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DECOMMISSIONING INSIGHT 2019
A decade ofDecommissioning Insights
DECOMMISSIONING INSIGHT 2019
Cover courtesy of Repsol Sinopec Resources UK
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The UK Oil and Gas Industry Association Limited (trading as OGUK) 2019OGUK uses reasonable efforts to ensure that the materials and information contained in the report are current and accurate. OGUK offers the materials and information in good faith and believes that the information is correct at the date of publication. The materials and information are supplied to you on the condition that you or any other person receiving them will make their own determination as to their suitability and appropriateness for any proposed purpose prior to their use. Neither OGUK nor any of its members assume liability for any use made thereof.
OGUK's vision is to ensure the UK Continental Shelf becomes the most attractive mature oil and gas province in the world with which to do business.
Read all our industry reports atwww.oilandgasuk.co.uk/publications
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Contents
1 Foreword 42 Key Findings 63 Decommissioning in 2019 8 3.1 2019 — A Busy Year for Decommissioning 9 3.2 UK Decommissioning in Context 12 3.3 Expenditure and Activity Overview 14 3.4 Ten-Year Expenditure Breakdown 17 3.5 Ten-Year Regional Overview 19 3.6 Ten-Year Regional Breakdown 224 The UK's Role in a Global Market 25 4.1 Developing a Strategic Framework 26 4.2 The UK — A Global Hub for Decommissioning 275 A Decade of Decommissioning Insight 30 5.1 Background and History 32 5.2 Insight and Cost Trends in Decommissioning 33 5.3 The Future — Challenges and Opportunities 346 North Sea Activity 35 6.1 North Sea Well Decommissioning Activity 36 6.2 North Sea Topsides Decommissioning Activity 40 6.3 North Sea Substructures Decommissioning Activity 417 The UK in Detail 42 7.1 Forecast UKCS Activity — A Detailed Snapshot 43 7.2 Well Decommissioning 46 7.3 Well Decommissioning Cost Performance 51 7.4 Topsides Removal 54 7.5 Substructure Removal 56 7.6 Topsides and Substructure Decommissioning Cost Performance 56 7.7 Subsea Infrastructure Decommissioning 60 7.8 Survey Development and Methodology 63 7.9 Maturity of Estimates 648 Glossary 65
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DECOMMISSIONING INSIGHT 2019
1 Foreword
Welcome to the 2019 Decommissioning Insight. Now in its tenth year of publication, it has tracked the emergence of a new phase in the life of the North Sea and reflects the accelerating pace of change across the sector. Ten years ago, only a handful of fields had been decommissioned. Since then we have seen an increasing flow of decommissioning projects in the North Sea, offering operators and supply chain alike the opportunity to develop fresh capabilities at a rapid pace.
As the report shows, decommissioning has come-of-age and now is increasingly seen as a normal part of doing business, sitting alongside exploration, new field development and infield investment, presenting its own challenges, whilst creating its own opportunities.
Decommissioning expenditure in the UK is currently running at £1.5 billion per annum and to-date, we have decommissioned around 9 per cent of the platforms that have been installed in the UKCS. Yet the total opportunity is much greater; whilst £15.2 billion will be spent on decommissioning assets on the UK continental Shelf over the next decade, the emerging global market is worth a massive $85 billion (£67 billion), over four times larger.
The skills this industry has acquired to meet the decommissioning challenge at home positions it well to tackle the emerging global market opportunities. Performance standards in the UK are leading the way, and OGUK’s recently updated Decommissioning Work Breakdown Structure (WBS) guidelines set a global performance framework that many other countries are following.
The Decommissioning Insight was first launched a decade ago to improve general knowledge of this activity and to enhance the overall market knowledge; that still remains its purpose today. Ensuring industry’s intellectual capital in decommissioning is shared is key to maintaining the competitiveness of the sector and helping us to become as efficient as possible. We have established a reputation for decommissioning professionally, systematically and to the highest environmental and safety standards, a reputation we must maintain at all costs.
Year on year, the industry is delivering a steady improvement in cost performance as demonstrated in June when the OGA published its latest Decommissioning Cost Estimation report. This showed a 17 percent reduction in the overall cost of decommissioning over the last two years, persuasive evidence of the close collaboration between industry and government to deliver the overall 35 percent cost reduction target.
These significant cost reductions are a result of operators working closely with their supply chain, openly and constructively challenging each step in the process and learning from the best and sharing with others. The OGA has also assisted by sharing performance benchmarks to help set new norms and it is industry’s intention to continue to build on this approach in years to come.
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1It is also exciting to see new companies are emerging specialising in decommissioning, either offering full scope solutions or more specialised activities such as offshore decommissioning of wells and removal of structures or onshore dismantling and disposal. These companies will offer the industry real choices as to whether operators indeed do-it-themselves or pass on the scope to others who may offer an increasingly competitive solution.
Business innovation goes hand in hand with technological innovation. The sector is making the most of the facilities offered by the OGTC and the recently opened National Decommissioning Centre, both of which, will play a key part in transferring technology from other sectors and developing innovative solutions. Technology will help the domestic market reach the next level of performance and provide inroads for the industry to support decommissioning in other mature basins round the world.
Decommissioning is not the end of our industry; it offers a new beginning. Four years ago, industry stepped up to the challenge to cut decommissioning costs by 35 percent and we are well on the way to achieving that. We must apply the same collective determination and pioneering capabilities to deliver the net zero carbon challenge. Re-use of old facilities for carbon capture and storage presents new opportunities, not just to create new value from old assets but also to help deliver that net zero future that we as an industry have committed to deliver as part of Roadmap 2035. Decommissioning with the net zero agenda at the forefront of our minds will be the next big step; where we lead, others will follow.
Michael Tholen, Upstream Policy Director, OGUK
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DECOMMISSIONING INSIGHT 2019
2 Key Findings
INSIGHT
UK ACTIVITY
This is the tenth annual Decommissioning Insight report
Over time the insight reports have established OGUK as the go-to place for decommissioning insights, leading the way in how we understand activity and expenditure in the UKCS
Forecast Expenditure on decommissioning in the UKCS is
remains constant at
over the next decade
Pace of expenditure
remains steady at around
per year
Decommissioning now represents just under
of the overall expenditure in the UK oil and gas industry
Asset stewardship process is aiding accuracy of estimates as the industry matures
While expenditure remains consistent, activity has increased.
Demonstrating that the UK market is becoming
moreefficient
Steady workload of 12 topsides to be decommissioned per year
in the UKCS up to 2025
1,630 wells are expected to be decommissioned over the next decade,
a 10% increase from last year
~150 wells per year forecast to be decommissioned in the UKCS
Well Decommissioning makes up 45% of the forecast expenditure where £6.8 billion is forecast to be spent over the next decade
£2.7 billion is expected to be spent on topsides and substructure removal activity a 35% increase
compared to last year
£1.3 billion is forecast to be spent on subsea
decommissioning up to 2028
Over 6,000km of pipelines
are to be decommissioned
in UKCS over the next
ten years
£15.2 billion £1.5 billion
10 per cent
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2
REGIONAL ACTIVITY
GLOBAL HUB
While the CNS remains the region with most expenditure, there is a reduction in the overall activity in this region. Up to 2028:
M&A activity is deferring some expenditure in the CNS while other regions see increased expenditure
Industrialising the process, the SNS sees around
platforms to be removed each year
up to 2024
Expenditure in the UK is expected to make up 28% of global decommissioning expenditure over next decade
43% of the global decommissioning expenditure will be in the North Sea basin As a result: opportunities exist for UK based companies, within the UK, regionally and internationally
$85 billion (£67 billion) to be spent on decommissioning globally over the next decade [Wood Mackenzie]
2,624 wells are to be decommissioned across the North Sea
Just over 1.2 million tonnes of topsides to be removed from North Sea, almost 880,000 in the UK
Just over 660,000 tonnes of substructures to be decommissioned in the North sea, over 340,000 in the UK
1042%32%22% 4%
of the decommissioning expenditure will be in the central North Sea
of the decommissioning expenditure will be in the northern North Sea
of the decommissioning expenditure will be in the southern North Sea
of the decommissioning expenditure will be in the west of Shetland
DECOMMISSIONING INSIGHT 2019
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3. Decommissioning in 2019
In Summary
This report is the tenth annual Decommissioning Insight report published by OGUK since 2010. It provides a fresh overview of the emerging and rapidly maturing decommissioning market on the UK Continental Shelf (UKCS) and highlights progress in this growing market.
