Decommissioning – changing the mindset

£1.1 billion was spent on decommissioning in the UK in 2015, accounting for 5% of total UKCS expenditure that is expected to increase to 12% in 2017. Oil & Gas UK has estimated that decommissioning on the UKCS up to 2025 represents a £17.6 billion opportunity.

With the UKCS accounting for 50% of the global decommissioning spend over the next 5 years, the North Sea is at the forefront of developing the techniques to optimise the process and could position itself as a major player in the global decommissioning industry. At a recent conference on the subject hosted by Edison, together with Addleshaw Goddard, the key themes of cost uncertainty and industry collaboration emerged.

The overall cost of decommissioning is still subject to large uncertainties, with the estimated cost now 6 times greater than it was a decade ago. With 94% of the 153 existing UKCS projects in the early planning stages of the process, current figures will change as these projects are refined and this uncertainty is a possible deterrent to new entrants to the basin. In recognition of this, the newly created Oil and Gas Authority (OGA) is working to provide its own estimate of the total cost by the end of 2016, and is also looking to provide effective cost benchmarking to operators during 2017.

A successful decommissioning project should be carried out at the lowest cost while ensuring a safe and environmentally responsible solution. This is different from the schedule and quality driven capital investment projects that the industry is used to dealing with and requires a change of mindset from competitive to collaborative.

For example, the single largest cost component of the decommissioning process in the UKCS is not the topside or substructure removal but well plugging and abandonment (P & A), at 47% of the total cost on average. It is estimated that 1,470 wells will be P & A’d between now and 2025 and operators are trying to find ways to minimise the cost of their P & A programmes. In the Southern North Sea a number of operators are looking at decommissioning their assets in batch campaigns to optimise the use of rigs, vessels and accomodation in the most cost effective manner. But, in a sign of the beginnings of a shift to more collaborative behaviours, some operators are considering the benefits and risks of carrying out these campaigns on a cross operator basis, with the potential to bring continuity and cut costs further.

The industry is aware that collaboration has been historically poor and that this must improve to meet the challenges of decommissioning. The presence of the OGA, with its focus on MER UK (maximising economic recovery) should help in achieving this, but only time will tell if the industry can effectively change its behaviours.