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Dedicated to decom

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A new delivery model has emerged in the decommissioning market as specialist providers step in to offer late-life management and ‘turnkey’ services. Wireline spoke with two of them to find out more…

The decommissioning market is changing, both on the UK Continental Shelf (UKCS) and further afield. As many of the foremost oil-producing basins mature, platforms and installations at the vanguard are reaching the end of their lives, and questions of what to do with them – and how best to do it – have moved beyond the hypothetical and into widespread practice.

Oil & Gas UK’s 2018 Decommissioning Insight estimates that around £15.3 billion will be spent on decommissioning in the region over the coming decade, with nearly 1,500 wells scheduled to be taken out of operation and over 950,000 tonnes of topsides earmarked for removal across the North Sea. Already, the data suggest that progress is being made; projected costs are down by around 20 per cent from 2017 forecasts – due in part, the report says, to ever greater levels of expertise and efficiency in this specialist arena as well as efforts to improve life extension and push work further down the road. This in turn is supporting more cost-effective project planning.

It also reflects a shift in the provision of decommissioning services and expertise, particularly exemplified in the emergence of new ‘turnkey’ providers who seek to shepherd projects from late-life through to removal, recycling and disposal.

Companies like Decom Energy and Maersk Decom are among the first to occupy this new space. Offering dedicated decommissioning packages, they are drawing on their own distinctive knowledge, experience and resources to create a fresh option when it comes to the post-production removal of offshore infrastructure. This new model is gaining ground against a backdrop of rising demand and opportunity on the UKCS.

The development of this growing bank of expertise – potentially positioning the UK as a leader in offshore decommissioning, equipped to service a global market – is being nurtured among these turnkey organisations.

“The UKCS has great explorers, developers and producers, and if they think of themselves in that way they don’t really want to focus on decommissioning. They are looking elsewhere for those solutions. Our contention is that late life operators aren’t necessarily the best people to decommission an asset, because they’re programmed to extend field life.”

Trick of the tail

“Our business model is about taking control of an asset, say two years out from cessation-of-production (COP), at a point when it’s beyond major capital expenditure,” says Decom Energy managing director Graeme Fergusson.

“Our goal is to deliver those final barrels, in line with the Maximising Economic Recovery (MER) agenda. But at the same time we have a focus on decommissioning – accelerating some of the work that might otherwise be left until after COP. There’s a lot you can get done up front, while still producing, that makes the tail end much more economically efficient.”

Graeme says the emergence of groups like Decom Energy represent a “natural evolution” of the UK industry.

“The UKCS has great explorers, developers and producers, and if they think of themselves in that way they don’t really want to focus on decommissioning. They are looking elsewhere for those solutions,” he adds. “Our contention is that late life operators aren’t necessarily the best people to decommission an asset, because they’re programmed to extend field life.

“Upstream oil and gas companies are used to building and safeguarding assets for the long term. Finding oil and developing production is their specialism – and so it should be, as that’s what creates value in that context.”

The key to cost-efficient decommissioning, he says, lies in looking at field numbers in the round and getting beyond the common approach of the economics being driven primarily by a COP date that regularly moves, influenced by factors such as the oil price. The potentially “huge slew of decommissioning expenditure” that kicks in after COP needs to be factored into the equation at a much earlier stage.

Maersk Inventor. Credit: Maersk

Late life, early start

Jens Klit Thomsen, chief commercial officer at Maersk Decom, says: “What we want to do, in order to create the best possible decommissioning solution, is to be involved as early as possible – to work with the operator and get as much data as possible.”

Maersk Decom was formally established in 2018 as a joint venture (JV) between Maersk Drilling and Maersk Supply Service, capitalising on the capabilities, assets and wider resources of the two companies to form a single decommissioning proposition. The 50/50 JV involves an overall investment of approximately US$20 million for the first years of operations, all overseen from headquarters in Denmark.

Both entities have a long track record in their respective fields: Maersk Drilling in supporting oil and gas production globally (it currently has a fleet of 24 drilling rigs), and Maersk Supply Service in the provision of marine services ranging from anchor handling, towing, mooring and installation, to subsea construction (supported by a fleet of 44 offshore support vessels).

The JV also builds on the companies’ track record in decommissioning, not least in their joint work on the Janice, James and Leadon subsea fields in the UK North Sea. Maersk Supply Service has provided the marine assets on all three fields and led the planning, logistics, subcontractor management and engineering elements of the project, while Maersk Drilling has performed several well decommissioning campaigns.