Decommissioning needs to be seen in context; it is part of the natural lifecycle of an oil and gas asset and now represents just under 10 per cent of the overall expenditure in the UK oil and gas industry. The overall proportion of spend committed to decommissioning has risen steadily since 2004, but investment in new infrastructure still far outweighs decommissioning, showing there is still a lot of potential in the UKCS.
Cumulative decommissioning expenditure on the UKCS is anticipated to reach £15.2 billion over the next decade — consistent with 2018’s Decommissioning Insight forecast of £15.3 billion. However, despite similar findings, forecast activity across each of the regions in the North Sea has fluctuated this year. Increased merger and acquisition (M&A) activity in the central North Sea has led to a reduction in the expected workload over the ten-year period; in contrast, workloads in the northern and southern North Sea are predicted to increase. Moreover, the 2019 report reveals more work is being carried out for similar rates of expenditure, suggesting efficiency improvements are the source of some of the gains of the past few years.
This progress will be instrumental as the industry, supported by regulators and government, strives to reduce future decommissioning expenditure by 35 per cent over the next few years – a fundamental element supporting the policy of Maximising Economic Recovery (MER UK).
Decommissioning is an ever-growing market for the UK, and with around £1.5 billion to be spent each year, this represents a significant and enduring opportunity for the UK supply chain.
DECOMMISSIONING INSIGHT 2019
Decommissioning Insight 2019– Facts and Figures
oilandgasuk.co.uk/decommissioninginsight
#ogDecomInsight
35%
2,379wells 10%
49%
unit cost
#1
are expected to be decommissioned in the North Sea over the next ten years
6,234km of pipeline to be
decommissioned in UKCS
over next decade
Decommissioning now represents just under
10 per cent of the overall expenditure in the UK
oil and gas industry
48% of UK expenditure is in the
central North Sea
Well decommissioning is the source of
greatest cost, with
of forecast expenditureup to 2027
2,624 wells to be decommissioned in the
North Sea Basin 1,630 of which are in the UKCS
Unit well costs con�nue to fall across
all areas of the North Sea
Decommissioning will open new markets for the UK supply
chain, a key component of
203 fields in the UKCS
are to undergo decommissioning
ac�vity over next decade
Decommissioning is a growing market in
parallel with the drive to maximise economic recovery of resources
During 2017, the number of wells decommissioned rose above wells drilled
for the first �me
Decommissioning on the UKCS offers
first-mover advantage for the UK supply chain
Mee�ng, then bea�ng, the 35% cost reduc�on
target will be key to unlocking the global
market The UK is recognised as a global leader in
decommissioning shaping the agenda technically,
commercially, regulatory and
environmentally;
Steady workload of 12 topsides to be
decommissioned per year in the UKCS up to 2025
M&A deferring ac�vity in the CNS while
NNS and SNS regions see an increase in expenditure
billion is forecast to be spent on
decommissioning in the UKCS
by 2028
An average
billion will be spent per year on the UKCS up to 2027
OGA target reduc�on in
decommissioning expenditure by 2035
against a 2016 baseline
The UK is the largest global
market for decommissioning
spend over the next decade
Decommissioning Insight 2019– Facts and Figures
oilandgasuk.co.uk/decommissioninginsight
#ogDecomInsight
35%
2,379wells 10%
49%
unit cost
#1
are expected to be decommissioned in the North Sea over the next ten years
6,234km of pipeline to be
decommissioned in UKCS
over next decade
Decommissioning now represents just under
10 per cent of the overall expenditure in the UK
oil and gas industry
48% of UK expenditure is in the
central North Sea
Well decommissioning is the source of
greatest cost, with
of forecast expenditureup to 2027
2,624 wells to be decommissioned in the
North Sea Basin 1,630 of which are in the UKCS
Unit well costs con�nue to fall across
all areas of the North Sea
Decommissioning will open new markets for the UK supply
chain, a key component of
203 fields in the UKCS
are to undergo decommissioning
ac�vity over next decade
Decommissioning is a growing market in
parallel with the drive to maximise economic recovery of resources
During 2017, the number of wells decommissioned rose above wells drilled
for the first �me
Decommissioning on the UKCS offers
first-mover advantage for the UK supply chain
Mee�ng, then bea�ng, the 35% cost reduc�on
target will be key to unlocking the global
market The UK is recognised as a global leader in
decommissioning shaping the agenda technically,
commercially, regulatory and
environmentally;
Steady workload of 12 topsides to be
decommissioned per year in the UKCS up to 2025
M&A deferring ac�vity in the CNS while
NNS and SNS regions see an increase in expenditure
billion is forecast to be spent on
decommissioning in the UKCS
by 2028
An average
billion will be spent per year on the UKCS up to 2027
OGA target reduc�on in
decommissioning expenditure by 2035
against a 2016 baseline
The UK is the largest global
market for decommissioning
spend over the next decade
Decommissioning Insight 2019– Facts and Figures
oilandgasuk.co.uk/decommissioninginsight
#ogDecomInsight
35%
2,379wells 10%
49%
unit cost
#1
are expected to be decommissioned in the North Sea over the next ten years
6,234km of pipeline to be
decommissioned in UKCS
over next decade
Decommissioning now represents just under
10 per cent of the overall expenditure in the UK
oil and gas industry
48% of UK expenditure is in the
central North Sea
Well decommissioning is the source of
greatest cost, with
of forecast expenditureup to 2027
2,624 wells to be decommissioned in the
North Sea Basin 1,630 of which are in the UKCS
Unit well costs con�nue to fall across
all areas of the North Sea
Decommissioning will open new markets for the UK supply
chain, a key component of
203 fields in the UKCS
are to undergo decommissioning
ac�vity over next decade
Decommissioning is a growing market in
parallel with the drive to maximise economic recovery of resources
During 2017, the number of wells decommissioned rose above wells drilled
for the first �me
Decommissioning on the UKCS offers
first-mover advantage for the UK supply chain
Mee�ng, then bea�ng, the 35% cost reduc�on
target will be key to unlocking the global
market The UK is recognised as a global leader in
decommissioning shaping the agenda technically,
commercially, regulatory and
environmentally;
Steady workload of 12 topsides to be
decommissioned per year in the UKCS up to 2025
M&A deferring ac�vity in the CNS while
NNS and SNS regions see an increase in expenditure
billion is forecast to be spent on
decommissioning in the UKCS
by 2028
An average
billion will be spent per year on the UKCS up to 2027
OGA target reduc�on in
decommissioning expenditure by 2035
against a 2016 baseline
The UK is the largest global
market for decommissioning
spend over the next decade
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3.1 2019 — A Busy Year for decommissioning
2019 has been a notable year from a regulatory and policy perspective in the UK’s decommissioning industry. Whilst the industry has been building capability and expertise at a practical level, there also continues to be a high degree of dialogue with government and regulators alike, which will shape the outlook for the industry at home and abroad. The pace of consultations and industry engagement clearly demonstrates that policymakers are determined to do things diligently and with an appropriate evidence-based approach.
National Audit Office Report1 — At the turn of the year, the National Audit Office (NAO) issued a report on the state of the UK’s decommissioning industry after a period of evidence gathering in 2018. This report affirmed the role of the oil and gas industry as a positive contributor to the UK economy. It highlighted that this value generation is a combined commitment between government, regulators and industry and showed cost reductions benefit all parties, reducing the financial exposure to both government and industry alike.
The NAO report highlighted that the total costs of decommissioning on the UKCS could range from £45 billion to £77 billion, with government cost exposure of £24 billion through tax relief, based on a central decommissioning cost estimate of £58 billion. In contrast, it highlighted that the oil and gas industry has contributed £334 billion in direct production tax payments since the early 1970s, a multiplier of at least 14 to 1. The report noted that tax relief is provided on a proportionate basis, based on decommissioning expenditure, and the total exposure to government will diminish as the industry continues to make inroads into efficiency improvement and cost reduction.
The report also examined the current system of securitisation and financial oversight and observed that it provided considerable protection of the state’s liabilities.
