skills capability are distinct toinvestment in a physical resource such as a vesselor port. They require a collaborative effort betweenschools, universities, operators, supply chain andGovernment.

Other Resources

There are a significant number of other resourcesassociated with the decommissioning processeswhich are detailed in Appendix C. These resourcesoffer a significant opportunity to the supply chainas the market grows. They will require a breadth ofhighly skilled and high value capacity and capability.

A range of activities will require innovation in termsof technical and management approaches to drivedown the costs of decommissioning. Examplesinclude development in cutting tools, or improvedlogistics management of offshore operations. Thereare other areas that will need significant growth incapacity to meet the demands of the market, such asa growth in survey capability or support vessels.

There will undoubtedly be constraints in supply ofmany of these resources depending on the level ofmarket demand. However these areas are of lowercapital investment and lead time when comparedto the aspects considered as critical supply chainelements. The supply chain is more likely to be ableto naturally respond to these opportunities withoutany market intervention. As such, although they areconsidered as significant opportunities, they are notassessed in detail as part of this exercise.

A health check of the four critical supply chainelements identified above is provided in Chapters5 to 9 where each element is considered within thecontext of the expected activity and in light of currentcapacity. Engineering and operational skills areconsidered separately in Chapter 4, as these skillsare somewhat transferrable across the RBS.



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5.0 Well Abandonment


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Skills Supply ChainInfrastructure and

Equipment

Well and P&A ProjectManagement

Engineering (P&A)

Operations Support

Rig Upgrade Capabilities

Waste Management

Rig and Rigless DesignServices

Hazardous Waste Handlingand Disposal Routes

Specialist Well Inspectionand Intervention services

Specialist Services i.e.

Wireline

Rigs

Rigless Solution

Light Weight InterventionVessels

Transport Vessels

Waste and Scale Treatmentand Storage

Abandonment Materials,Expanding Cement,Resins, Silicone Rubber

Drilling Contractors

Specialist Consultants andContractors

Vessel Operators

Rig/Rigless Contractors

Well Abandonment

Decom North SeaReview of Decommissioning Capacity | September 2014

Well Abandonment


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Well P&A can be done using mobile rigs mountedon a vessel, platform rigs or rigless solutions on alightweight intervention vessel. These resources areall considered critical supply chain elements. The

selected appropriate approach is dictated by thetype and condition of the well.

There are over 8,200 active or suspended wellsin the North Sea, all of which will eventually needto be plugged and abandoned[9] [10] [11] [12] [13]. In theUKCS it is estimated that over 800 wells will beabandoned in the next decade[9]. An extrapolationof data considering infrastructure and expectedspend in Denmark, Norway and the Netherlandssuggests that there could be up to a 70% increasein activity from the other Sectors. The majority of thisadditional activity will be in the deeper waters of thenorthern areas of the North Sea.

The number of working years required to abandonwells in the UKCS over the next decade have beenestimated. It is predicted there are;

4.5 years which require mobile drilling rigs suchas jack-up vessel, semi-submersible or drillship.

Approximately 10 years which require platformrigs.

Approximately 7.5 years which require riglessplatform solutions.

Less than 2 years of subsea rigless operationswhich require intervention vessels but notmobile drilling rigs.

These durations are exclusive of any weather relatedor other non-productive downtime.

Considering P&A activity in isolation the marketcapacity for mobile drill rigs appears to be adequatefor both jack-up vessels and semi-submersiblevessels/drill ships. However, there is greateruncertainty when considering platform rigs andrigless solutions, where there is more uncertaintyregarding the potential for capacity constraints.

Mobile drilling rigs, temporary platform rigs andrigless intervention systems are all mobile resources.P&A contractors operate globally, following marketopportunities in E&P and P&A in the worldsproducing regions. Although it is expected that there

will be sufficient supply chain capability to meetthe demands of abandonment activity in isolation,the competition for E&P resources has potentialto cause a constraint in an already highly utilisedsupply chain.

5.1 Overview

700

600

500

400

300

200

100

0

2014 2015 2016 2017 2018 2019 2020 2021 2022

Estimated UKCS Expenditure

Millionperyear

46%

Well Abandonment | Overview


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Well P&A can be done using mobile rigs mountedon a vessel, platform rigs or rigless solutions on alightweight intervention vessel. These resources allconsider critical supply chain elements.

