OE15: Realising value in aging assets

An aging asset doesn’t mean unmanageable, unprofitable and inoperable. There is still potential to be realized from the UK Continental Shelf (UKCS), despite the challenges of the current climate.

In terms of oil alone, it is estimated that there are around 25 billion barrels to be recovered. Global demand for energy continues to escalate and fossil fuels will carry on contributing to the mix. The UK government is also committed to supporting the sector, as we have seen from its positive response to Sir Ian Wood’s 2014 industry report.

First, however, there are some significant hurdles to overcome, especially around the use of ageing infrastructure approaching, or operating beyond, its intended design life.

This is an issue at Lloyd’s Register Energy’s heart as an independent provider of risk management solutions to the oil, gas and power industries.

The issue could not be more pressing for a sector that now finds itself in an era of low prices. According to Oil & Gas UK’s latest report, published this February, revenues fell to just over £24 billion last year, the lowest since 1998. The situation presents industry with a fundamental question.

Are the offshore platforms, wells, pipelines and associated equipment in place in the North Sea economic to operate, especially the ever ageing assets? Clearly, such equipment must achieve a drastic reduction in costs to remain profitable, while not compromising on safety.   

Despite the familiar brutal conditions of the North Sea, the sector is in new territory because not only has infrastructure surpassed its original field life following successful asset life extension, but late life operations, mothballing and decommissioning are now a focus. To compound matters, oil and gas companies in the North Sea have assets in their portfolios that are operating at various stages of their life cycle, requiring each asset to be managed on an individual basis.

There is no denying this has led to a challenge in how operators bridge the gap between late life operations and cessation of production.

The North Sea’s 470 platforms, and 10,000km of pipelines and 5000 wells, will be decommissioned over 30 years according to the Financial Times, with companies expected to spend £40 billion.

Decommissioning is expensive in the current climate. Significantly, during this phase of the lifecycle, production gains shouldn’t be ignored as there are reserves that can be recovered, however asset management techniques must be tailored and appropriately applied to ensure cost effective operating.

Key to this is identifying the critical assets and equipment that are required to achieve both profit and safety objectives and then determining how best to safeguard them.

Operators who run efficient late-life assets and minimize decommissioning costs will create significant value above current business plans. Decommissioning alone is NOT the answer.