Legislative support key to UK’s aim to be global decommissioning leader
Monday, Sep 11, 2017

There is optimism about the North Sea’s prospects of becoming a global trendsetter in decom work, though flexible policy is necessary to ensure the opportunity is not lost, Sam Wright reports from London

WHAT: The UK has provided over US$2.6bn in support for decom.

WHY: Decom is targeted as a growth industry as fields mature and low prices slow E&P investment.

WHAT NEXT: Up to US$78bn could be spent on decom work in the basin by 2050.

A UK treasury minister has become the latest government official to call for operators in the North Sea to seize the opportunity to become world leaders in offshore decommissioning.

In a speech to the Offshore Europe 2017 conference on September 5, Andrew Jones, the Exchequer Secretary to the Treasury, said that companies could position themselves as global experts in the decommissioning sector, as they look to create thousands of jobs in the North Sea region.

To date, the UK government has provided more than GBP2 billion (US$2.6 billion) in support for the industry, as well as a number of incentives designed to create a competitive tax environment.

Jones’ speech followed similar comments by Andy Samuel, the CEO of regulatory body the Oil and Gas Authority (OGA), who said during the New North Sea summit in Aberdeen last week that companies in the region had been setting an excellent example in their decommissioning efforts.

In particular, because decommissioning is a new industry, Samuel said the OGA was “seeing people behave very well from day one.” He went on to say: “They are not having to unlearn bad habits, and I am convinced that the UK will be a world leader in decommissioning.”

However, he added that the regulator “wants to see those behaviours in all other areas”, while noting that there was still some work needed to force full compliance with the Maximum Economic Recovery (MER) strategy that informs government policy.

Conflicting goals
The exact nature of these “other areas” was not specified. However, the MER framework, which was introduced following the recommendations of the Wood Review in 2014 and which focuses on extracting as much value from the remaining reserves of the UK Continental Shelf (UKCS), has come under considerable pressure in the wake of the collapse in oil prices.

June 2016 marked the first time the North Sea saw more wells plugged and abandoned than drilled, with output falling by more than two-thirds since its peak in 2000. With fields running at a loss, operators have been forced to consider shutting in production early rather than taking the strain on their balance sheet.

“The MER strategy focuses on extending the economic life of the basin,” Craig Stevens, an oil and gas specialist with PwC, told NewsBase Intelligence (NBI). “This will lead to technological innovation aimed at eking out those final possible drops of oil and gas. So the view that decommissioning will take 20-30 years from now could be redundant if there is a discovery or innovation which moves the goalposts.”

Also speaking to NBI, Peter Bruce of engineering firm Ramboll added that the OGA’s own Overview 2017 document, released back in April, had also identified various barriers to MER and priorities for improvement.

“For example, these include increasing quality exploration and appraisal drilling, promoting good asset stewardship – working to ensure assets are in the right hands – and ensuring third parties have access to infrastructure, as well as creating the right conditions for investment,” Bruce said.

These have all been long-standing issues for the North Sea region. Yet while asset stewardship, access and collaboration can be easily argued for in a low price environment, further drilling is much harder given that capital expenditure is under pressure.

The OGA is pushing for costs to be slashed elsewhere too. By 2050 more than 470 platforms, around 5,000 wells, 10,000 km of pipelines and some 40,000 concrete blocks have to be removed from the North Sea or thoroughly cleaned of contaminants.

The OGA’s estimate is that the entire process will cost around GBP60 billion (US$78 billion), though it said in a recent report that this might be reduced by over 35% to around GBP38 billion (US$50 billion) through efficiency measures and collaboration. In this scenario, it could well pay for itself if the UK was then able to export skills, experience and technology to other oil-producing regions as they matured.

However, as Bruce noted, “nobody knows if the target set by the OGA can be realised”.

He added: “There is an incentive on all sides, government and operator, in order to reduce the burden to the UK tax payer and to support the MER strategy. But so far it is not yet clear.”

A balancing act
Over the past few months there has been a sense of growing optimism in the North Sea. Improved efficiency and renegotiated contracts have relieved some of the financial burden on firms, while a thriving sub-market has emerged in which small operators take on assets and infrastructure from major players. Production is even set to increase in the short term as the last of the projects that were approved while the oil price was up at US$100 begin to come on stream.

Continued volatility in oil prices, however, has held back investment decisions, and, as noted by Keith Myers of Westwood Global Energy Group, “it is harder to see where the next wave of developments that will support production well into the 2020s is coming from”.

Against this backdrop, there is a definite need for coherent and adaptable legislation regarding decommissioning. One other area that could benefit from this is its environmental impact, in particular the possibility of “rigs to reef” developments.
Some companies involved in the current round of decommissioning are requesting permission to leave equipment and materials in the sea, including proposals by Royal Dutch Shell to decommission its Brent field without removing concrete platform legs and Marathon Oil’s plans to leave platform jacket footings behind. The case that this is less disruptive to marine life, when properly handled, is strong.

The UK’s current policy “aims to achieve a clear seabed” said Bruce, in accordance with the Convention for the Protection of the Marine Environment of the North-East Atlantic (OSPAR). At present, infrastructure can only be left on the seafloor after assessments demonstrate that this is the only option.

“Full removal would potentially involve the use of enormous amounts of time, money and energy, introducing huge safety risks and resulting in significant environmental effects, for limited or no gain,” he continued.

“This is not to say that there are no hazards associated with leaving structures (partially or wholly) in place, but rather that on balance it is the better option.”

The government has been criticised in recent years for failing to create a stable and welcoming legislative environment for those operating in the North Sea. If the UK is to become a world leader in the decommissioning field, it appears that more compromises must be made.

This NewsBase commentary is from our EurOil publication. To sign up for your free trial, click this link: http://newsbase.com/publications/euroil-europe-oil-gas

Read more NewsBase top stories via this link: http://bit.ly/2h95NUx

Find out more about European Oil and Gas from NewsBase