Decom North Sea and Society of Underwater Technology - Salvage and Decommissioning - Review of New Contract Template Options

Executive Summary

To date, only approximately 10% of the facilities installed in the UK North Sea have been decommissioned. Many fields still offer great potential and will remain profitable as a result of improvements in technology and innovation, creating the opportunity to delay Cessation of Production (CoP), or commingling assets, resulting in maximising recovery. As such, there are still opportunities for new entrants to the North Sea oil and gas market. Nevertheless, the UK Continental Shelf (UKCS) is likely to remain the largest decommissioning market in the North Sea for some considerable time. Annual decommissioning expenditure in 2016 amounted to £1.2 billion and this is forecast to remain at around £1.7 to £2.0 billion per year over the next five years.

The task ahead is not going to be easy; a number of major challenges need to be overcome. These challenges include the lack of reliable ‘as-built’ and ‘as-is’ data , when preparing for CoP. This means that agreeing the exact scope of work to be performed - critical for assessing the scope and feasibility of decommissioning options - is unlikely to be possible. Other challenges include deteriorating conditions due to corrosion and the aggregation of marine growth, and the uncertain quantities of hazardous materials to be disposed of in accordance with the relevant laws and regulations. Any one of these has the potential to significantly impact the actual costs of decommissioning.

Decom North Sea and the SUT, the international learned society for underwater technology, science and engineering have taken the initiative within their Joint Strategic Partnership to reflect on - and draw comparisons between - emerging decommissioning and salvage contracting frameworks.

The salvage industry and the oil and gas decommissioning industry have very similar end goals in the marine environment, however the approaches within the current and emerging contract frameworks are in many cases different. The soon to be published LOGIC and BIMCO contracts seek to provide a framework, going forward.

New standard contracts for the market

A key cost reduction measure is the production of standard contract terms. Two new decommissioning contracts are currently being prepared (by LOGIC and BIMCO) to address this need.

Both contract templates have several common features. Most fundamentally, neither is intended to deal with well plug and abandonment (P&A). As such, there is an assumption in both contracts that the asset will be ‘cold’ – at least to the extent that the wells will have been isolated and depressurised so that work can commence without further P&A activity having to take place.

For further information, including development details on both the LOGIC and BIMCO contracts, please click here

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