Decommissioning Call for Evidence — The Department for Business, Energy and Industrial Strategy (BEIS) launched a ‘call for evidence’ to understand how the UK could strengthen the domestic offshore oil and gas decommissioning industry, supported by HM Treasury.2
This consultation had two central themes:
1. How the UK decommissioning industry could further improve its ability to serve the UK market, support MER UK and reduce the overall costs of decommissioning
2. What could be done to encourage the domestic industry to export its decommissioning expertise abroad and position Scotland, together with the rest of the UK, as a world-leading hub for decommissioning
OGUK responded to this consultation on behalf of the industry, which has helped to provide a fresh perspective of the wider contribution to the UK economy. Details of the response are discussed in Section 4.
1 www.nao.org.uk/wp-content/uploads/2019/01/Oil-and-gas-in-the-UK-offshore-decommissioning.pdf2 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/ 785544/strengthening-uk-offshore-oil-gas-decommissioning-industry-cfe.pdf
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DECOMMISSIONING INSIGHT 2019
Financial Capability Guidelines — An influx of new players to the basin as a result of recent M&A activity has led BEIS to consult on its Financial Capability Guidelines. These guidelines form part of the overarching Guidance Notes for Decommissioning of Offshore Oil and Gas Installations and Pipelines.3 A key priority for the Offshore Petroleum Regulator for the Environment and Decommissioning (OPRED), a unit of BEIS, is to ensure there is no undue risk from companies defaulting, and these guidelines provide transparency regarding the assessments which will be made by the regulator when considering a merger or acquisition.
UKCS Decommissioning 2019 Cost Estimate Report4 — This shows steady progress. The forecast total cost for decommissioning on the UKCS has fallen to £51 billion (P50 estimate) when including new fields given FID or installed over the past two years. On a like-for-like basis — comparing against fields installed or in operation prior to 2017 — the cost is around £49 billion (P50 estimate) and reflects a reduction of 17 per cent from the £59.7 billion baseline figure first published by the Oil and Gas Authority (OGA) in 2017. This shows what the industry has achieved thus far and the benefits of close collaboration with the OGA through the asset stewardship process to make decommissioning more cost-effective.
Industry pays for the full cost of decommissioning in the first instance and, since decommissioning is a normal cost of doing business in the UK, tax relief is provided on this expenditure. The OGA’s latest reduction in estimated forecast expenditure now infers that £16.8 billion could be recovered by industry as tax relief over time — a reduction of £7.2 billion from the 2018 forecast and that stated in the NAO report. This is made up of £8.3 billion from tax repayments and a reduction in offshore corporation tax of £8.5 billion.
Certainty regarding the tax treatment of decommissioning is important at this stage in the basin’s life and increases the potential for investment in the UK in a competitive global environment. Recognising this, government has made a commitment to provide assurance that relief will be paid on decommissioning expenditure, putting in place Decommissioning Relief Deeds (DRDs) in 2013. As a result of the DRDs signed to date, it is estimated that more than £6 billion of cash has been unlocked for reinvestment which would not have otherwise been available.
3 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/ file/760560/Decom_Guidance_Notes_November_2018.pdf
4 www.ogauthority.co.uk/news-publications/publications/2019/ukcs-decommissioning-cost-estimate-2019-report/
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UK CCUS Consultations — OGUK responded to two government consultations related to Carbon Capture Usage and Storage (CCUS). These consultations separately covered business models, and the potential for reuse of oil and gas infrastructure for CCUS. OGUK’s responses to the consultations recognise that the oil and gas industry is fully supportive of CCUS and that it offers further significant opportunities for the UK’s energy supply chain. It is understood that the UK is well placed to be at the forefront of a global capability, and that there are financial opportunities. The potential to reuse infrastructure, for example, could enable reductions in transport and storage costs, as well as increasing flexibility in terms of when decommissioning costs are incurred.
It should also be recognised that there are challenges to overcome in developing this technology. These include:
1. The limited remaining design life of older infrastructure and/or its reconfiguration to suit a new service 2. Scheduling issues such as the alignment of projects, and the potential dormant periods experienced by oil and
gas infrastructure as it awaits CCUS projects3. Legislative, fiscal and policy considerations affecting existing assets which will need to be considered if they
are re-used or are otherwise transferred into a new legal jurisdiction
Scottish Affairs Committee5 — The Scottish Affairs Committee gathered evidence through a witness session in February 2019 and published a report in March. The report recommends that the government should continue with its objective to work with the OGA and industry to improve the certainty of decommissioning costs and produce an annual report on the OGA’s direct impact on the reduction of those costs.
Decommissioning presents a significant opportunity for the UK supply chain. Accordingly, the report also called for the government to set out a strategy for maximising the economic benefit of the development and export of decommissioning skills and resources. Similarly, with regards to the CCUS industry — which has clear parallels with the decommissioning sector — the report called for the government to set out an expected timetable for its deployment and how it aligns with the timeline for the decommissioning of UKCS assets.
5 https://publications.parliament.uk/pa/cm201719/cmselect/cmpubacc/1742/1742.pdf
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DECOMMISSIONING INSIGHT 2019
3.2 UK Decommissioning in Context Decommissioning is part of the natural lifecycle of an oil and gas asset and should always be viewed in context with the wider oil and gas industry. Industry expenditure across the lifecycle, investment in new developments, activity levels, cessation of production (CoP) dates and decommissioning plans are all influenced by prevailing market conditions and overall uncertainty levels.
Although oil and gas markets have shown some increased stability in recent years compared with late 2014–16, they have still been characterised by uncertainty. During the first three quarters of 2019, Brent crude averaged just under $65 per barrel (bbl), with a 40 per cent swing in prices. Alongside this, day-ahead NBP gas prices averaged just under 35 pence per therm (p/th) and have declined from more than 60 p/th at the start of the year to less than 20 p/th in September — the lowest price since 2004.
Figure 1: Total UKCS Expenditure 1970, to 2019
0
5
10
15
20
25
30
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
Tota
l Exp
endi
ture
(£Bi
llion
-20
18 M
oney
)
Operating Expenditure Development Expenditure
E&A Expenditure Decommissioning Expenditure
Source: OGUK, OGA
Decommissioning remains a small part of overall expenditure — Overall UK oil and gas industry expenditure in 2019 is expected to be around £15 billion, which means that decommissioning represents just under 10 per cent of overall expenditure in the basin. This shows that investment in the basin and expenditure on the continued operation of current assets still significantly exceeds what is being spent on decommissioning, despite the view a few years ago that decommissioning would by now dominate spending on the UKCS.
Forward projections assume less volatile market conditions — Operators' planning assumptions have stabilised in recent years, reflecting more stable oil and gas prices in comparison to 2014–16, an improved cost base, and the increasing maturity of the decommissioning market. It is therefore no surprise that this year’s outlook is similar to those presented in Decommissioning Insight 2018. The relative stability is beneficial for operators and the supply chain, while greater transparency is also beneficial for regulators and HM Treasury as it tracks expenditure.
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Production efficiency at its highest level for a decade — The OGA’s Production Efficiency Dashboard6 shows that the UK’s production efficiency is at its highest level since 2008. Coupled with low unit operating costs — which are expected to remain at around $15-16/boe in 20197 — this means that assets are remaining economically viable for longer. This resilience of the UK’s oil and gas industry means that there continues to be no rush to decommission.
Decommissioning presents a significant supply chain opportunity at home and abroad — The average spend rate for the UK decommissioning industry is around £1.5 billion per year. This is a significant annual expenditure as UK operators continue to fulfil their decommissioning obligations and presents significant opportunities for the broader supply chain tasked with executing the scope of work.
Decommissioning broadens the services the industry offers and emphasises the role of the UK as a global E&P hub covering exploration and production operations through to decommissioning. The latest data show that the oil and gas sector supported circa 277,400 jobs across the UK in 2018, through direct, and indirect employment, and employment induced as a result of the sector’s wider economic contribution.8 As a mature basin, and an early mover in the global decommissioning market, the capabilities and expertise our supply chain can develop conducting work in the UKCS may unlock the door to the global market.
