June 2018 | Vol. 9, No. 6
With Brent crude prices now hovering around USD 77 per barrel, operators and contractors alike in Northwest Europe have this year refocused attention on field development projects. However, the growing backlog of removal projects in the region, particularly in the UK continental shelf, means that the decommissioning market cannot be ignored.
Delegates attending Decom North Sea’s annual conference, Decom Offshore, on 23 May in Aberdeen were challenged by Bill Cattanach, head of supply chain at the Oil & Gas Authority (OGA) to consider whether market conditions were now hitting a ‘sweet spot’ for decommissioning. During the recent ‘boom years’ between 2011 and 2014, with oil prices generally over USD 100 per barrel, and high rig and vessel day rates, decommissioning projects were considered too costly by operators. While some may have considered the ‘bust’ years of 2015 to 2017 to offer the perfect market conditions for decommissioning, with vessel and rig rates at rock bottom, and plenty of availability, Cattanach pointed out that operators then had no budget to spend on removal work. With market conditions levelling out, and a growing number of decommissioning programmes in the offing, this year and next year may finally see the decommissioning market become much more prominent.
Decommissioning may signal the end of a field life, but the market itself is still a developing one, and not without major issues, with cost concerns being the first on the list for regulators, operators and the supply chain. Nils Cohrs, head of decommissioning at the OGA, outlined the scale of the challenge to delegates. As laid out in its UKCS Decommissioning Cost Estimate Report, the government agency aims to steer the UKCS’ overall decommissioning cost from an estimated GBP 59.7 billion to GBP 39 billion1 or less – a 35% cost reduction. According to the 2017 report, almost half of the estimated decommissioning costs are currently attributed to well plug-and-abandonment (P&A) work, while geographically, in the UKCS, nearly half the costs again are estimated to be within the Central North Sea region.
According to data from FieldsBase by IHS Markit, there are currently just over 600 potential subsea wells to be installed in the Northwest Europe region. In addition to this, however, there are 205 subsea wells scheduled for decommissioning in Northwest Europe – with 93% of these wells located in the UKCS – emphasising that the United Kingdom will be at the forefront of subsea well P&A innovation and activity in the near future. Therefore, going forward, subsea well P&A activity has the potential to make up around 25% of all subsea well activity in the region. Cohrs also emphasised the importance of early engagement with operators for cost reduction, stating that decommissioning planning needed to begin at least five or six years in advance of cessation of production (CoP) – with effective planning even beginning a decade before CoP. The need for early planning was also echoed by Pauline Innes, director for decommissioning for the UK Offshore Petroleum Regulator for Environment & Decommissioning (OPRED). According to Innes, the number of decommissioning projects forecast to be approved this year is 23, with 5 approved so far. In 2019, 60 projects are forecast to be approved. However, Innes emphasised that the lengthy time frames required for the planning and approvals process means that the actual number of programmes to be approved this year and next year is likely to be much smaller, with operators typically underestimating the amount of work involved. Decommissioning programmes were also prone to be deferred, said Innes, due to the potential for late life field acquisitions and disposals, as well as ‘large window’ requests from operators looking to postpone work until a more suitable time, or to tie in with other decommissioning activities.
Another clear indication of the growing backlog in the decommissioning market is the increasing number of fixed platforms scheduled for removal. According to FieldsBase, there are now 100 fixed platforms scheduled for removal in Northwest Europe, and again, the United Kingdom is poised to be at the forefront of activity, with 70 of these structures located in the UKCS. However, the increase in decommissioning activity in this market has come at a high price – data from FieldsBase also shows a lack of construction activity in this segment, with only 80 potential new platforms in the region, of which 50 have a ‘possible’ status, and are therefore highly prone to delays or cancellation. In Northwest Europe – and particularly the United Kingdom –the decommissioning market is emerging as the key sector for the struggling heavy-lift sector.
Given the scale of this potential market, delegates at the conference also learned how the supply chain could potentially tap into this work. In particular, the lack of a UK deepwater port in which to bring removed platforms into was highlighted by both Lee Hanlon from CessCon Decom and Calum Slater from the Port of Cromarty Firth and Dan Kempin from ALE. Ultra heavy-lift vessels, such as Heerema’s Thialf and Saipem’s S7000 require a draft of around 23–24 m, while Allseas’ Pioneering Spirit requires depths of around 27 m to offload. There are currently no UK ports with berths of those depths, meaning onshore dismantlement work is at risk of going overseas. Hanlon highlighted CessCon’s plans to open the Hunterston PARC facility in the fourth quarter of 2019. The facility, located on the west coast of Scotland, will have one of the largest dry-docks in Europe, and will be capable of receiving FPSOs, while water depths at its jetty will be 30 m. Meanwhile, another solution to increase the UK share of the decommissioning market, put forward by Salter and Kempin, was for a consortium consisting of ALE and ports to manage a shared transition barge, which would be berthed in UK waters and shared by the consortium.
In conclusion, the United Kingdom is poised to be at the forefront of decommissioning demand in the region and has also been challenged to lead the way in terms of innovation and cost cutting within the sector. Delegates were urged to make the most of market opportunities – and to ensure they are ready to make the most of the decommissioning ‘sweet spot'.