Decommissioning offshore oil & gas assets are multi-disciplinary in nature, and involve a broad range of risks and challenges including political, engineering, natural science, environmental management, sustainability, economics, social science and legal.
The number of offshore oil & gas assets reaching their mid-end of their life, globally, is rising, meaning decommissioning projects are a real eventuality for many operators and asset owners. In addition, the trend of declining oil & gas exploration activities globally to reduce fossil fuel by many countries is bringing forward the decommissioning projects earlier. Denmark’s announcement earlier this month planning to end all its new oil and gas exploration in the North Sea, as part of a wider plan to stop extracting fossil fuels by 2050 generated lots of discussions in the industry. There are 55 drilling platforms on its territory, across 20 oil and gas fields.
In Europe, in the oil & gas industry, only a small percentage of the UK Continental Shelf (UKCS) have been decommissioned. In fact around 10 per cent of oil and gas platforms installed across the North Sea have been decommissioned and less than 5 per cent of pipelines. In the US, the Bureau of Safety and Environmental Enforcement have indicated that a yearly average of 130 offshore oil & gas platforms have been decommissioned over the last decade and with “around 65% of the 7,000 structures installed have been decommissioned to date (2017).
Also, the majority of the decommissioning cost estimates present uncertainty of -20% + 100% of the costs, which highlights their limited knowledge with the risks associated with decommissioning.
Decommissioning is an inherently hazardous exercise, one that requires meticulous planning, experienced management and an extremely defined skill-set, if it is to be executed safely.
In the case of the North Sea in the UK, decommissioning, as a proportion of total UKCS expenditure, has increased from 2 per cent in 2010 to 7 per cent (£1.2 billion) in 2016 and the decommissioning market is expected to grow from £1.2bn in 2016 to £1.8bn in 2017. Drawing from the UK Government, the majority of projects had suffered from cost overruns reaching 150% of their initial estimates.
Offshore Asset Decommissioning in Australia
Australia’s offshore oil and gas industry has reliably supported Australia’s energy security and economic activity through over 50 years of safe and responsible development of our energy resources. As Australia’s offshore oil and gas industry matures, there will be an increase in mid-to-late-life asset management considerations, including managing declining production while preparing to decommission.
Ahead of this, to ensure there is regulatory certainty, the Australian Government – Department of Industry, Science, Energy and Resources has reviewed the existing legislative, regulatory and policy requirements for offshore oil and gas decommissioning. A consultation paper on oil & gas decommissioning framework is available for comment till 22/Jan/2021.
The enhanced framework considers our initial consultation as well as the Walker Review. It aims to ensure the Australian regime for decommissioning is clear, fit for purpose and leading practice.
Key elements of the enhanced framework include:
- increased oversight of changes in company control
- increased oversight of financial assurance, including the use of bonds and securities
- modernising field development plans (FDPs)
- early and proactive use of remedial directions powers
- improved transparency and public engagement in relation to petroleum activities
- enhancing trailing liability to apply in a greater range of circumstances
Companies will need to ensure that any new regulatory requirements are complied with, for example:
- clearly reflecting that decommissioning is an ongoing process throughout the life of a project to either update current environment plans to cover decommissioning activities or prepare a stand-alone decommissioning plan; and
- considering whether additional requirements should be included for joint venture participants regarding the decommissioning costs.
Any Opportunity for Asset Owners?
A number of opportunities including:
- efficiency improvements to reduce forecast expenditure and greater cost reductions
- better waste management and sustainable disposal
- new technology driven decommissioning strategies, e.g. use of drones
- optimising project logistics
- integrating and utilising more qualitative and quantitative risk analysis and risk engineering approaches
- and last but not the least, some engineering challenging projects that require considerable planning, experienced management and an extremely defined skill-set.
This is also creating a great opportunity for big management consulting firms to support asset owners by integrating financial, assurance, legal and engineering capabilities combined by practical technology solutions!
What do you think?