Well decommissioning activity is a major feature — While 2018 saw a slight increase on the number of development wells in comparison to 2017 — 85 wells developed compared with 71, respectively — the number of wells decommissioned remained relatively consistent, at 163 wells in 2017 and 151 wells in 2018. It should be noted that on a cost basis, it is typically much more expensive to develop a new well than to decommission one. In 2018, on a well-count basis, decommissioning represented 63 per cent of the physical wells activity in the UKCS; this is expected to be similar in 2019.
Figure 2: Well Activity in the UKCS 2010, to 2019
0
50
100
150
200
250
300
350
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019Forecast
Num
ber o
f Wel
ls
Exploration Appraisal
Development Decommissioned
Source: OGA, OGUK
6 www.ogauthority.co.uk/data-centre/benchmarking/ukcs-production-efficiency-2018/7 oilandgasuk.co.uk/product/economic-report/8 oilandgasuk.co.uk/product/workforce-report/
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DECOMMISSIONING INSIGHT 2019
3.3 Expenditure and Activity Overview
The UK expects to spend £15.2 billion on decommissioning activity over the next decade. This is consistent with the £15.3 billion as reported in the 2018 Decommissioning Insight report. Figure 3 shows the annual expenditure forecast for each Work Breakdown Structure (WBS) element, with the blue line below the chart indicating the number of fields with decommissioning activity each year.
For a second consecutive year average expenditure is expected to run at around £1.5 billion per year, providing further evidence of a maturing market. However, this year’s data show a wider fluctuation, with expenditure falling to below £1 billion in five years then rising above £2.1 billion towards the end of the decade. It should also be noted that this ten-year snapshot is only a portion of the OGA’s total cost estimate which anticipates a spend of £51 billion for all UK decommissioning liabilities.9
Figure 3: UKCS Decommissioning Expenditure 2019, to 2028
0
500
1,000
1,500
2,000
2,500
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
2018 Actuals Post-decommissioning Monitoring Site Remedia�on
Subsea Infrastructure Topsides & Substructure Onshore Recycling Substructure Removal
Topsides Removal Topsides Prepara�on Facili�es / Pipeline De-energising
Well Decommissioning Post-CoP Facility Running / Owner Costs Operator Project Management
Source: OGUK, OGA
Source: OGUK, OGA
44
5962
56
3641
60
67
44
55 54
Source: OGUK, OGA
Num
ber o
f fiel
ds
with
dec
omm
ision
ing
ac�v
ityAn
nual
Exp
endi
ture
(£ M
illio
n –
2018
Mon
ey)
Actual expenditure on decommissioning in 2018 was £1.3 billion, slightly less than the £1.68 billion forecast in Decommissioning Insight 2018. While it appears that a limited amount of work has been re-phased, industry is also conducting activities more efficiently, further contributing to lower actual expenditure. Previous reports
9 www.ogauthority.co.uk/news-publications/publications/2019/ukcs-decommissioning-cost-estimate-2019-report/
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have shown a much wider gap between actual expenditure in a given year, versus forecasts made in the previous year. This narrowing gap shows less work is being 'pushed to the right' and that operators are sticking to stated schedules, undertaking more of their expected work and benefiting from efficiencies in a more capable and experienced decommissioning market.
Figure 4 shows the UK’s forecast cumulative expenditure on decommissioning and illustrates the consistency in the expenditure profile between the 2018 and 2019 Decommissioning Insight reports. While in the past we have seen estimates trending towards a burn rate of around £1.8 billion per year, the past two years have shown a 17 per cent reduction, inferring that around £1.5 billion of spend per year is now the new norm.
Figure 4: Forecast Comparisons for Cumulative Decommissioning Expenditure
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2018 Forecast 2019 Forecast Actual Expenditure
Source: OGUK, OGA
This step-change reduction in cumulative expenditure since 2017 may be attributable to:
MER UK in action — The action taken by industry, the government and regulators, to create a more attractive investment proposition in the UKCS in support of the aim of Maximising Economic Recovery (MER UK) is working and is shaping how the decommissioning industry operates.
Late life intelligence — Current owners are becoming more knowledgeable in how they operate their late life assets and decommission at the right time.
New investment — The continued wave of new companies attracted to the basin which is extending the life of individual producing assets on the UKCS.
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DECOMMISSIONING INSIGHT 2019
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DECOMMISSIONING INSIGHT 2019
CASE STUDY — TAQA
In 2017, after producing around 125 million barrels during its life, the TAQA-operated Eider field in the northern North Sea (NNS) had become uneconomic. Taking the time to consider the big picture, TAQA developed a strategy to transform the economics of a network of assets, resulting in a multi-faceted programme of work being undertaken which secured several more years of production for TAQA’s wider NNS portfolio.
The programme included a number of technical and interdependent elements, including a well decommissioning campaign which culminated in CoP of Eider in January 2018; redirecting production from TAQA’s subsea Otter field from Eider directly to its North Cormorant platform; and installing a multi-phase pump (MPP) system at Otter to further boost production.
Following the CoP of Eider, the asset was converted to late life ‘utility mode’ and continues to provide power and system support to the other hub fields.
With the aim of minimising the amount of post-CoP OPEX, Eider utility mode has resulted in a smaller operating crew of six Personnel on Board (POB), because Eider is no longer producing hydrocarbons, significantly reducing the amount of maintenance, inspection and catering required on the platform. Furthermore, vessels are scheduled monthly and a weekly flight enables crew changes and the movement of any specialist vendors or equipment to and from the platform. This has resulted in a 57 per cent reduction in post-CoP OPEX when compared with the year prior.
Greater oil price stability — The stable oil price seen over the last two years in comparison with 2014–16 provides more certainty for operators to continue to operate assets.
Efficiencies in decommissioning — Experience in decommissioning is growing in every element of the scope. As a result, efficiencies are being seen within decommissioning projects. This growing capability is beginning to industrialise the decommissioning process particularly in the southern North Sea, where there has been a production line of projects and operators are noting significant savings on similar activities from one project to the next.
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3.4 Expenditure Breakdown
Figure 5 shows the forecast expenditure expected in different areas of decommissioning projects over the next ten years.
Figure 5: UKCS Expenditure breakdown 2019, to 2028
Source: OGUK, OGA
17%
45%
7%
18% 2%
2%9%
Well Decommissioning• Engineering Spread rate and
services associated with phase 1, phase 2 and phase 3well decommissioning
Operator Costs• Project management services
throughout preperation of decommissioning programme
• (Post CoP OPEX) Operational expenditure after occurrence ofCessation of Production
Facilities and Pipelines Permanent isolation and cleaning, and Topsides Preparation• Engineering down and clean for
topsides and pipelines• Preparation of platform for
unattended mode
Removals• Removal activities for the topsides• Removal activities for the
substructures
Topsides and Substructure Onshore Disposal• Onshore waste handling• Deconstruction• Decontamination
Subsea Infrastructure• Pipeline decommissioning• Mattress decommissioning• Subsea Structure
decommissioning
Site Remediation and Monitoring• Debris clearance• Monitoring requirements
The 2019 dataset shows a similar breakdown of expenditure to that of previous Decommissioning Insight reports, however there are some subtle differences:
1. Well decommissioning (45 per cent): £6.8 billion is forecast to be spent on well decommissioning over the next decade, a reduction from the £7.5 billion reported in 2018. 1,630 wells are expected to be decommissioned, compared with 1,465 last year. This demonstrates that the market is becoming more efficient in well decommissioning, conducting more work for less.
2. Operator costs (17 per cent): This is a combination of decommissioning project management and the cost of operating platforms after production is ceased. £2.5 billion is anticipated to be spent on these elements over the next ten years, in line with last year’s data.
3. Removals (18 per cent): This is the combined costs of removing topsides and jacket structures on the UKCS. £2.7 billion is expected to be spent on removals over the next decade — a notable increase on the £2 billion forecast in last year’s report.
4. Subsea infrastructure (9 per cent): £1.3 billion is expected to be spent on subsea infrastructure decommissioning over the next decade, and includes activities related to pipelines, mattresses and subsea structures. This is a reduction from the £1.7 billion reported in last year’s dataset.
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DECOMMISSIONING INSIGHT 2019
These four elements of a decommissioning project continue to be the main cost drivers for decommissioning in the UK. As the industry continues to grow and learn, understanding what drives success in decommissioning is essential. The development of key performance indicators (KPIs), particularly in these four main areas, will be vital in enabling the industry to track success and set improvement targets. While KPIs to measure technical success (e.g. days per well decommissioned or days per tonne of material removed) will be required to communicate to decommissioning practitioners, KPIs for commercial success (e.g. costs per well decommissioned or costs per tonne of material removed) will also be required to engage with government, including HM Treasury and other stakeholders.
