Crude oil price slump sparks new stampede of 100 offshore engineering companies seeking slice of £47bn N. Sea decommissioning cake

Simon Gray (Chief Executive, East of England Energy Group), and Karen Seath, interim Chief Executive (Decom North Sea) (seated) sign a Memorandum of Understanding to continue to work together as Julian Manning, (rear left), Chairman of Decommissioning Special Interest Group, and Paul Yeats, Vice-Chairman, look on.
Simon Gray (Chief Executive, East of England Energy Group), and Karen Seath, interim Chief Executive (Decom North Sea) (seated) sign a Memorandum of Understanding to continue to work together as Julian Manning, (rear left), Chairman of Decommissioning Special Interest Group, and Paul Yeats, Vice-Chairman, look on.

N. Sea supply chain companies are viewing the massive decommissioning programme as an opportunity to fill the gap caused by the downturn in exploration and production because of low oil prices. Forecasted peaks in activity are 2017-19 and in the late 2020s.

And an urgent cultural and mindset change is needed in the North Sea oil and gas industry if the £47 billion programme to remove ageing oil and gas platforms is to get underway, industry professionals were warned at a recent East of England Energy Group meeting.

Only 10% of platforms and wells – some more than a decade beyond their original life span – have been decommissioned so far in the North Sea.

But another 290 fixed platforms need to be removed and 4,000 wells plugged and abandoned.

The Aberdeen-based Oil and Gas Authority has a target to cut the £47 billion estimated cost by 40%, the Decommissioning Special Interest Group (SIG) Steering Group run by the East of England Energy Group (EEEGR) in partnership with Decom North Sea, told more than 100 people at an event in Norwich.

Julian Manning, chairman of the Decommissioning (SIG), said the industry must embrace new technology and collaboration to bring costs down.

Cost cutting, retaining the knowledge of the assets in an ageing workforce and flattening out the forecasted peaks and troughs in the activity for a smooth business flow for the supply chain were important factors to move forward the programme.

He said: “The peaks and troughs in activity that are forecasted must be flattened out to make the programme as efficient as possible for everybody. We know there is a big opportunity.”

Karen Seath, interim Chief Executive, Decom North Sea, which represents more than 300 members, added that there must be a “massive focus on cost going forward.”

 “We need to look at cost efficiency and cost effectiveness and focus on better ways of working. There is a great challenge but there is also an opportunity for the supply chain.”

Decommissioning also offered huge opportunities for ports and harbours, decommissioning yards and recycling operations because all offshore assets needed to be brought onshore, she said.

More than 100 new members had joined Decom North Sea since the down turn in the oil price keen to seek new opportunities, she said.

“There is still a lot of capital expenditure going on. There is still production going on. in 2015 and we saw a slight increase in production compared to 2014.”

“But assets are getting very old. They were put in for 25 years and now are 35 to 40 years old and we are getting to where a lot of them need to come out.”

Nearly 80 platforms are due to be decommissioned by 2024 – but this is only about 17% of the total, she said. Some operators had deferred their plans to save money.

“We are looking at a base-case of £47 billion expenditure. We need to be looking at bringing these costs down. The OGA has a target to reduce costs by 40%.

Removing platforms is expected to be about 19% of the total expenditure with well plugging and abandonment accounting for nearly half the overall costs.

The two decommissioning chiefs also signed a mutual support pact on collaboration between East of England Energy Group and Decom North Sea (pictured).

Bill Cattanach, head of the OGA’s Oil and Gas Industry and Technology Department, said decommissioning would be a ‘huge burden on the Exchequer’ and operators and should be a last resort with focus on extending life where possible.

The OGA was investigating how to flatten the peaks and troughs for an even flow of work for the supply chain.

One operator had managed to cut its P&A costs by 40%, he said.

“P&A is a big market and where most of the value in the supply chain will come from.

“We are only 10 per cent through this journey and there is a lot of learning to do but lots of opportunities for companies to find innovative ways to get into it.

“There needs to be a different mindset and looking at that challenge differently to start to cut the costs.”

New technology offered solutions, he said.

“But as an oil industry we are always a bit risk averse about adopting new technology.”

One innovation could be to use the jack-up vessels used for offshore wind to “nibble away” at platforms rather than bringing in traditional heavy lifters, mostly based in Holland, he said.

Among actions for 2016 was a supply chain ‘hackathon’ for supply chain companies to have “a better voice” to put its ideas to eight operators. At the event, presentations were given by:

  • Paul Slaney, barge project manager for Shell
  • Paul Yeats, of Oceaneering, who spoke about multi-client well severance campaigns
  • Craig Walker, project delivery manager, SPS/Subsea TA, Proserv, who spoke about a bespoke one-off diverless riser removal project for client Shell, and 
  • Peter Montague, site director of Sizewell A nuclear power station, spoke about the engineering and decommissioning similarities with offshore oil and gas platforms.

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