Everyone is aware of the spiralling estimates of how much decommissioning will cost – perhaps the best way to solve it can be simply expressed as ‘good management’, says Graham Scotton.
As we keep hearing, the estimates of the costs of decommissioning the North Sea oil and gas infrastructure keep going up, now to around £50bn – about half of which will be paid by the UK government, in terms of tax rebates. This is a growing concern for both the industry and government.
Perhaps the right way to keep the costs down could simply be expressed as having good managers to run the decommissioning projects, who are able to win the trust of the workforce, suppliers and everyone else involved, says Graham Scotton of Petromall, a former COO of Dana Petroleum and head of BP Angola (among other roles).
Good managers can also ensure decommissioning is done in a way which avoids exposing shareholders to big losses or getting the company in regulatory problems.
This person also needs enormous oil and gas expertise – covering both project development and operations, and perhaps also subsurface, not someone who has spent their whole career in a specific area.
The decommissioning manager is probably not the person who was in charge of operating the platform during its lifetime, because he or she needs to have a very different mind-set, with an end goal of leaving the sea and seabed in the same state it was in before the oil and gas industry arrived, as international regulation requires.
“The industry ought to have its best people managing these sorts of projects,” he said.
It sometimes doesn’t end up this way, if the company senior management want to put their top people in roles which they see as more critical to the overall success of the business, such as exploration or project development.
The decommissioning manager needs to be able to handle everything at once – managing the risk, managing the technicalities and making sure all of the stakeholders are aligned, including employees, partners and regulators, he said.
“In this particular case we need to be all things to all men. We cannot just be one dimensional geoscientists, or one dimensional project engineers. “We’ve got to be very elegant in closing down of something.”
We have to be as professional as we always were. We were professional about building these things,” he says. “The oilfields were constructed with pride, we need to get back to the end state with the same pride as that.”
This “doesn’t necessarily mean everything needs to be gold plated, it needs to be done in line with the standards and the expectations.”
There have been suggestions that the right approach to decommissioning is for a specialist decommissioning company to take full ownership of the asset in late life, with the skills to get maximum value from it and then remove it.
But this could be a difficult path, because it involves complex legal and financial work for another company to acquire the asset and its associated liabilities, and it would mean removing the people who have massive knowledge of the platform from the project.
Same operational staff
However, when a platform moves into the decommissioning phase, it makes sense to have the same staff working on it, who were working on it during its productive lifetime, because they have an intimate knowledge of it, and this knowledge is invaluable, Mr Scotton believes.
“If you’re going to keep running things – you’re going to have to have a team of people who do know things, they know where every last needle valve is, the idiosyncrasies. There’s no point in throwing away institutional knowledge.”
In a similar argument, if you sell a corporate aeroplane to someone else, you might want to keep the same pilot, because they understand how the plane works.
The big challenge is getting this workforce also switched into a decommissioning mind-set, and comfortable working towards the deconstruction of something which they may have been working on for their entire careers.
The decommissioning manager would ideally have been involved in other decommissioning projects before, to be best able to make use of the industry’s small but slowly growing collective decommissioning experience.
The oil and gas industry places a big reliance on precedence, learning from what happened before.
With every task done, a new set of experiences and facts is going to be generated, which can then be expanded upon.
“My observation of the industry is there’s lots of talk and talk is cheap - and everybody is wondering who is going to act first,” he said.
It is easy to see that the main driver to reducing the overall costs is the quality of the effort that everybody puts in, he said. Costs will rise “if people want to fool around or drag their feet or be obstructive, and decisions can’t be taken.”
There is a fairly simple relationship between how well the overall costs are contained, and whether the decommissioning work proceeds according to plan – the more it goes off the plan, the more likely the costs are to spiral.
The industry does not need to be put under pressure to cut costs – but perhaps it does need to better understand the pathways for how those costs can be better managed, Mr Scotton says.
The standard oil industry mind-set is far more about building than taking apart. Oil people like exploring, drilling wells, building something until it is a commercial entity, then moving onto the next one. “Decommissioning is psychologically opposed to why an oil man exists,” Mr Scotton says.
The idea of making a profit from decommissioning sounds like it does not make sense (although it can make sense, if you find a way to meet your decommissioning obligations at a reduced cost).
Some people enjoy re-inventing themselves to a new role - Mr Scotton gives an example of a former senior drilling manager he knows, who now works as a tourist guide in London.
Agreeing on a date
The toughest part of the decommissioning work is perhaps to agree on the date for ‘cessation of production’ – and have it accepted by everybody concerned, particularly the workforce who may have concerns about their employment once the platform has been decommissioned.
The amount of organisation required to decommission an asset is so enormous, including scheduling heavy lift vessels and coordinating with contractors, so a fixed date a few years in makes a lot of sense.
It may not be a decision everyone agrees with, but once the decision has been made, the best approach is to accept it and get on with it. “At the end of the day there has to be a decision, about things you’ve got emotional and intellectual attachment to.”
You can compare it to decisions to remove trams and trolleybuses, or London’s Routemaster busses, from city streets, he says, or the cuts to 30 per cent of the UK’s rail network and 55 per cent of its stations, led by Lord Beeching in the 1960s. “At the end of the day, people come around, they say OK, yes fair enough, we’re going to get behind this program.”
There is always a wonder if oil prices might rise, or you might discover a new reservoir a couple of hundred metres deeper. You can do one last sweep of the geoscience, in case there is anything left to produce, and finally “you’ve got to come to the conclusion this truly is the end.”
The decommissioning management has to get everyone behind the plan. There is always fear of anything unknown, and people are more comfortable in an environment that they know.
“All the things that go with the offshore platform – the contracts, the people, the helicopters, are no longer required to service this thing. People are very comfortable with the salary, the seat on the helicopter, it becomes normal. Then it comes to the end and people don’t want to give it up,” he said.
“In some instances, people have spent their whole working career in this thing. You’ve invested in something.”
It is a question of “the leadership of the new team being able to convince the old team that this is the right thing to be doing.”
“This is not personal, it is just the physics (depleting reservoirs) that causes this [need for decommissioning], he said.
“People tend to be realists – they need the right communication and the right leadership,” he said.
Perhaps it makes sense to have a reward scheme for staff, or project managers, if they complete the decommissioning project on time and on budget.
“You can be very practical about this. At the end of the day people have their lives to lead, people know what they like to do.”
Oil companies often make financial rewards to companies who complete new build projects on time, he said. Perhaps decommissioning could be the same.
Some governments refuse to accept it, an example being the Egyptian government for the Gulf of Suez, where the regulator “doesn’t want to accept, will not accept, its game over,” Mr Scotton said.
The government wants to see continued investment in the assets.