While the Decommissioning Insight data provide a forward look as to how UK operators expect to perform, backward-looking data (actuals) are required to measure true success. With limited historic data, assessing actual performance has proved difficult. However, as more decommissioning work has been completed, the development of KPIs and benchmarks is becoming possible in certain areas of the WBS, particularly relating to well decommissioning.
The OGA is now gathering more granular data as part of the Asset Stewardship Survey and creating metrics to support individual conversations with UK operators. While this process is working well, increased sharing of learnings and insight across UK operators and their supply chain is to be encouraged and can only help in the development of a more efficient market.
On a global scale, being able to demonstrate success in the UK industry could help to better advertise national capabilities and act as a catalyst for growing international exports.
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3.5 Ten-Year Regional Overview
The central North Sea (CNS) remains the area with the majority of decommissioning expenditure over the next decade. However, the proportion of expenditure in the CNS has reduced significantly since last year’s Decommissioning Insight, from 48 per cent to 42 per cent and reflects an increase in the northern North Sea (NNS), southern North Sea (SNS) and Irish Sea (IS). The NNS now expects to see 32 per cent of overall expenditure, up from 30 per cent in last year’s forecast, while the SNS and IS together expect to see 22 per cent, up from 15 per cent last year. The west of Shetland region has seen a slight reduction, down from 7 per cent of total spend in last year’s dataset, to 4 per cent this year, reflecting the future prospectivity of the region.
Figure 6: UKCS Regional Expenditure Breakdown 2019, to 2028
Central North Sea42%
Northern North Sea 32%
Southern North Sea and Irish Sea
22%
West of Shetland4%
Source: OGUK, OGA
Figure 7: UKCS Regional Expenditure Breakdown by Year 2019, to 2028
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DECOMMISSIONING INSIGHT 2019
On a regional basis, decommissioning spend is split fairly evenly between the CNS, NNS and SNS/IS in the immediate future. However, by the end of the decade, decommissioning in the CNS is rising to make up more than 50 per cent of total activity as expenditure in the NNS begins to decline. Activity in the west of Shetland and east Irish Sea is also seen to grow towards the end of the decade.
The step change in regional forecast expenditure in comparison with previous years may be in part due to the amount of M&A activity which has recently taken place. Figure 8 details the M&A activity in the past two years where operatorship of an asset has changed. This shows that the majority of the assets which have been acquired are situated in the CNS, inferring that new owners plan to inject a new lease of life into these assets and ensure that dates for CoP are pushed to the right.
Figure 8: UKCS M&A Activity 2018 and 2019
Merger & Acquisition Activity
Petrogas NEO picked up a number of assets from Total E&P for around $635 million. The deal secured many fi elds in the CNS region such as Dumbarton, Balloch, Lochranza, Drumtochy and Flyndrew.
Chrysaor acquired the majority of ConocoPhilips’ UK portf olio in a deal reported to be worth almost $2.7 billion. The deal included assets in the CNS and Irish Sea such as Britannia, Brodgar, Calder, Callanish, Enochdhu, Jade, Jasmine, Joanne, Judy and Millom.
Marathon Oil divested its UK portf olio to Rockrose Energy for $95 million. The deal included the Brae fi elds in the central North Sea.
Delek Group (parent company of Ithaca Energy) purchased Chevron’s UK assets in a $2 billion deal. This deal included the Alba, Alder, Captain and Erskine assets in the Central North Sea.
Enquest fully acquired the Magnus fi eld in the northern North Sea by purchasing the remaining interest in the fi eld from BP.
Serica Energy acquired an increased stake in the northern North Sea assets, Keith and Rhum from Total, Marubeni and BHP Biliton and closed out the deal to buy BP’s share for the Rhum fi eld. Tailwind Energy acquired the Triton cluster of assets from Shell and ExxonMobil. This included the Bitt ern, Guillemot, Clapham, Pict and Saxon fi elds in the central North Sea.
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DECOMMISSIONING INSIGHT 2019
3.6 Ten-Year Regional Breakdown
Looking more closely into the regional expenditures, we begin to see some common traits. For example, on a pro-rata basis, well decommissioning costs range from 50 per cent of the overall expenditure in the CNS to 42 per cent in the NNS and west of Shetland, and 41 per cent of spend in the SNS and IS. However, unit costs still tend to be higher in the NNS and CNS compared to the SNS, reflecting the increased complexity of the scope. The CNS also contains a greater quantity of subsea wells expected to be decommissioned over the next ten years; these are generally more expensive to decommission than platform wells. More generally, the SNS has seen some recent successes in well decommissioning activity and a greater industrialisation of the process, which may account for the apparent reduction in expected costs. The CNS and NNS will certainly glean knowledge from these experiences, driving further efficiencies.
Forecasts for the CNS and NNS anticipate that 20 per cent and 17 per cent of decommissioning expenditure will be spend on project management and continued operational expenditure on platforms after production has ceased. Estimates for the SNS and IS region suggest a much smaller share of expenditure, around 9 per cent, for these activities. This is mostly due to the larger size of the installations and greater complexity in the NNS and CNS, compared to SNS assets.
The proportion of expenditure forecast for removals costs also varies significantly across the UKCS, with 26 per cent allocated in the SNS, 23 per cent allocated in the NNS and only 10 per cent in the CNS. Forecast removals costs in the CNS in the near term are relatively low due to the aforementioned M&A activity in the region, which has pushed back some CoP dates. In the SNS, the proportion expected to be spent on removals has increased, likely as a result of the amount of well decommissioning activity liquidated over the past two years, which has reduced wells costs but led to greater removals (given these are concurrent activities).
Expenditure on subsea infrastructure is relatively consistent around the North Sea, accounting for 9 per cent of expenditure in each of the CNS and NNS, and 8 per cent in the SNS. All regions have seen a reduction in forecast spend in comparison with the 2018 Decommissioning Insight, suggesting further efficiencies are expected in this area. The slightly higher level of expenditure in the former two regions is perhaps due to the deeper water adding complexity to subsea decommissioning activities.
While the four main cost drivers are considered to be wells, removals, post-CoP OPEX and subsea infrastructure, it is important to consider all aspects of decommissioning when aiming to reduce costs. Facilities and pipeline permanent isolation and cleaning, coupled with topsides preparation, account for only 7 per cent of total UKCS decommissioning expenditure. However, this element contributes 11 per cent of forecast expenditure in the SNS, making it a larger cost component than subsea infrastructure, likely because the composition of SNS assets is different. It is therefore essential that incremental gains are sought throughout every element of the WBS.
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Figure 9: WBS Element Allocated Spend by Region 2019, to 2028
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Topsides & Substructure Onshore Disposal
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Well Decommissioning
Project Management & Post-CoP Facility /Running Costs
Source: OGUK, OGA
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Source: OGUK, OGA
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24
DECOMMISSIONING INSIGHT 2019
CASE STUDY — REPSOL SINOPEC RESOURCES UK
Repsol Sinopec Resources UK (RSRUK) has the largest decommissioning portf olio in the UKCS, which comes with a signifi cant decommissioning liability to manage. In managing such a wide and varied portf olio, it oft en meant that planning and executi ng the opti mum decommissioning programme was not always available and required a more strategic and tacti cal view on how such programmes delivered value within the business.
One of RSRUK’s core decommissioning assets, Beatrice, was amongst those that required ‘diff erent thinking’ in order to maximise reducti on in post-CoP running costs unti l such ti me it was bett er positi oned to move forward.
The Beatrice Alpha complex was successfully de-manned in December 2018 aft er transiti oning to not normally att ended (NNA) status, although the wells are yet to be decommissioned. The integrati on and applicati on of multi ple new technologies and digitalisati on elements enabled RSRUK to reduce post-CoP running costs signifi cantly, whilst ensuring the safety of the asset in this mode. This gave RSRUK the ti me to monitor and learn from industry on how to further maximise economic recovery in decommissioning with minimum impact on total abandonment expenditure (ABEX).
