BOB

07 June 2016

Finding Petroleum. Decommissioning Discussion and Debate.

London, UK

The dreaded phrase " cessation of production" stares many assets and companies in the face in the present climate, and the word Decommissioning is writ large in many a boardroom and elsewhere.

Finding Petroleum is pleased to invite you to a "Decommissioning Discussion and Debate" on 7 June which will examine some of the key issues - financing and tax planning, the Decommissioning Project itself-notably planning, scheduling and cost estimation, the supply chain's view, the legalities and hopefully the views of the regulator.

This event will be chaired and led by Greg Coleman and Graham Scotton of Petromall. Greg Coleman is CEO of Independent Resources Group, an AIM listed energy company, and a former Group Vice President HSE and Security with BP. Graham Scotton is a former COO of Dana Petroleum and general manager of BP Angola, among other positions.

BOB

10 November 2016

The Business Opportunity in Decommissioning Planning

 

There have been a few standalone decommissioning projects in the UK and Norway where the contractors “have come out of it very poorly,” says Greg Coleman, consultant with Petromall.

“All of the projects done so far, with one exception, have seen significant cost overruns, both in terms of expenditure and time taken to deliver the project,” Mr Coleman says.

“It wasn't planned properly, the right equipment wasn't made available. 

They hadn't really understood the scope of what was asked to be done,” he says.

“It’s in the interest of contractors to get that right, so they're not stuck with having to accept the risk without understanding what they're doing.”

However, if companies have seen big losses due to work being poorly defined or cost overruns, then, conversely, there ought to be business opportunities for companies who can help improve planning, or better understand the risks, or actually cover the risks, he says.

There should also be business opportunities for major contractors who are able to get the decommissioning planning right, he says.

To indicate the size of the potential business, consider that total spend to decommissioning UK oil and gas infrastructure is estimated to be between £50bn and £100bn in the UK – and most of the work will go to contractors.

Mr Coleman also serves as CEO of a small cap exploration and production firm, and was formerly head of investor relations and head of Group HSE (health, safety and environment) at BP.

Surveying

One of the main areas for reducing costs, or avoiding cost escalation, is from having a better understanding of the task to begin with.

This leads to business opportunities for companies offering technology and services which can help better understand a decommissioning task and do surveys, include drones, underwater cameras, laser scanning services, corrosion detectors and more.

Technology is being developed which can help you get a sense of internal corrosion on places which cannot be accessed directly.

“You can see the outside of the pipes and vessels, it’s more difficult to see the insides, and that's where the damage will be,” he says.

Data

There may also be business opportunities for consultants or software companies who are able to help organise all of the old data which describes how the offshore platform has been built and what is installed on it.

Many of the facilities have already been surveyed many times over the past few decades, but that doesn’t necessarily mean the data is available, or in a usable format, Mr Coleman says.

“Quite often [the operator will] hand the contractor a big data file and say here's what we have, good luck.”

“The contractor says, ‘that's way too complicated,’ and they miss some of the key elements.”

Much of the data does not run easily in modern software, and so is very hard to work with.

The data is probably kept in written documents (not digital), “which are not very accessible for a computer orientated society,” he says.

Working on a new project with a computer system is comparatively easy, because you start with a simple design and then gradually add detail, Mr Coleman says.

But when you decommission, you start with equipment, a set of wells and a reservoir, with 30-40 years of information, and the information hasn’t necessarily kept up with reality. So it is like looking backwards. Putting all of that in a computer system is not easy.

Unknown Risks

A further factor is the risks which still cannot be fully known until the work is actually done.

Sometimes maintenance will have been quietly cut back as the asset nears the end of its life. Or there will have been less inspections going on. There may also be large corrosion which was not previously known about.

Large and unquantifiable risks cannot be carried by a small company or a consultancy. They can only be carried by a large company, or perhaps only the government.

The licenses to operate in the North Sea were originally given only to very large companies, who were thought to have a balance sheet large enough to live with the asset over its lifetime, Mr Coleman says. But today, many of the operators are smaller companies.

Perhaps a financial arrangement could be put together whereby a deep pocketed organisation, such as a sovereign wealth fund, would agree to underwrite the risk of an unknown decommissioning project, in return for a fee. “There is financial opportunity in here somewhere,” Mr Coleman says.

Insurance companies might be unlikely to want to get involved, because even insurance companies only want to cover risks that they feel they understand, such as car insurance, when they can fairly accurately quantify the total risk of a certain pool of drivers based on past records, Mr Coleman says.

But decommissioning projects are all individual, each basin has its own weather conditions, and fiscal conditions.

Very hard decommissioning

Some decommissioning is extremely tricky. For example both the Frigg and Brent complex have large concreate storage tanks, with 1m thick concrete containing steel reinforcing bars, on the seabed.

The oil and gas industry did not build facilities bearing in mind they would need to be decommissioned. “It looks like people assumed they would be there forever, especially for big concrete storage tanks,” Mr Coleman says.

But altogether, the challenge is not beyond the capability of human and technical expertise in 2016, Mr Coleman says.

Perhaps there are useful lessons to be learned from nuclear decommissioning projects, or major infrastructure like the London Olympic Park, which included a site for radioactive waste.

“There are a lot of lessons to be learned from other decommissioning projects that have gone on in the world,” he says.

Planning

If contractors can make a ‘conveyor belt’ of projects, so one leads sensibly to the next one, they can take a big chunk of their costs,  because there is less interim mobilisation and demobilisation efforts – the right equipment and facilities can already be in the right place.

There might also be business opportunities for companies making software tools which can be better used to plan the decommissioning work, including providing a simulation of the work on screen. Then you can plan how you are going to remove individual items in more detail.

Computer tools in theory can give you much better management of the whole project and make sure the right services are available at the right time and your risks are covered and better understood, and the schedule is optimised, Mr Coleman says.

“There’s a significant amount of planning that needs to go into doing this work - so they can do it at the right time and for most optimum costs,” he says.

Contractors might also use software services which can help them come up with the optimum schedule for different tasks, so they can minimise re-positioning of equipment and assets between jobs, including accommodation vessels.

Financial planning is also an issue. You need to plan the work so that operators can recover as much tax as possible from the UK Government, Mr Coleman says.

There might also be business opportunities developing technology to do tasks like plug wells in a more efficient way, with a range of different tasks to follow, he says.

Human expertise

The more complex a project is, and the more unknowns it has, the harder it is for rigid computer software to help. But human beings have minds which are evolved to handle complex projects and build up a body of complex knowledge.

If you have been involved in one decommissioning project, you will probably have knowledge which will be very useful in another one.

“A lot of these facilities were started up at the same time. After you've done a few of them you learn where the key weak points are in the system,” Mr Coleman says.

Most of the people who were involved in building the assets in the first place are “long gone now”, he said. So you will probably need to build up much of the knowledge from scratch.

For example the Forties Field, the largest oilfield in the North Sea, first produced oil in 1975. And even if you can find some of the people who were involved in it still alive, they might not have much memory of how it was built, Mr Coleman says.

There could be business opportunities for younger professionals, with a few decades of working life ahead of them, because the more knowledge they have of decommissioning projects, the more valuable they will be.

It might be better for younger professionals to focus on gathering knowledge of actual projects, rather than focus on the digital or machine learning side of things, Mr Coleman suggests.