Deconstructing a big development

By Paul de Leeuw

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It has been a difficult time for most companies in the oil and gas industry and no doubt this will continue for a little while to come. With commodity price at an eight-year low, it is no surprise that decommissioning is rapidly working its way up corporate agendas. Despite the fact that production in the UK has increased by 10% in 2015, there are still many challenges to overcome. Although the UK is fortunate to have a diverse production base, around 80% of the total UK’s oil and gas production (circa 1.6 million barrels of oil equivalent (boe) per day) is currently produced by only around 20% of all the fields in the UK. To put this into a different context, out of the more than 400 fields in the UK, around 300 actually produce less than 2,500 boe per day, of which around 100 fields produce less than 1,000 boe per day.

But it is not only production or commodity prices, which are changing the face of decommissioning in the North Sea. For the first time in the history of the basin, the industry is expecting to plug and abandon more wells than it drills, is anticipating ceasing production on more facilities than it brings on stream and is projecting that the government’s tax rebate will be greater than the tax paid by industry over the next five years. As such, it is a distinct possibility that we are going to see a two-tier North Sea, with one part focused on investment and production and another part focused on decommissioning.

Against this backdrop, the next decade in the North Sea is likely to be very different from the previous 10 years and the decommissioning industry will play an ever increasing role. According to Oil and Gas UK, the industry is forecast to spend around £17 billion pounds over the next decade on decommissioning installations, wells, pipelines and other subsea infrastructure on the UKCS. A very significant part of this expenditure will be covered by the government in the form of tax rebates against historic profits.

Based on current forecasts, roughly 10 companies will be responsible for some 80% of all the decommissioning in the North Sea. Companies such as Perenco, Shell and ConocoPhillips all have material decommissioning programmes and will be looking to ensure that decommissioning is managed as efficiently and cost effectively as possible. For many of these companies, decommissioning has not traditionally been a part of their core business and a powerful case can be made that the UK would benefit from bespoke decommissioning organisations, whose core role it is to make the decommissioning process as efficient and cost effective as possible.

Building on experiences in other sectors, there is a real opportunity to establish an industry wide Decommissioning Centre of Excellence in the North East of Scotland, which can become the hub for driving the decommissioning ‘cost and efficiency’ agenda. Learning from the safety agenda and the work done by Step Change in Safety, there is a real motivation for sharing good practices and to facilitate more co-operation. Such a Centre of Excellence should be directly supported by universities, trade associations, the Oil & Gas Authority, the new Oil and Gas Technology Centre and the supply chain in a far more pro-active way than is done currently.

The game is changing and we have an opportunity to make a real step change in how we deal with this to ensure a far more strategic and cost effective approach towards decommissioning.

Professor Paul de Leeuw is Oil and Gas Institute Director at Robert Gordon University. For more information on how RGU can support efficient and effective decommissioning activity, contact Sarah Hillyear, Business Development Manager, at s.c.hillyear@rgu.ac.uk or on 01224 263108