This mode of operati on is well known in the SNS but has had very limited applicati on in the CNS. By interacti on with operators with experti se on this kind of operati onal mode in the SNS, RSRUK was able to apply it successfully in Beatrice, being the fi rst platf orm operati ng in this mode within the RSRUK portf olio.
This project was delivered safely, under budget and ahead of schedule and with the support of the supply chain, this project was truly a collaborati ve eff ort in delivering value in decommissioning.
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4. The UK’s Role in a Global Market
In Summary
In the UK Government’s Budget 2018, the Chancellor issued a ‘call for evidence’ on how to establish the UK as a global hub for decommissioning. BEIS launched this consultation earlier this year and OGUK worked with members to form an industry response.10 This response incorporated a wealth of industry experience that reflects both operator and supply chain perspectives, and OGUK’s decommissioning forum (representing 200+ companies across the UK) actively contributed to the submission, providing insightful perspective on how the UK can make the most of its decommissioning capabilities.
Wood Mackenzie estimates that $85 billion (£67 billion) will be spent globally on decommissioning over the next ten years. The UK is expected to be the largest contributor, accounting for 28 per cent of overall global expenditure.
Figure 10: Global Decommissioning Expenditure 2019, to 2028
United Kingdom28%
United States13%
Brazil11%
Norway9%
Thailand5%
Angola4%
Nigeria3%
China3%
Indonesia3%
Netherlands3%
Australia3%
Denmark3%
Vietnam2%
Malaysia2%
The Rest of the World 8%
Source: Wood Mackenzie
Entering the decommissioning market earlier than other countries provides a huge opportunity to lead the global market. This needs to be supported by careful planning, capability development and appropriate investment in the right areas across the UK’s supply chain.
10 oilandgasuk.co.uk/wp-content/uploads/2019/09/OGUK-Decommissioning-Call-for-Evidence-Response.pdf
26
DECOMMISSIONING INSIGHT 2019
4.1 Developing A Strategic Framework
OGUK believes that a strategic approach should be adopted, building a global decommissioning capability in three phases: 1. Excelling in the UK market: According to Wood Mackenzie estimates, 28 per cent of forecast global
decommissioning expenditure is to be spent in the UK. In the immediate term, UK-based companies should therefore seek to maximise their share of the domestic decommissioning market, building on areas where a competitive advantage already exists and creating alliances with others where the UK lacks suitable capability.
2. Competitive regionally: In the short term, the UK supply chain must take full advantage of the regional decommissioning market around the North Sea, much of which can be handled by UK facilities and using UK capability to its full extent. Forecasts suggest that 43 per cent of the global decommissioning expenditure is to be spent in the North Sea area with Denmark, the Netherlands and Norway all anticipating an extensive decommissioning portfolio over the ten-year window.
3. Targeted international ambition: In the longer term, the UK should pursue opportunities globally based on its reputation for delivering North Sea projects. It should also be recognised that some capabilities developed for the regional and North Sea market may not be as relevant internationally. Therefore, in developing as an international hub for decommissioning, it is essential to identify those areas (both activities and services) where the UK has an advantage when considered against local competitors.
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4.2 The UK as a Global Hub for Decommissioning
Figure 11: The Components of a Global Hub for Decommissioning
OperatorsAcademia
Technology
Communica�ons
Interna�onal Trade Organisa�ons
Exports
Supply Chain Government & Regulators
REPUTATIONCAPA
BILITY
EXPERTISE
Projects
To be a global hub for decommissioning, the UK must focus on developing several areas:
Projects — At the core of any global hub is a continuous churn of projects. Operators, supply chain, regulators and government should work together to continually improve and become more efficient. As UK projects continue to turn over, the UK industry develops capability and expertise in decommissioning and most importantly builds a global reputation for doing so effectively.
Operators — UK-based operators continue to work closely together, sharing learnings and discussing projects to ensure knowledge is filtered around the industry. The more connected our operators are, the more efficient our decommissioning projects can be.
Supply Chain — The UK currently benefits from a supply chain growing in skills and experience in decommissioning. In addition to domestic companies, encouraging international companies to house their decommissioning capabilities in the UK and to develop centres of excellence here, is a key focus. This would enable the sector to bid for work on a global scale.
The supply chain is adapting to the decommissioning market as capability and understanding are increasing. Companies and consortia are emerging specialising on the decommissioning market, providing either a full service or offering a segmented approach. Having a wide array of supply chain options to conduct decommissioning work scopes is beneficial to all, as it ultimately increases competition and makes the sector more efficient and better able to compete in the global market.
While many operators will still see the benefit to develop their own in-house capability, many others will seize the opportunity to outsource enabling the concentration of skills in specialist businesses which can aggregate work and when coupled with continuity of scope, lead to cost reduction through economies of scale.
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DECOMMISSIONING INSIGHT 2019
Regulation — While industry is continually developing its competency in decommissioning, its regulators are similarly increasing their experience. Well-informed regulatory oversight ensures decommissioning policy remains fit for purpose, is conducted efficiently and meets the needs of society at large.
Government — The UK government’s proactive support for developing decommissioning capability is welcomed, affirming the UK to be a global hub for decommissioning. In addition, the Scottish Government has recently launched the fourth round of the Decommissioning Challenge Fund (DCF). The DCF was announced by the First Minister in 2017 and has conducted three successful application calls between 2017 and 2019 to underpin Scotland’s eminence in this field. To date, grant offers totalling £10.3 million have been made to 28 projects and partnerships.11 Building the infrastructure to support the domestic market helps support the internationalisation of a home-grown capability.
Technology — Supporting technology development in the UK demonstrates the commitment to become a global hub for decommissioning. It also provides the opportunity for new entrants into the supply chain, rooted in the UK but with the ability to export globally. The development of new tools equipment, and methodologies designed to make current practices more efficient (e.g. quicker cuts, quicker lifts, larger lifts etc.) will enable incremental gains and, as well as cost reduction, also play a role in achieving safety and environmental improvements for decommissioning projects.
The Oil and Gas Technology Centre (OGTC) is focused on driving innovation which include helping the industry reduce the overall cost of decommissioning by 35 per cent and to create a strong supply chain that will service this demand. The OGTC has already co-invested in 18 projects with industry, from alternative buoyancy techniques for removing structures through to innovative lifting devices for decommissioning. These projects are driven through the organisation’s ten-year strategy and supporting decommissioning solution centre roadmap,12 which ensures the OGTC continues to focus on technology projects that will truly move the dial on UK North Sea challenges.
Academia — Academia is energising a new workforce while supporting R&D initiatives that can shape the way we do things in decommissioning. As universities continue to provide focus on this sector, fresh and diverse thinking will positively impact the industry. To help inspire and educate the future decommissioning workforce, various initiatives have been introduced. 2017 saw the introduction of the world’s first MSc in Decommissioning, offered by the University of Aberdeen. Designed in collaboration with operators, supply chain companies and regulators, this is a positive step in educating those who wish to pursue a career in the discipline. Furthermore, Robert Gordon University — also located in Aberdeen — provides a short course on ‘Planning for Decommissioning.’ This has been developed with the OGA, BEIS and the Health and Safety Executive (HSE) to provide students with a detailed understanding of the legislation in decommissioning.
As well as developing skills in the future workforce, academia also plays a role in research and development. Operators, the supply chain and regulators must be well connected with academic institutions in the UK and beyond to encourage emphasis on relevant areas of R&D. The National Decommissioning Centre (NDC) provides this conduit between industry and academia. The NDC was set up in 2018 with an ambition to become the global leader in research and development which transforms oil and gas decommissioning and mature field management. It now has several ongoing R&D projects such as underwater laser-cutting technologies, a barrier verification chamber for well decommissioning, studies on jacket fatigue and life extension and wind-farm decommissioning. As well as working on R&D, the NDC also provides a number of funded PhD opportunities and Continued Professional Development (CPD) courses to introduce people to offshore decommissioning.
11 www.gov.scot/policies/oil-and-gas/oil-and-gas-decommissioning/12 https://media.theogtc.com/roadmap/Decommissioning.html
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A global reputation — While various companies in the UK are already present in decommissioning industries around the world, help from international trade organisations such as Scottish Development International (SDI) and the Department for International Trade (DIT) will help ensure success.
