Money for nothing

Decommissioning offshore structures isn’t going away any time soon and research points to a US$210 billion bill for this activity from 2020-2040 worldwide. John Bradbury looks at the market.

Allseas’ mega-vessel Pioneering Spirit gets into position to remove Yme’s topsides in late August. Photo from Allseas.

Field partners face a US$210 billion bill over 20 years from 2020 as more offshore structures reach the end of their economic lives, research by IHS suggests.

That huge sum is based on the belief that decommissioning will cost more as time goes on, from around $2.4 billion in 2015 to $13 billion by 2040, according to a November 2016 Offshore Decommissioning Study released by IHS Markit.

Up to 2000 offshore decommissioning projects are predicted, with a worldwide average of 120/yr. While Europe is expected to swallow up to half of the expenditure, due to major structure removal programs in the North Sea, shallow water platforms off Australia will drive demand for decommissioning services in the Asia Pacific region, IHS says.

“In terms of decommissioning, the global offshore industry is headed for a perfect storm,” said Bjorn Hem, a senior manager of IHS Markit’s upstream costs and technology service, and one of the study’s authors. “We see increasingly stringent decommissioning regulations coming into force while the inventory of structures nearing end-of-life status is getting larger and more complex,” Hem says.

Hem says that decommissioning services are fragmented, with no dominant players, making it difficult for exploration and production companies and offshore contractors to predict activity costs and risks.

North Sea

Fiona Legate, a senior UK upstream oil and gas analyst for Wood Mackenzie suggests that the total future decommissioning spend for the UK Continental Shelf will be £53 billion ($66 billion), in 2016 terms.

“Around 140 fields are expected to cease production in the UK over the next five years,” Legate says. “Excluding the Brent decommissioning program, most of the fields being decommissioned are smaller developments. Early contractor engagement is key to locking in lower decommissioning costs,” she notes.

Turning to the first use of the Allseas’ Pioneering Spirit and its future viability, she adds: “The investment demonstrates that the service sector is scaling up to accommodate future decommissioning activity,” she says, noting the first use of the heavy lift vessel at the Yme platform in Norway in August 2016. “This new technology could be pivotal to future decommissioning projects, but is costly to contract,” Legate says, adding: “Collaboration amongst companies could help to reduce decommissioning costs.”

Collaboration is evidenced through the formation of alliances such as the Southern North Sea (SNS) Late Life and Decommissioning Special Interest Group – involving Decom North Sea and the East of England Energy Group, based primarily in Lowestoft. One seminar organized by this group has focused on well plug and abandonment (P&A) costs and deconstruction – a major cost during decommissioning.

Asia Pacific

There are over 600 fields in the region (352 offshore, mostly in shallow water) that are expected to cease production over the next decade, says Jean-Baptiste Berchoteau, Wood Mackenzie’s upstream oil and gas research analyst for Asia Pacific.

In Indonesia, 81 fields have been identified as potential candidates. Overall, Indonesia currently has over 750 platforms operating offshore, 60% being over 20 years old; over 900 pipelines, with a total length of 8000km; over 60 subsea systems; and over 1400 wells.

“The magnitude of these figures represents a real opportunity for a struggling service sector that saw its activities slashed by a sustained low oil price since 2015. In Asia Pacific, we anticipate that decommissioning costs could surge to over $1 billion/yr, post-2020,” Berchoteau says.

Only small-size projects have been decommissioned so far in Asia Pacific and most were only partially done. The most recent in Indonesia were at the shallow Kambuna field, which ceased production in 2013, involving a single platform and three production wells, and the ConocoPhillips-operated Belida field in 2015.

Australia’s extensive Thevenard Island project is being decommissioned currently, involving extensive infrastructure encompassing nine platforms, 22 platform wells, one subsea well, and onshore facilities.

Berchoteau says two offshore projects were sanctioned for decommissioning in 2016: Premier Oil’s Anoa oil and gas field offshore Indonesia, with an estimated cost of $20-30 million, and the Petronas-operated Dana and D30 fields in Malaysia, involving 12 platform wells, two mobile offshore production units, a small platform and related pipelines, costing $30-40 million.

GE Oil & Gas will P&A four subsea wells at Anoa via its subsidiary Vetco Gray Indonesia starting in Q2 2017.

Issues for Asia Pacific operators include the maturity of P&A techniques and platform removal technologies. “While some countries like Australia and Thailand have clear regulations and guidelines on how platforms, wells and pipelines should be abandoned, most of the other countries in the region haven’t reached that stage yet,” Berchoteau says.

“Pressure is building on Indonesia, China and Malaysia, which have a significant number of offshore fields to decommission over the next 10 years, but haven’t come up with clear guidelines and regulations yet,” he says, and continues, “In these countries, regulators have started to realize the importance of the situation and have drafted guidelines, which are yet to be enacted.”

Brazil

In a OTC Brazil 2015 paper, three members of Genesis, and Lobo de Souza, of Petrobras, mapped out future demand for decommissioning fixed platforms off Brazil, based on the assertion that only 5% of those have been removed to date.

They stated that: “In the last few years, many oil and gas fields have reached the end of their productive lives and many platform structures are reaching, or already exceeding, their project service life, 20-30 years on average. Changes acting on the global market and the recent sharp fall in oil price are inducing oil companies to re-estimate the profitability of each production unit and to consider, in several cases, decommissioning as a valid alternative.”