Currently, there are more than 8,200 wells in theNorth Sea that are either in production, injectionor that have been suspended and awaiting P&A.

The majority of these are located in the UKCS, andaccount for 61% of wells.

There is significant data available from the UKCSin terms of the technical characteristics of wellinfrastructure and planned decommissioning activitywhich can be used to inform the understanding ofdemands on the supply chain. The other Sectorshave a paucity of data and it is necessary to makeassumptions in terms of the relative activity based onknown data in terms of geographical characteristics,infrastructure volume, spend and activity profiles.

5.2 Activity

Well Abandonment | Activity

Number of Wells in the North SeaUK

Netherlands

Norway

Denmark


5000

2330

550

375


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UKCS and Other North Sea Regions

It is estimated that there are approximately 5,000wells requiring abandonment in the UKCS ofwhich around 18% (more than 800) will requireremoval in the next decade[1].

O&GUK estimates that it will require over 140working years of activity to abandon all the wellscurrently in the UKCS, without any workingdowntime[9]. Of this, 80 years are expectedto require rigs (based on current technologycapability). The majority of this activity (55 years)

is associated with platform wells which may beable to utilise existing or refurbished rig capability.However, a large proportion are likely to requirea temporary rig. The remaining 25 years areassociated with subsea wells, which are morelikely to need a mobile drilling rig or LWIV.

Using this as a basis to consider activities in thenext decade (where 18% of wells will be removed)and assuming current technical capabilities, thereare[9]:

4.5 years which require mobile drilling rigssuch as jack-up vessel, semi-submersible or

drill ship. Approximately 10 years which require

platform rigs.

Approximately 7.5 years which require riglessplatform solutions.

Less than 2 years of subsea riglessoperations which require intervention vesselsbut not mobile drilling rigs.

The next decade will see a larger proportion ofsubsea wells removed than platform wells.

As such these statistics are likely to underestimate

the number of mobile drilling rig years andoverestimate the number of platform rig years.

In the rest of the North Sea, contribution of activityfrom the Norwegian, Dutch and Danish Sectorswill increase the demands on the supply chain.

An extrapolation of data considering infrastructureand expected spend suggests that there couldbe up to a 70% increase in activity from the otherSectors. The majority of this additional activity willbe in the deeper waters of the northern areas ofthe North Sea. Extrapolating between the balanceof rig and rigless solutions is not possible due to a

lack of available data.

Total UKCS Wells tobe Decommissioned

SubseaWells910

Platform Wells3725

SubseaWells258

Platform Wells552

Wells to be Decommissionedin the UKCS (2014 - 2022)



Well Abandonment | Activity

0

UKCS Well P&A Durations

20 40 60 80 100 120 140 160

Group 1 - Rig Required

Group 3 - Future Rigless PartialCompletion

Group 2 - Future Rigless withEntire Completion

Group 4 - Rigless

Group 5 - Pluged Wellbore RequiringAnnulus Plugs

PlatformWells Total

Duration

SubseaWells Total

Duration


Working Years


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Drilling activity peaked in the decade followingthe mid-1980s with an annual of 540 wellsdrilled a year in that period. Currently drillingactivity is lower than the peak activity, but stillsubstantial with 470 wells a year or nearly 90%of peak activity[10], [11], [12], [13]. If drilling continued atthe same rate over the next decade, estimated

abandonment activities in the same period willrepresent an increase in activity of 30%. This willput increasing pressures on the supply chain formobile and platform drilling rigs.

Mobile Drill Rigs

Drill ships and semi-submersible vessels areadapted to work in deep water and harshexposed environments. Jack-up vessels are alower cost option which are optimal for shallowwater and are more weather sensitive in theperiod in which they are mobilised for operations.Jack-ups for abandonment have a broader

water depth envelope than their heavy-liftcounterparts, but are still limited to about 150meters. Generally, jack-ups are suitable for theSouthern, Central and Irish Sea in the UKCS aswell as Dutch and Danish Sectors. Drill ships andsemi-submersible vessels are usually deployedin the UKCS Northern North Sea and NorwegianSectors.

