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Dedicated decommissioning: part 1

Oilfield Technology,

Ben Wilby, Douglas-Westwood, UK, provides an overview of the challenges and opportunities posed by decommissioning in the North Sea.

Decommissioning in the North Sea has long been heralded as both a major opportunity for those with the capability to remove infrastructure and a major headache for operators who have often ignored or underestimated the cost of decommissioning work. However, in practice, historical decommissioning activity in the North Sea has been negligible and projects have moved extraordinarily slowly. Instead of performing decommissioning work, platform operators have preferred to pay steady maintenance and operations costs each year, rather than the substantial amount required for decommissioning. This practice has applied even to non-operational platforms, with no CEO wanting to be the one who commits to a long-term decommissioning programme. Yet it looks like times are changing.

One of the key reasons for this change is the oil price collapse – substantially impacting the decommissioning market. Typically, producing fields are less affected by fluctuations in oil prices than those at the pre-sanctioning stage. However, the long-term nature of the current oil price collapse has forced operators to consider revising their standard operating model in favour of decommissioning. Many North Sea platforms are late in life – far past their initial production expectations – and are only producing through the use of costly life extension practices. As a result, high oil prices are required just to break even on many fields – estimates suggest US$80/bbl is required for many fields to ensure profitability. Since mid-2014, prices have remained low, reaching their nadir early this year at less than US$30/bbl. Prices have improved in recent months, and while this is positive enough to potentially delay some decommissioning activity, it is unlikely to stop major projects from being undertaken.

Even taking into consideration positive growth in the oil price, a rapid recovery is not expected. Most forecasts predict Brent to remain under US$100/bbl in 2020. When field operators take the age of many North Sea assets into consideration, it becomes clear that it does not make financial sense to continue operations – many are nearing the end of their productive life, regardless of oil price. Consequently, Douglas-Westwood (DW) expects a spate of abandonments by the end of the decade, with decommissioning concept selection starting at this time as well.

The North Sea, particularly the UK sector, is an extremely mature oil and gas region; large scale production started in the 1960s and many platforms installed at this time are still in the water. The high level of initial installations has led to substantial numbers of assets of a significant age – maintenance costs of these are high and tend to rise year-on-year (though the oil price collapse has stymied this somewhat). This will be of major concern for operators who have seen their budgets slashed repeatedly over the last 18 months, resulting in a tightening of their available operating expenditures.

Adapted from an article originally published in the August 2016 issue of Oilfield Technology

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