CASE STUDY — CHEVRON
Chevron and its partners are planning for the decommissioning a number of platforms in the Gulf of Thailand. As with all platform decommissioning projects, a range of options are being considered, from complete removal to shore, to leaving all or part of the infrastructure in the marine environment.
As part of the assessment of the different decommissioning options, the role of the structures in the ecosystem is evaluated. To compare the different decommissioning options, Chevron is utilising the NEBA (Net Environmental Benefit Analysis) method. NEBA was chosen to provide an objective and transparent method of comparing the ecosystem service ‘value' of each option.
NEBA is typically adopted to help stakeholders understand the environmental and socio-economic benefit associated with different alternatives by using clear and meaningful parameters.
In practice, NEBA requires a baseline biological survey of the jackets and adjacent control sites to characterise the ecosystem at each location. The key objectives are to quantify the biodiversity, assess biomass and productivity of the fish and assess the marine growth for each decommissioning option.
To support this approach, the level of data required from the surveys is much greater than when undertaking typical techniques such as diver or routine ROV inspection surveys. Therefore, Chevron and its partners have been developing and trialling a number of new technologies, aimed at producing the level of survey detail to support the assessments within NEBA. These technologies include:
• Stereo-video remotely operated vehicle (ROV) methods to quantify fish diversity, abundance and biomass • Environmental DNA (eDNA) to quantify biodiversity • 3D Photogrammetry to estimate biofouling area, volume and weight
The use of these new techniques is providing Chevron and its partners with detailed and accurate data on ecosystem structure and function to enable quantitative assessments of decommissioning options to be carried out within the NEBA framework.
3-D Model developed using photogrammetry to characterise marine growth on a platform member
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DECOMMISSIONING INSIGHT 2019
10 years of Insights...
At the forefront of forecasti ng...
• OGUK performs fi rstdedicated Insightoperator survey
• UKCS welldecommissioningesti matesrise to 44% oftotal cost • Survey
structuredaround WBSfor fi rst ti me
• 10-year forecastincreases to16.7bn
• Well decomesti mate increases to 46%
• Norway andNetherlandsincluded in thesurvey for thefi rst ti me
• 10-year forecastincreases to£17.6bn — 53%in CNS
• Survey alignedwith OGA Asset Stewardship Survey
• Year-on-yearforecasts drop forthe fi rst ti me to£17.1bn
• Denmark joinsthe survey
• Insight establishesits role in sharinglessons learned inP&A and removals
• Rephasing ofdecommissioningplans leads toreducti on 10-yearforecast to £15.8bn
• Survey aligned • Survey aligned
Key Projects
• Formati on ofthe Oil and GasAuthority (OGA)
• OGUK publishesGuidelines forComparati veAssessment
• Parti cipati onincreases to 28operators
• 10-year outlookreaches £14.6bn
Industry Milestones• BEIS Guidance notes
published
• Decommissioning Relief Deedsand BrownField Allowance introduced
• Wood Review published, including the role of decommissioning in MER
• OGTC Opens inAberdeen
• OGA publishescost baseline at£59.7bn for UKCSdecommissioning
• Nati onalDecommissioningCentre opened atNewburgh
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2019
Heerema’s Thialf lands part of the Murchison jacket at AF Off shore Decom’s Environmental Base in Vats, Norway’
Brent Delta topsides removed in 24,000t single lift
Miller platf orm and topsides removed by Saipem’s S7000
2014
• Survey launched based onOGUK Operator Acti vity Survey
• Total cost of decommissioningesti mated £27bn
• £1bn per annum spend
• Survey broken down into NNS,CNS and SNS
• Total decommissioning costsesti mated at £27bn — Wells16%; Removals 34%
• Survey adopts a 10-year lookahead forfi rst ti me; esti mati ng£10.4bn
• OGUK issues thedecommissioningWork BreakdownStructure (WBS)
5. A Decade of Decommissioning Insight
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5. A Decade of Decommissioning Insight10 years of Insights...
At the forefront of forecasti ng...
• OGUK performs fi rstdedicated Insightoperator survey
• UKCS welldecommissioningesti matesrise to 44% oftotal cost • Survey
structuredaround WBSfor fi rst ti me
• 10-year forecastincreases to16.7bn
• Well decomesti mate increases to 46%
• Norway andNetherlandsincluded in thesurvey for thefi rst ti me
• 10-year forecastincreases to£17.6bn — 53%in CNS
• Survey alignedwith OGA Asset Stewardship Survey
• Year-on-yearforecasts drop forthe fi rst ti me to£17.1bn
• Denmark joinsthe survey
• Insight establishesits role in sharinglessons learned inP&A and removals
• Rephasing ofdecommissioningplans leads toreducti on 10-yearforecast to £15.8bn
• Survey aligned • Survey aligned
Key Projects
• Formati on ofthe Oil and GasAuthority (OGA)
• OGUK publishesGuidelines forComparati veAssessment
• Parti cipati onincreases to 28operators
• 10-year outlookreaches £14.6bn
Industry Milestones• BEIS Guidance notes
published
• Decommissioning Relief Deedsand BrownField Allowance introduced
• Wood Review published, including the role of decommissioning in MER
• OGTC Opens inAberdeen
• OGA publishescost baseline at£59.7bn for UKCSdecommissioning
• Nati onalDecommissioningCentre opened atNewburgh
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Heerema’s Thialf lands part of the Murchison jacket at AF Off shore Decom’s Environmental Base in Vats, Norway’
Brent Delta topsides removed in 24,000t single lift
Miller platf orm and topsides removed by Saipem’s S7000
2014
• Survey launched based onOGUK Operator Acti vity Survey
• Total cost of decommissioningesti mated £27bn
• £1bn per annum spend
• Survey broken down into NNS,CNS and SNS
• Total decommissioning costsesti mated at £27bn — Wells16%; Removals 34%
• Survey adopts a 10-year lookahead forfi rst ti me; esti mati ng£10.4bn
• OGUK issues thedecommissioningWork BreakdownStructure (WBS)
DECOMMISSIONING INSIGHT 2019
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5.1 Background and History
Since 2010, OGUK’s Decommissioning Insight has provided a unique picture of the developing North Sea decommissioning sector. The emergence of the first Insight report from OGUK’s 2010 Oil and Gas Activity Survey recognised that the sector was developing, and the reality of the technical and cost challenges was becoming increasingly evident. In 2010, Total was completing its Frigg Cessation Project and BP was in the final stages of the North West Hutton Decommissioning Project. These and other projects and the emerging lessons learned focussed industry’s minds on the decommissioning scope across the basin and with it, an increasing realisation of the actual costs involved.
By 2013, the Insight report had established itself as the primary source of forecast decommissioning activity based on actual operator-provided data, using the common language of OGUK’s established Work Breakdown Structure. It became clear from the first Insight surveys that forecasting CoP dates and hence the timeframe for any decommissioning project is difficult and will always be subject to uncertainty and both short and long-term variability. Successive years of survey results have often presented a different picture in terms of timing and scope, owing to a range of factors from oil price fluctuations and M&A activity, to asset-specific operational drivers.
Over the years, Decommissioning Insight has charted the changing decommissioning sector and its understanding of the challenge ahead. Early surveys suggested the cost of well decommissioning represented less than 20 per cent of total expenditure, but by 2012, when the true cost of this process had started to become apparent, estimates indicated it was the most significant factor, at around 45 per cent of the total cost. This estimate has remained consistent in all ten-year forecasts since, rising to 49 per cent in the 2018 survey. This clear picture of the significance of well decommissioning and other major cost areas such as post-CoP OPEX, removals and subsea decommissioning has spurred industry to focus its cost-saving activities on these major elements.
As decommissioning experience has increased, the consistency of the forecasts has improved, with less dramatic yearly variation seen in latter surveys. Differences can now be attributed justifiably to progress in cost-reduction initiatives brought about by operators sharing experiences and lessons learned, technology and methodology innovation and robust stewardship by the OGA since its formation in 2015. As of 2016, the data in the reports have been provided by the Asset Stewardship Survey conducted annually by the OGA, whose data collection is based on the original OGUK survey structure — a testament to the good work by the industry. This has provided OGUK with a more complete, consistently high-quality data set on which to base forecasts.
