Decommissioning of oil and gas installations is a tricky process for offshore operators, and it often offers little or no return on investment. The end stages of field management are notoriously hard to put a price on, and risk quantification isn’t always clear, making it difficult to predict how much of the investment will be spent on safely dismantling and disposing of site equipment.
While in the past decommissioning was often carried out by the field operator, increasingly decommissioning operations and the complexities of late life management and regulatory compliance are being outsourced, partly or wholly, to specialist companies. But with the process being so complex, it can be hard to find a company with the expertise to competently aid the project’s execution.
In April, technical services provider Lloyd’s Register (LR) announced a solution that the company claimed would address the high burden, risk and cost for offshore operators: a decommissioning consortium bringing together the expertise of LR, WorleyParsons and Ardent.
LR director of asset management and decommissioning Steve Gilbert, WorleyParsons senior project manager and construction/global hydrocarbons sector decommissioning sub-sector leader John Cox, and Ardent sales and marketing director Stuart Martin discuss the new consortium and how a collaborative approach could shape the future of the offshore sector.
Elliot Gardner (EG): Why did you feel a consortium was needed in the decommissioning space?
Steve Gilbert (SG): We noticed that there wasn’t really an organisation or group that you could approach to assist you through to end-of-life operations for an oil or gas field. To managing the rundown and bringing everything to shore, effectively dismantling the site and returning it into the common waste stream for partial or total recycling. There were companies that had specialisms within that space, but they tended to be episodic entrants into that process.
We looked at the groupings within our three companies and concluded that while we do have the capability to come and go as various different participants within that process, as a group we can provide an element of continuity. We hesitate to use the phrase ‘one-stop-shop’ as that’s a bit weary, but I think this is one group that can provide an end-to-end solution, rather than merely the technical solutions for various individual stages.
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Stuart Martin (SM): We’re purely responding to the market demand. We’ve seen most operators asking for this single solution, to bundle as many of the decommissioning scopes as possible into a single entity, so the driver really was market forces.
EG: How risky is the sector and the decommissioning process, and how will relying on a consortium instead of a single service provider reduce this risk?
John Cox (JC): We’ll be operating under one integrated project management system. It means we’re all under one roof, it means we talk to each other regularly on a single project basis daily. From a purely logistics point of view this reduces the risk of schedule clashes – we’ll know when the facilities will be free, or available for the partner companies to be able to put bodies onto the facility.
Having everybody under one roof, one banner, one common set of processes and procedures cuts down the potential for cross-communication, and therefore issues of simultaneous operation. You can de-risk simultaneous operations by having greater communication interface management.
SG: If you look at risk and specifically the definition of risk, it’s really a combination of probability and consequence, and I think that you can manage it in all sorts of ways. One of the obvious ones is knowledge of legislation regulations and best practice. The more you conduct and are involved with operations like this, then that knowledge becomes almost second nature.
A lot of operators have long histories in expiration and development work, but decommissioning less so. So you can reduce the probability of something unfortunate happening by giving that work to a company or group of companies that are familiar with it. They can bring in lessons learned, they can bring in best-practice from elsewhere – so you’re really leaning on the back of expertise earned on other projects and bringing that to the advantage of your own.
SM: To come back to the original question, decommissioning is a risky business as we’re dealing with a lot of unknowns in terms of the asset integrity. Where we can help the client is by giving them some certainty on cost and schedule; we’re not risk-averse as a group and that’s to the client’s advantage for sure.
Best practise is nowhere near established in the decommissioning sector yet, and I think this offers us an opportunity as a consortium to show that our model can become best-in-class.
EG: In a sector where the cost of a project is often difficult to predict, how do you split up work to ensure the project is profitable for all involved?
SG: It’s a complicated question and one that we’re still addressing within the group. Ideally, everyone would put their input into the project and seek to be remunerated as you would in a conventional sense, but where you’re looking at areas where there’s a bit more of a risk and reward, such as an operator who’s looking at some sort of fixed price solution, or maybe some type of performance bonus, then we would clearly need to look at each case and decide who had the most influence and who is taking the most risk and divide up appropriately.
The reality is that these are still three commercial companies and we’ve all got to execute this in a profitable manner, otherwise the industry itself isn’t sustainable.
SM: The pricing and the margins that we can obtain are often linked to how much risk we need to price into the job, and that comes from the calibre and quantity of data that the client can provide us with, to allow us to make sensible decisions on what we can live with and what we will need contingencies for.
EG: Is it tough to divide the work like this? Is there any overlap between companies?
SG: The separation of duties, responsibilities, skillsets, etc. is actually quite natural. It’s one of the things that we considered quite carefully when we were putting this consortium together. What you don’t want to do is have three companies that do exactly the same thing as each other in a consortium together, as I think potentially you’re just storing up trouble for the future.
JC: I echo exactly what Steve just said. When we put this together, we absolutely looked at who does what, where and when. The more we looked at it, the more we saw that we complement each other rather that overlap.
EG: Decommissioning requires the use of physical assets such as large ships and cranes. How do you manage this logistically as a three-way consortium?
JC: None of the group has anything by way of large physical assets – we don’t own boats or heavy lift cranes etc. – so we’re in a position to be able to select the most suitable solution for the client, rather than looking for an opportunity to deploy infrastructure that we already own.
SM: We will be able to have joined-up thinking when it comes to assets. It may well be that the vessel we would use for elements of the lifting could also host the equipment for plug and abandonment or for the deconstruction phase, so it’s entirely possible we can generate synergies by not having assets and dipping into the world’s toolbox for the right solution.
EG: Do you see consortiums such as yourselves becoming the norm in the decommissioning sector?
JC: If you look back at the mid-to-late eighties, greenfield projects and newbuilds went this way, with large consortium and joint ventures. It was cost-effective for clients to give all the work to a big organisation and on a couple of large projects it really paid dividends.
I think up until now, a lot of clients have been trying to undertake decommissioning projects themselves, and in the environment of $30 oil, that was probably a very practical way to do it. As the price of oil has strengthened, and will hopefully continue to strengthen, companies are going to start moving their people off decommissioning and putting them back on to hydrocarbons projects, which leaves a huge opportunity for a consortium like ourselves.
I think we’re the first end-to-end consortium and I know for a fact we won’t be the last – there’s one launching in Q4 of this year – but we were here first. We have a story to tell and a good offer to give to the market. The degree of interest we have seen in this very short amount of time has stunned all of us and has really made us go in a high gear to start backing these proposals up.