Within the UKCS, approximately half of theworking requirements are in the Northern NorthSea, and as such there is likely to be an equaldistribution between jack-up vessels versus

semi-submersible vessels /drill ship requirements.An increase in activity in the Norwegian Sectorwill increase the requirements on drill ships andsemi-submersible vessels. As this equates toapproximately 50% of the UKCS activity, it islikely to affect the overall availability of thesevessels. Although Dutch and Danish Sectorswill be biased towards jack-up vessels, theyhave a significantly smaller proportion of vesselrequirements. As such overall, it is assumed thereis a bias towards the need for semi-submersiblerather than jack-up vessels in terms of overallactivity.

5.3 Supply Chain

Historical E&P and Future P&A in the North Sea

Total North Sea E&P

Num

berofWells

800

700

600

500

400

300

200

100

020231987 1991 1995 1999 2003 2007 2011 2015 2019Pre 60 1963 1967 1971 1975 1979 1983

E&P in Norway

P&A UKCS

Total North Sea P&A

E&P in Denmark

P&A Others

E&P in the UKCS

E&P in Netherlands

North Sea Mobile Drill Rigs

NumberofDrillRigs 60

50

40

30

20

10

0Drillship Jackup Semisub

Number of Rigs Average Rated Water Depth (m)

AverageOperatingDepth(m)

3000

2500

2000

1500

1000

500

0

Rig Type


Source: Rigzone[17]

Well Abandonment | Supply Chain


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Rigzone catalogues that there are 97 mobile drillrigs currently operating in the North Sea, whichrepresents around 12% of the global fleet [17]. Theseare relatively evenly split between semi-submersiblevessels and jack-ups. Even when factoring in weatherand other unproductive time, a fleet this size couldeasily support the 4.5 rig years of adandonmentrequired in the next decade from the UKCS. Theadditional estimated 70% increase of activity from theother sectors is unlikely to cause a constraint.

However, utilisation of mobile rigs is currentlyhigh, with global utilisation of jack-ups and semi-

submersible vessels averaging between 79 to 88%last year[18]. The incremental increase in abandonmentactivity when considered in the back drop of E&Pactivity, could potentially cause a constraint on mobilerigs, unless greater numbers of the global fleet aredeployed in the North Sea.

Platform Rigs

The requirement of drill rigs for platforms is estimatedto be more than double the requirement of mobiledrilling rigs in terms of working days. The capabilityof the market to refurbish existing platform rigs will

dictate the required capacity for additional rigs tobe temporarily installed on the platform. Again, asplatform rigs are in demand for drilling activity, therewill be a competition for this resource and it has thepotential to become a constraint.

Rigless Intervention Systems

Rigless interventions are associated with about 40%of the total working days of all P&A activities. Riglessinterventions are estimated to mainly be associatedwith platform wells, but also with a smaller number ofsubsea wells. For these operations, the availability ofrigless systems must be considered.

There is also a significant number of additional wellsthat could be abandoned using a rigless solution iftechnology innovation was stimulated. Indeed, riglesssolutions are significantly shorter and lower cost than

rig-based alternatives and could offer a more costeffective alternative to operators.

The market is likely to want to move towards usingrigless options where risk-based analysis concludesthat it is the most cost effective approach. Availablyof rigless solutions has the potential to becomea constraint in the future, especially if the marketconfidence increases in its viability.

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Overall Status = Red

There is a high potential for well abandonment resources to cause a supply chainbottleneck based on the considerations detailed above.

Investment Status = Low / Medium

Contractors are reluctant to make commitments to new rigs and rigless systems without certaintyin terms of timing of the North Sea decommissioning market. In the Gulf of Mexico an idle iron

policy had been implemented which places a deadline on abandonment activity. This policydecision has given market certainty and stimulated technology innovation in bringing forward

more rigless solutions. In the North Sea further innovations are necessary to de-risk riglesssolutions.

Capability = Low / Medium

Accenture[5]consider well adandonment aligned with the 2011 WBS which considers P&A of wells, rig upgrades and rigless optionsamong others with an average capability for these three of 2.5 out of 5.

Rig upgrades were rated the lowest capability with P&A and rigless options performing better.

Accenture conclude that the market for associated well services such as drilling, completions and interventions has extensiveknowledge, tools, technology, experience and capability. Well Abandonment has been widely identified as a phase requiring focusand there are multiple organisations, events and publications that provide a forum for discussion, debate and knowledge sharing.