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DECOMMISSIONING INSIGHT 2019
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5.2 Insight and Cost Trends in Decommissioning
Throughout the decade of Decommissioning Insight reports, OGUK has sought, with the support of the operator community, to provide visibility on predicted activity and cost trends.
The first Decommissioning Insight in 2010 forecast an annual spend on decommissioning of £500 million, predicting a rise to £1 billion in 2015. At the same time, OGUK’s estimated total cost of decommissioning in the UKCS was a cumulative £27 billion through to 2050. The actual decommissioning spend reported in 2015 was in fact £1.2 billion while the OGA in 2017 estimated a total cost of £59.7 billion. Interestingly, the pace of decommissioning has endured at around £1–2 billion per year in recent years, with the estimated overall cost beginning to fall as a result of industry’s cost-saving initiatives.
Figure 12: Total Decommissioning Expenditure – Insight Forecasts versus Actuals 2013, to 2018
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In terms of the accuracy of the Insight forecasts over the years, the five- and ten-year annual decommissioning spend forecasts compiled over the decade are shown in Figure 12. This shows the average of all the forecasts prepared for years 2012–18, alongside actual spend. For the years from 2014–16, the spend closely matched the average forecasts, although this is not true for more recent years when actual spend has been significantly less than previous forecasts. Although it will take some years to detect a true trend, this could be a measure of the cost savings realised during implementation, which were not forecast.
In terms of activity, each year the Insight report develops an estimate of the number of wells to be decommissioned in each year of the forecast. Figure 13 uses the same approach of averaging the previous forecasts and comparing this to the actual wells decommissioned in each year. This shows that the number of wells actually decommissioned in each year were consistently less than forecast values until 2018, when the actual wells decommissioned were more than the average forecast.
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DECOMMISSIONING INSIGHT 2019
Figure 13: Well Decommissioning Activity – Insight Forecasts versus Actuals 2014, to 2018
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Experience has shown that even near-term forecasts can turn out to be significantly different from actual activity or spend, despite the use of data obtained directly from operators. This emphasises the challenges in forecasting decommissioning activity, when even in the near-term, external or operational factors can change an asset owner’s plans at short notice.
5.3 The Future — Challenges and Opportunities
For ten years OGUK’s Decommissioning Insight has been the only short-to-medium term forecast for decommissioning activity in the North Sea. Unlike development planning in oil and gas, decommissioning activity is not schedule-driven and hence predictions may not always match reality. This is illustrated clearly if year-to-year comparisons are made between Insight reports.
This causes much frustration, in particular for the supply chain, where businesses keen to invest are looking for clarity on scope to allow them to justify expenditure in people and equipment. Indeed, without that clarity, the UK decommissioning sector’s ability to grow will be hampered. This situation is recognised by the industry and regulators alike and the issue is being addressed as part of the drive towards making the UK the ‘global hub for decommissioning’, as described in the UK Government’s Call for Evidence.13
Decommissioning Insight will remain the principal forecast of decommissioning activity for members of OGUK and the wider decommissioning community. It is now fully aligned with the OGA’s Asset Stewardship Survey process and represents the most granular picture of activity across the decommissioning Work Breakdown Structure.14
13 oilandgasuk.co.uk/wp-content/uploads/2019/09/OGUK-Decommissioning-Call-for-Evidence-Response.pdf14 oilandgasuk.co.uk/product/decommissioning-work-breakdown-structure-guidelines/
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6. North Sea Activity
In Summary
The North Sea is endowed with a thriving oil and gas industry which has benefitted the surrounding nations and their economies for many years — and will for many more to come. Where the North Sea E&P industry leads, others globally follow, building on the capabilities developed in this region, leveraging on the skills and capabilities developed by the UK, the Netherlands, Norway and Denmark which have enabled the region to prosper. In this regard, OGUK continues to work closely with national industry associations — notably Oil Gas Denmark, the Netherlands Oil and Gas Exploration and Production Association (NOGEPA), and Norwegian Oil and Gas Association (NOROG) — to explore synergies and learn from each other.
The North Sea already presents a very significant decommissioning opportunity. With 2,624 wells, over 1.2 million tonnes of topsides to be removed, and almost 675,000 tonnes of substructures to be decommissioned over the next decade, there is a considerable quantity of work to carry out. It is essential that the nations around the North Sea continue to work together to develop a cost-effective way to carry out this work but also reap the full extent of the global opportunity that success in this regional market offers. That success depends on developing the right commercial models, a focus on improving technology, drawing upon academia for new talent and to work on much-needed solutions, and continued practice and physical experience in decommissioning regional infrastructure.
Figure 14: The North Sea Basin
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DECOMMISSIONING INSIGHT 2019
6.1 North Sea Well Decommissioning Activity
Figure 15: Well Decommissioning in the North Sea 2019, to 2028
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Country Sub-Totals Percentage
UK 1,630 62%Norway 417 16%
The Netherlands 457 17%Denmark 120 5%
TOTAL 2,624 100%
Overall, 2,624 wells are expected to be decommissioned in the North Sea over the next decade, an increase from the 2,379 reported in last year’s report. The UK remains the nation with the greatest proportion of this workload (62 per cent), almost identical to what was reported last year. The Netherlands and Norway have a relatively equal spread of the activity, but their respective work profiles show that the bulk of well decommissioning activity in the Netherlands is happening from 2019 to 2024 whereas the bulk of the Norwegian workload is from 2025 onwards.
Three operators from Denmark provided data, though only two have decommissioning activity within the survey period. This shows activity forecast to begin in 2020 but most of the activity expected in 2025 and 2026.
Across the North Sea basin, it is forecast that on average around 220 wells will be decommissioned per year up until 2024, rising to an average of 327 wells from 2025 to the end of the period.
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Figure 16: Well Decommissioning Activity in Norway 2019, to 2028
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Well Type Sub-Totals Percentage
Platform Well 313 75%
Subsea Well 104 25%
TOTAL 417 100%
Norway expects to decommission an average of 25 wells per year up until 2024, after which a significant increase is forecast, peaking at 94 wells in 2025 and tailing off to 28 at the end of the dataset. This is a similar work profile to that reported in Decommissioning Insight 2018, with some large decommissioning projects expected to get underway towards the end of the dataset.
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DECOMMISSIONING INSIGHT 2019
CASE STUDY — STATFJORD
The Statfjord field was discovered by Mobil in 1974 in 149m of water, approximately 120 miles west of Bergen. Statoil, now Equinor, assumed operatorship on 1 January 1987. The field was developed using the Statfjord A, B and C concrete gravity base production platforms, all of which incorporate oil storage cells. Industry-leading recovery factors approaching 67 per cent for oil (4.3 GBO) and 78 per cent for gas (8.3 TCF) have been achieved and this means that the Statfjord A platform will shut down production in 2022, 43 years after first oil and after more than double its expected lifetime.
Equinor has incorporated its own experience and lessons shared by others that have undertaken large offshore decommissioning projects, including commitment to start the decommissioning of the platforms 34 wells early such that these operations will be completed very soon after CoP. Post-CoP OPEX will be minimised and this will facilitate early transition to EPRD contractor led removal preparation and de-manning.
As one of the largest platforms on the Norwegian continental shelf, the 48,000-tonne Statfjord A topsides comprise an 18,000-tonne module support frame supporting a large number of small modules, many of which were installed offshore. Equinor recognised that removal to shore of this very large topsides would present unique engineering challenges and therefore decided to engage contractors early to develop optimised methods and execution plans. This work formed the basis for a competitive tender process which concluded in early 2019 with an EPRD contract award to Allseas to use its record-breaking heavy lift and pipelay vessel “Pioneering Spirit” to remove the topsides in a single lift after 2022. The vessel’s revolutionary motion-compensated topsides lifting system will be upgraded from its current 48,000-tonne nameplate capacity to account for weight uncertainty. Allseas has selected Kvaerner AS to demolish and recycle the topsides at its Stord disposal facility.
Equinor completed Norwegion Public consultation of its Impact Assessment of its Disposal Plan in 2018, and is expected to progress regulatory approvals, including request for OSPAR 98/3 derogation, through 2019–20.
Credit: Harald Pettersen / © Equinor
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Figure 17: Well Decommissioning Activity in The Netherlands 2019, to 2028
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Platform Well 353 77%
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TOTAL 457 100%
Operators in the Netherlands expect to decommission 457