February 2016 /// Vol 237 No. 2)
Injecting social entrepreneurship into the decommissioning process
A collaborative approach is required to overcome deconstruction challenges to sustain our industry, maximize economic recovery and mitigate risks of early asset retirement.
The collapse in crude prices has come at a critical time for many assets on the United Kingdom Continental Shelf (UKCS), with their long-term sustainability already in question as a result of reduced efficiency and spiraling costs. Although many opportunities remain, low commodity prices have made a large percentage of these fields uneconomic and accelerated their decommissioning.
The process of plugging and abandoning wells and dismantling the associated aging assets and infrastructure creates a unique challenge, one to which the oil and gas industry is expected to rise with its usual entrepreneurial spirit. Yet when you consider that the costs of decommissioning over the next 40 years could exceed the $75 billion forecast by industry bodies and decommissioning commentators, those involved must reflect on the impact that traditional approaches will have on the industry and society, in general. To ensure that these immense projects are delivered in an effective and efficient way, a catalyst for future change is required.
CHANGING THE CORPORATE MINDSET
The success of traditional entrepreneurial activities is usually measured in terms of performance and profit. Going forward, Wood Group would assert that new criteria for decommissioning must include more social entrepreneurship, where the positive return to society is combined with the implementation of appropriate environmental solutions.
Decommissioning is a shared responsibility that should not be shouldered by the operators and license-holders on their own. Instead it should be a collaborative approach involving all who have benefited from the exploitation of these fields, including the UK government and supply chain. While Wood Group has facilitated the development and operation of many UKCS assets, it has also developed an extensive track record in facility decommissioning, with experience going back to the 1990s. The company was responsible for deconstruction and decommissioning of major fields, including BP’s North West Hutton and Miller, as well as Shell’s Brent field. Yet past performance is not necessarily an indicator of future success, and the changing context and macro environment necessitate a fundamental change in our own, and indeed the industry’s, approach to decommissioning.
This is backed up by the development of the Oil and Gas Authorities (OGA) strategy for decommissioning, which will call on all parties to work together to secure the full potential of the resources within the UKCS, while providing employment opportunities, addressing environmental challenges, and minimizing the burden on the UK taxpayer.
COLLABORATION: A CORE PRINCIPLE
Wood Group is committed to its share of the responsibility, working with all parties to develop a future vision and framework for decommissioning. Our core values of social and financial responsibility cause us to look at decommissioning differently. Instead of viewing this as an opportunity to increase revenue, we have adopted a broader perspective that fits our vision to play a key role in,
stewardship of our industry. More fundamentally is our recognition that, with a challenge as significant as decommissioning, no single organization can hope to fully shape or deploy the most effective and efficient solutions in isolation.
Those organizations, both operators and supply chain firms, that are willing to work together to explore and develop new solutions, will need to take a different approach to managing risk and liability. Doing this will unlock both potential and value. Initially, these opportunities are likely to manifest themselves in regionalized or bundled opportunities, but they will offer the highest potential to test and refine solutions and approaches.
TIMING IS ESSENTIAL
Fundamental to this collaborative approach is a requirement to ensure that the timing of any decommissioning activity supports maximized recovery, that the scope is appropriate and well-defined, and that the method of execution is efficient and effective. Although limited in number, there are already many lessons that can be learned from several completed decommissioning projects. Perhaps the most important is the need to start planning for asset retirement several years in advance of the anticipated abandonment start date.
Even assets in early production stages will benefit from a foundation retirement plan, and an operating model to balance medium and late-life asset management challenges. These also need to consider the region and production opportunities that may extend life but influence preparation, abandonment and restoration obligations.
In this regard, Wood Group believes that the operational and decommissioning phases should not be seen as separate elements. Instead, the reality of their interdependence is an opportunity to enhance both sections through informed decision-making and should not be underestimated.
BENEFIT OF EXTENDING ASSET LIFE
The timing of decommissioning is controlled by the economics of individual assets that may or may not be impacted positively by ongoing strategies for production efficiency and cost reduction. Although options for existing owners may be limited, other players may still see opportunity in these aging assets. In this respect, Wood Group’s duty-holder solution facilitates the transfer of assets between parties, supporting new owners with the experience to maximize productive life and economic recovery.
The award of the first pipeline-operator contract in the North Sea to Wood Group has extended this model from platforms to cover complete infrastructure, and has enhanced the possibilities of maximizing economic recovery on the UKCS.
Yet, extending field life is about more than just maximizing recovery. As part of a late-life management plan, the interface between the operational and decommissioning phases can be improved further by increasing the time to plan and prepare for abandonment, and ultimately removal.
A broad criticism, levelled fairly at our industry, is the lack of standardization. Every platform on the UKCS is unique in some respect, yet that does not necessarily mandate a different plan for each structure. The simplification of contracting, operating and applying business models specifically tailored for decommissioning must be seen as a priority.
There is also a strong desire to share lessons and knowledge across the industry. Wood Group has been a sponsor of the late-life planning portal, developed by Decom North Sea in answer to an action in the Oil and Gas Industrial Strategy, and provides a framework for sharing of learnings while providing direction to those undertaking decommissioning, or considering the first steps in their approach.
While it is unlikely that there will be one standard as a result of this approach, the sharing of knowledge is one of the first steps in driving cost efficiency. Its successful delivery also should enhance and promote additional collaboration.
SEEKING INDUSTRIAL SOLUTIONS
It is also important to acknowledge that we are not the only industry that has to decommission redundant assets. The approach that industry has used to develop these assets over the last 50 years may prove to be an impediment to engineering efficient solutions, and we should seek to apply knowledge from other industries. We can draw intelligence from other sectors, such as nuclear, as the correlation of risks and hazards between our respective industries is strong. Equally important are sectors, such as the salvage industry, where the opportunities are seen far more simplistically and yet are no less challenging or hazardous.
EMBRACING SOCIAL RESPONSIBILITY
It may seem counterintuitive to an entrepreneurial approach to work collaboratively, minimizing scope and deferring revenue-generating activity. However, Wood Group suggests that the industry look at decommissioning as a challenge to overcome to sustain our industry, maximize economic recovery, and mitigate the risks of premature asset abandonment.
If we think beyond the operational and economic issues that decommissioning presents, we can, perhaps, imagine a new way of working together, unencumbered by traditional methodologies. The experience and knowledge gained by embracing this social entrepreneurial model on the UKCS over the coming years, will serve as an example for regulators and industry in other basins, as their assets reach maturity.