The presence of global players in the UKCS provides a source of knowledge, technology and experience of complex well situationsand well abandonments from other regions.

However, while the market for wells services is mature, the specific capability and experience for plugging & abandonment is not asstrong. The entry costs for new wells companies in the UKCS are too high, in part due to the cost of compliance to local regulations.

Estimated volume of supply against demand = Low / Medium

Considering P&A activity in isolation the market capacity for mobile drill rigs appears to be adequate for both jack-up vessels andsemi-submersible vessels/drill ships.

There is more uncertainty when considering platform rigs and rig less solutions where there is more potential for capacity constraints.

Rigless solutions are significantly shorter and lower cost than rig-based alternatives and could offer a more cost effective alternativeto operators. There are a significant number of additional wells that could be abandoned using a rigless solution if technologyinnovation is stimulated.

The market is l ikely to want to move towards using rigless options where r isk-based analysis concludes that it is the most costeffective approach. Availably of rigless solutions has potential to become a constraint in the future if the market confidence increasesin its viability.

The lead time to development of r ig-based solut ions is less than five years to commission and construct new capacity. For riglesssolutions, where innovation and demonstration is required this lead time could potentially be even longer.

Pressures and/or synergies from other industries = Low / Medium

Mobile drilling rigs, platform rigs and rigless intervention systems are all mobile resources. P&A contractors operate as a globalresource, following the market opportunities from E&P and P&A in the worlds O&G producing regions. Anecdotally well contractorsprefer to support new field development, as it is less cost driven and more programme focused than decommissioning.

Currently drilling activity is 470 wells a year or nearly 90% of peak activity which occurred in the 1980s.

Although there is expected to be sufficient supply chain capabili ty to meet the demands of abandonment activity inisolation the competition for E&P resources has potential to cause a constraint in an already well utilised supply chain.

5.4 Health Check

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6.0 Topside & Substructure Removal


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Skills Supply ChainInfrastructure and

Equipment

Detailed Engineering(Topsides andSubstructures)

Naval Architecture

Offshore Operations

Transportation

Removal Vessel

Transportation Barges

Anchor Handling TugSupply (AHTS) Vessels

Construction SupportVessels (CSV)

Safety Standby Vessels(SSBVs)

Survey Vessels

Rock Dumping / BackfillVessels

Heavy-Lift VesselContractors

Support Vessel Contractors

Engineering Consultancies

Specialist Consultancies


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83% of installations in the North Sea are fixed steeland 4% concrete gravity base[4]. They will requirea vessel to remove the topside and substructure,either by lifting or reverse float over. The remaining

installations are either self-propelled or can betowed requiring less onerous interventions. Theconstruction vessels utilised to remove topsides andsubstructures are considered to be critical supplychain elements.

The market is not consolidated on a single approachto decommissioning for topsides and substructures,and the methodology is influenced by a range oftechnical and commercial factors, such as theweight and design of the installation and the marketavailability of vessels. As a result, there is a diverserange of vessel types that can be utilised by themarket. These include large heavy-lift vessels whichoperate in deep waters and exposed conditions in

the Northern North Sea, and to sheer leg, and jack-up vessels which are more suited to the shallow andbenign waters of the Southern North Sea.

The market peak for installation in the North Seaoccurred in the decade from 1984 to 1993[4]. In thisperiod, an approximate average of 240,000 tonnesof steel was installed every year [4]. This activity level

is equivalent to estimates of steel removal over thenext decade, which are approximately 150,000to 260,000 tonnes a year. This suggests that thedemand for decommissioning resources in the nextten years will be comparable to the period of peakactivity which occurred 30 years ago.

The North Sea has significantly greater numbers ofsmaller and lighter platforms than heavier and largerplatforms. However, published plans suggest thatthe early demands for decommissioning are goingto be spread more evenly across all the weightclasses with a disproportionately higher demand forlarger capacity vessels.

The availability of suitable heavy-lift vessels todecommission the larger platforms in the northernarea is likely to create the biggest constraint. Insouthern areas, where platforms are generallysmaller, there is a larger fleet of vessels that couldremove topsides in a single lift, though this reducesfor categories above >1,600 tonnes.

6.1 Overview

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Topside & Substructure Removal | Overview

7/21/2019 _Decommissioning in the North Sea

Documents

_Decommissioning in the North Sea - Demand vs Capacity_low-res