Shape of Things to Come

North Sea decommissioning — As the mature oil and gas fields of the North Sea decline, the industry expects to spend US$56bn on deconstruction activities by 2040. Establishing an environmentally safe and economic decommissioning programme is vital The towering steel platforms that punctuate the North Sea are testament to its proud history as a global pioneer of oil and gas production. Weighing tens of thousands of tonnes, hundreds of these monolithic beasts are reaching the end of their productive life and must be safely removed and disposed of as part of the emergent North Sea decommissioning programme. Today, no ships in the world are large enough to remove such structures in one piece. Current technical capacity limits a single lift to 8,500 tonnes. But a range of deconstruction methods are being considered to deal with this huge challenge. For TAQA, however, the decommissioning challenge is not acute. “We are looking to decommission installations in 2022, and with all the investment we are making in drilling wells, improving infrastructure and getting more water injection into the ground, we hope to extend that deadline,” says Leo Koot, Managing Director of TAQA’s Oil & Gas business in the UK. “We plan to be in the second wave of companies decommissioning in the North Sea.” That said, TAQA already has a team of experts developing new decommissioning methods. In one idea under development, two vessels are manoeuvred into position to allow them to lift off the topsides of a platform, including staff living quarters and mechanical equipment such as pumps and generating equipment. These topsides can then be shipped for onshore dismantling. “Whether we can get that technology to work, we do not know,” says Mr Koot. “We are working with a decommissioning company to see if it is feasible.” But decommissioning is still a science in its infancy and there are many different approaches. One idea that has gained traction is to meet force with force. “We are also looking at other companies in the industry and they use the approach that if you are not sure, hit it with a big hammer,” says Mr Koot. “What they have done is to weld two supertankers – each of which can be up to 380 metres long and 25 metres wide – into one. They have cut a U-shape in the supertanker so it can sink partially, but will still float alongside the infrastructure. It can then lift it up. We know that will work as the technology is used today.” Although methods are yet to be decided, one thing is certain – disposal at sea is currently not an option and the infrastructure must be removed. “This has to happen under the current regulations,” says Brian Nixon, chief executive of Decom North Sea, formed to assist the industry in preparing for the programme. “According to the Ospar Convention [which regulates international cooperation on environmental protection in the North East Atlantic], at the end of their economic life all man-made structures will have to be removed. “All topsides, that is everything you see above the water, have to come away. All of the subsea infrastructure will have to be removed safely, environmentally responsibly and cost-effectively at the end of its economic life,” he says. A new approach The Ospar Convention came into force in 1998, three years after the Brent Spar decommissioning controversy. This saw Shell pitted against environmentalists who violently opposed the company’s plan to dispose of its Brent Spar oil storage facility in the Atlantic. Despite having approval from the UK government, international and environmental objections to the plan were so overwhelming that the company, and the UK government changed their view and a new approach, for dismantling and onshore disposal, was born. The cost of onshore disposal will be significant. The UK trade association for the offshore oil and gas industry, Oil & Gas UK, estimates that US$56bn will be spent on the process by 2040. Around US$7.3bn of this is expected to be spent by 2017, with the major activities being the abandonment and plugging of wells. This alone is expected to cost around US$3.2bn. As well as the financial aspects, operators need to think about staffing programmes. Much of the North Sea is still producing oil and gas, which means decommissioning projects, will need to compete for talent. There are also the challenges of tackling health and safety, and environmental issues. “We anticipate a fairly significant ramp up in [decommissioning] activity in the next two to three years.” Brian Nixon, chief executive, Decom North Sea Discovery and depletion North Sea oil and gas production started in 1965 with BP’s discovery of the West Sole A field. By the mid-1980s there were more than 100 installations in the North Sea and the UK had become a net exporter of oil, and by the 1990s an exporter of gas. However, since 2000, reservoirs have depleted and production rates slowed. Oil & Gas UK estimates that 52 decommissioning projects have already taken place such as BP’s North West Hutton field and Total’s Frigg project, but these are just the tip of the iceberg. “We anticipate a fairly significant ramp up in activity in the next two to three years and that will be sustained for a period of 30 years plus,” says Mr Nixon. This increasing momentum is partly due to the UK government’s clarification on tax treatment of decommissioning activity. A draft Decommissioning Relief Deed, published with the Finance Bill 2013, is expected to be passed into law this year. The deed is a contract between the government and oil and gas licensees aimed at providing certainty on the availability of tax relief on decommissioning costs. Effectively, the UK taxpayer will pay 75% of those costs. The draft legislation is the result of two years of consultation between the government and the industry. TAQA, alongside Oil & Gas UK and other companies, participated in the talks. “TAQA very much welcomes the inclusion in this year’s Finance Bill of the mechanism to provide certainty on tax relief for decommissioning obligations,” says Peter Thomas, Chief Financial Officer of TAQA’s UK Oil and Gas business. “Long-term investment decisions, in particular to take on the challenge of maximising the recovery from late-life fields, need a stable fiscal environment. The measure will free up capital for investment and simplify the provision of financial security between joint venture partners and new a nd former owners of assets.” Experts from Oil & Gas UK say the move has sent a positive signal to industry. As a case in point, they cite TAQA’s proposed acquisition of more than US$1bn worth of UK Continental Shelf assets, which followed the start of constructive dialogue on the tax relief question. Decom North Sea’s Mr Nixon predicts the inclusion of the ecommissioning Relief Deed, in the Finance Bill 2013, will lead to new jobs and investment in new decommissioning technology. “The belief we have here is that what will happen in the next few years in the North Sea could provide the benchmark for how deeper water decommissioning is done throughout the rest of the world,” he says. "That is a great opportunity for us to start to consolidate best practice." Operators must have their decommissioning programmes approved by the regulator, the Department of Energy and Climate Change, which has been a long process for companies undertaking this for the first time. In January 2013, Decom North Sea launched a standard decommissioning programme template to streamline this process. Measures such as this, and the UK government’s clarification of the taxation regime, give companies such as TAQA much more certainty about the long-term investment requirements associated with the decommissioning programme. Unexpected opposition How far the decommissioning programme progresses remains to be seen. Opposition to the dismantling of entire installations is coming from some unexpected quarters. “If you speak to environmentalists, they will tell you there is a lot of sea life in the subsea part of the structure,” says Mr Koot. “There is an ecosystem there and it appears nature loves these installations, so why remove them? There is an argument that we clean them up, get rid of all the oil and other nasties on the installations, and topple them over to let nature do the rest.” The idea has been backed by the Living North Sea Project – a European Unionfunded partnership of governments, researchers and NGOs, which aims to promote free fish migration to keep the North Sea waters alive. “I think it’s a realistic alternative,” Mr Koot says.