Jens, who was then with Maersk Supply Service, played a pivotal role in assembling the integrated solution which was delivered via an Aberdeen-based joint project team.

“This project was a very good test case to see how the combined knowledge, experience and asset base in Maersk could form a really comprehensive solution in the decommissioning space,” adds Jens. “It was decided to create a dedicated decommissioning company to allow us to take our new experience and learnings to the wider market.”

With three years of decommissioning work now behind it – the Janice, James and Leadon project is scheduled for completion during 2019 – Jens says the JV is heavily focused on taking that experience into future contracts. “We are looking to develop continuously and create the most responsible and sustainable decommissioning solutions; from a safety and environmental standpoint, this is the most effective way of driving such projects,” he says.

Jens explains that Maersk Decom deploys a lean organisational structure, based on a highly experienced team of specialist leads in areas ranging from partnerships, contracting and procurement to wells and waste management. It reaches into the resources of both Maersk Drilling and Maersk Supply Service – and the wider supply chain – to assemble an integrated, fit-for-purpose solution for each individual project.

“We have core project management capabilities, but we can scale on a project basis,” says Jens. “We believe it’s important for us to keep all the leading functions in-house to ensure we capture all the learnings from projects and incorporate those into planning for the next one.”

Those same principles apply at Decom Energy, where its team of about 100 people reflects the holistic approach to the business. “We don’t have lots of people working for us,” says Graeme. “That’s not what we are about; we are proud of our team leading the way in the final stage of the industry lifecycle, excelling in project management, technical and commercial expertise – all with the added benefit of an operator background. Our goal is to provide end-to-end- support, effectively to be the decommissioning arm for the licence owners who can have confidence in our own operator credentials.”

“A key advantage for operators is that they don’t have to build in-house decom teams, then subsequently disband them when the project is complete. Working with us means they don’t have switch their internal resources to decommissioning activity and to have to go through the decommissioning learning curve.”

 

Defying convention

Decom Energy – the parent company of UK-based operator Fairfield Energy – has its origins in a strategic decision taken by those behind the business to explore this potential gap in the market.

Fairfield took the decision in 2015 to cease production from its Greater Dunlin Area assets in the North Sea. Graeme, at that time chief financial officer with Fairfield, explains: “It was absolutely the right thing to do – Dunlin was 40 years old, and since COP in mid-2015 all our projections about likely future value have proved to be correct. It was right to approach decommissioning in this planned and controlled way.”

That year Fairfield transitioned to a decommissioning operator, putting the decommissioning of the Greater Dunlin Area at the heart of its business and establishing a team focused on fit-for-purpose delivery. “Our strategic intent was to take our existing workforce with its in-depth asset knowledge, skills and experience and to provide career opportunities in decommissioning via the execution of a major decom project,” adds Graeme.

“We could then take that expertise into new projects. It would give us demonstrable capabilities – a track record, which people obviously want to see.”

Dunlin has been a highly complex decommissioning project, encompassing 45 platforms wells, which in many cases have posed technical challenges, as well as two subsea fields with 16 wells. It also involves 20,000 tonnes of topsides materials, a concrete gravity-based structure and an intricate network of subsea infrastructure.

Graeme says that, through delivery of a multiple-workstream project, Decom Energy has developed greater insight into not just the technical challenges of decommissioning, but also commercial aspects and how to manage stakeholders. “At Dunlin we are two thirds of the way through the plugging and abandonment (P&A) programme and are progressing subsea infrastructure decommissioning and preparations for the removal of the topsides. It’s been a learning experience over the past three years – of developing best practice and taking real benefit from working in a complex decommissioning environment,” he adds.

At Maersk Decom, Jens says the dedicated decommissioning model presents an opportunity to explore new commercial innovations – examining commercial and contracting models that incentivise the entire supply chain – as well as technical improvements.

He cites the example of using an anchor handling winch on a Maersk Supply Service vessel to recover flexible flowlines as part of the Janice project. “The conventional way is to recover them and cut them into pieces as you go along,” he says. “But spooling them around the winch means we’ve been able to complete the work about 20 times faster.

“The innovation lies in using a tool that was designed for something else in a completely different way, and achieving major efficiencies in a safe manner.”

Jens says the JV closely follows technological developments in the market and sees the supply chain as a key part of its package. “Because we want to offer the full solution, then we have a focus on collaborating with the supply chain and forming relationships with the best suppliers of equipment and services.

“What is unique about decommissioning is that no two fields will be the same, so specialist solutions will be needed for individual projects.” Jens explains. However, housing those skills in one place also allows expertise to continually improve, meaning these specialist solutions can be used more widely, and unique problems become more of a rarity.

