E&P Offshore Solutions: Decommissioning—The Time for Action is Now

[Editor's note: A version of this story appears in the July 2020 edition of E&P. It was originally published July 2, 2020. Subscribe to the magazine here.]  

In recent years, regular predictions have been made on how decommissioning is set to be one of the biggest activities on the U.K. Continental Shelf (UKCS) in the next decade with forecast expenditure of £20 billion by 2030. Rystad Energy has predicted that U.K. business is in line to pick up nearly 80% of the £14 billion it esti­mates could be spent on removal projects in Northwest Europe over the next five years.

Such estimates tend to create a picture of an imminent decommissioning boom but always one that is not quite here yet. It will happen—but in the future. Indeed, only about 15% of North Sea assets have been decommis­sioned to date, but in its latest report, Rystad Energy pre­dicts a huge rise in annual activity in the coming years.

Some in the industry may be getting immune to such predictions, but it is fair to say that in 2020 a series of events may well have created the conditions that will ensure decommissioning is no longer seen as an obliga­tion to deal with in the future, but as an opportunity to help prepare the wider industry for the years to come.

Undoubtedly, this year the global COVID-19 pan­demic, the low oil and gas prices and the demands of the energy transition have collided to put companies operat­ing in the energy sector under considerable pressure.

Need to address now

Today the industry finds itself in the middle of a crisis that will result in considerable job losses and major cutbacks in E&P activity in the North Sea and beyond. But if it is to emerge stronger from this crisis, it needs to have the right strategies and the right resources primed so that it is ready to respond to future opportunities and future challenges.

Fairfield Decom believes that the U.K. decommission­ing market represents the key opportunity right now— one that can help ensure the industry and its extended supply chain remains functional and fit for purpose when the clouds of the current downturn begin to clear.

If the industry can commence right now to address its decommissioning obligations seriously, then it will not only create opportunities for the supply chain in difficult times, it will also take a major step forward to meeting the long-term energy transition goals that governments have set.

Of course, it is already clear to many in the industry that pushing back any decision on cessation of produc­tion when assets are barely economic is no longer an option. Indeed, delays will only serve to create greater inefficiencies, uncertainties and costs.

However, at Fairfield Decom, it is the positive impacts of responsibly addressing decommissioning that should now take center stage. Positive impacts can help the industry move beyond the current crisis, while simulta­neously restructuring to ensure that it is ready to play a key role in providing an integrated, low carbon energy supply for the U.K.

Decommissioning can simply no longer be seen as a cost and a headache; it will be a major growth industry and a vital part of the U.K.’s energy transition. It is going to be a big part of the future. So it is even more important that the industry thinks differently now, not only to protect the supply chain in the midterm but to ensure the specialist skills that will be required further down the line are there when needed.

Taking bold steps

The industry has to be bold, not simply follow the behaviors of the past, if it is to create a sustainable decommissioning supply chain in the UKCS. The time for endless analysis of the potential market is over; com­panies are needed with vision that are ready to take on the challenge.

At Fairfield Decom Ltd., for exam­ple, the company took the bold step of merging three companies into one. By combining the experience and expertise of Fairfield Energy, Heerema Marine Contractors and AF Offshore Decom, a new entity was created that can bring real benefit and value to asset owners in the decom era.

It is innovative, creative and collective thinking that can position the U.K. as global leaders in the decommissioning market and as key contributors to the net zero carbon future. For example, the industry will also need to develop novel, fit-for-purpose asset ownership and funding models that will inevitably involve asset owners, contractors, lenders, capital mar­kets and perhaps even government in a new era of collaborative financial instruments that are uniquely designed to deliver on energy transition and decom­missioning goals.

If these fit-for-purpose business and finance models can be developed to ensure the right assets are in the right hands at the right time to best manage ultra-late-life operations and decommissioning, then operators are enabled to focus resources on their core business activities.

Properly managed decommissioning activity can go a long way to create the environment in which viable E&P activity in the UKCS still has a significant role to play in meeting the U.K.’s energy needs for years to come.

Decommissioning is Fairfield Decom’s core business. Its leaders understand the different regulatory frame­works and the different world of decom operations, but they also understand that decommissioning activity can be an effective tool to ensure the industry can keep the lights on through these dark times.

In partnership with operators, contractors and govern­ments, the company is actively working with government agencies and financial institutions to develop innovative new financing arrangements. The company is at an advanced stage in this process and is able to provide material financing capability to enable asset owners to defer expenditure for several years, which in turn will allow the industry to proceed with projects today.

By doing so, the company aims to help create a level of decommissioning activity that will be key to preserv­ing and enhancing the skills and resources that will be needed across the sector when returning to some kind of new normal.

Conclusion

End-of-life asset management has always been an important part of the asset life cycle; it is more preva­lent at this time given that the North Sea is a mature basin and many of the assets are nearing the end of their intended life span. Over the years, the North Sea oil and gas industry has created outstanding explorers, developers and producers committed to building and safeguarding assets for the long term.

But decommissioning is a very distinct activity and one that demands a specific mindset and approach. To be successful in today’s challenging environment, com­panies must be highly agile and able to identify oppor­tunities and make informed decisions quickly to exploit new opportunities. And with respect to decommission­ing that time is now.

Scotland and the U.K. can become a world leader in decommissioning. Both have a robust and sustainable supply chain rooted in the engineering heritage built up over five decades in the North Sea. Both have the experi­ence and expertise to pioneer new technologies and busi­ness models, and both have the determination to succeed. But today, both need to collectively seize the opportunity to safeguard the industry’s future offered by embracing the challenge of decommissioning.