Support from the supply chain is also an integral feature of the delivery model at Decom Energy, where the team has built a fit-for-purpose, integrated planning process. Graeme says these cost-efficiency principles are aligned with the strategic priorities of the Oil and Gas Authority (OGA), and its industry-wide objective to reduce decommissioning costs by at least 35 per cent (from baseline estimates made in 2016).

“What we have seen is that actually having control of a decommissioning project, across all its aspects, is key to an efficient outcome,” he adds.

Fairfield Energy’s Dunlin Alpha platform.

“A key advantage for operators is that they don’t have to build in-house decom teams, then subsequently disband them when the project is complete. Working with us means they don’t have switch their internal resources to decommissioning activity and to have to go through the decommissioning learning curve.”

Decom insight

Since his appointment at Oil & Gas UK, Decommissioning Manager Joe Leask has noted the advent of this new type of decommissioning service provider. He is already confident of the effect they will have in terms of cost and efficiency on the UKCS, commenting that: “Continuity of projects and concentration of skills is vital for decommissioning cost efficiencies. In addition, the more companies using this model means increased competition, and that will be instrumental in driving costs down.”

Dedicated companies with visible pipelines of work will also be better able to deliver continuous improvement in their operations, as opposed to the somewhat ‘stop-start’ approach of previous campaigns, which may limit the transfer of knowledge in operators or larger contractors with a broader focus. On the skills too, Leask says that the development and concentration of specialists in these areas will also ensure that their experience is not sapped away to other projects – all of which should also help to maintain costs.

The test for this new kind of provider will now be in securing sufficient volumes of contracts to ensure steady work. “It’s perhaps easy to sell this model to the top level of management, but there may be a difficulty in pitching it to the technical levels of the industry whose jobs could be impacted by these models,” he noted. While the turnkey model may be attractive on a project-by-project basis, the timing and alignment of multiple campaigns across the region will be equally important.

Oil & Gas UK has various methods of engagement with the decommissioning sector, from facilitating dialogue through Forums and Work Groups, to communicating knowledge and good practice at events and through publications, to working directly with governments and regulators to ensure fit-for-purpose legislation.

Most importantly, in Joe’s view, is the fact that expertise honed on the UKCS is exportable globally. The UK has the opportunity to lead the way in terms of regulation, technical expertise and execution of complex decommissioning projects, and in turn the supply chain has the opportunity to the lead world in in the provision of new skills and services. “We need to make sure we take advantage of the spend on decommissioning by operators in the UK sector to develop a world-leading supply chain which can benefit the UK economy by selling their wares abroad,” he added.

“If we can do it well here, we can do it well anywhere.”

 

Shared benefits

While some UKCS assets are undergoing life extension, the volume of work for decommissioning practitioners is set to grow considerably. And even amongst the relatively new role of whole-service providers, already competition is increasing as more players move vie for that workload, with major service companies such as Baker Hughes GE and Petrofac positioning themselves to provide similar turnkey offerings.

At this stage, Decom Energy’s primary market focus is upon the UKCS. “There are other major markets close by, such as Norway, that are not a million miles behind in terms of decommissioning requirements, so our initial expansion plans are around the UKCS and nearby,” explains Graeme.

He adds, however, that there has been a “huge amount of interest” from other energy regions, including South East Asia and South America, in how decommissioning is being approached in the UK.

Decom Energy has hosted a series of international visitors, but Graeme says varying regulatory environments around the world will shape the longer-term strategic approach to internationalisation. “We are developing expertise in the UKCS which is largely transferable to markets such as Norway. Beyond that, we can explore how it might be applied more widely,” he adds. “We’ve been hugely encouraged by our discussions with operators in the UK market, and strongly believe that the services we offer can lead to a step change in decommissioning delivery.”

Maersk Decom, meanwhile, is projecting the addition of up to three new projects to its work schedule every year post-2020, again with a primary focus on the UK owing to the scale of the market opportunities. “We view the UK as a huge market and recent reports have underlined that,” says Jens. “It is our focus area for now and it presents an opportunity for us to deliver effective solutions and develop a standardised approach, then take that experience and export it.”

The success of these new turnkey models will of course depend on the market. However, Jens is confident that this is an avenue worth pursuing, and one which will be beneficial for all stakeholders: “We’ve talked to the market a great deal and have had very positive feedback from the operator community and the regulatory organisations. There’s a shared view that this approach is needed to drive efficiencies in the decommissioning market.”

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