Caitlin was initially drawn to decommissioning as the regulatory and fiscal reforms made for an interesting thesis as part of the LLM in Oil and Gas Law. In this thought-piece, Caitlin highlights the potential opportunities that lie ahead for ITF both decommissioning as a sector and ITF as a technology facilitator.
Decommissioning: An Opportunity for Technological Innovation
Decommissioning is perhaps one of the fewest certainties in the current market and while most would prefer to delay the legally inevitable, the ‘lower for longer’ outlook has forced those operating in the UKCS to confront the decommissioning question sooner than anticipated. In an environment that is notorious for its high operating costs, ageing infrastructure and high rates of tax, a volatile oil price makes the UKCS business case increasingly difficult to justify. The sector is experiencing an accelerated pace of decommissioning activity and for the first time, the number of wells plugged and abandoned in the UKCS has surpassed the number drilled for exploration and appraisal as the economic viability of an asset is placed under greater scrutiny. Cost estimates are also rising and with a forecasted expenditure of £50 billion by 2055, decommissioning can represent an expensive burden to operators and UK taxpayers alike. With few precedents to follow, the UK oil and gas industry must collectively find a way to enhance its technical capability without comprising health and safety or the environment. At ITF, we believe technological innovation has a key role to play and proactive steps taken now can have the potential to deliver significant cost reductions in the long-term.
Decommissioning is set to become a substantial area of business with ~30% of fields currently producing on the UKCS anticipated to cease production in the next 5 years. As these fields transition towards decommissioning, a significant amount of infrastructure will require to be safely removed and disposed of in accordance with national legislation. The operator, alongside other licensees, will be directly responsible for investing the engineering and financial resources to perform the obligation. However, through various tax reliefs, the Government will also be financially responsible for a portion of the decommissioning bill. With a number of key stakeholders, decommissioning is more likely to inspire a collaborative relationship in comparison to competitive areas within E&P. As the new industry regulator, the Oil & Gas Authority (OGA) will also have an influential role to play. The precise timing of the decommissioning obligation remains uncertain for operators individually as a number of regulatory reforms seek to prevent premature decommissioning. However, as an industry, we know decommissioning will ultimately happen, and through early planning and effective engagement we can seek to reduce the overall cost burden now.
In any emerging market, innovation will play a key role, however, this is particularly true for decommissioning; many of the installations were not built with this phase of the lifecycle in mind. Rather than a one-size-fits-all approach, the broad range of offshore structures and facilities will require innovative methods to overcome the complex engineering challenge. Technology is just one form of innovation and Sir Ian Wood highlighted the importance it could play in terms of controlling and reducing the expense of decommissioning. The UK Technology Leadership Board (TLB) has since been established and its remit is to drive technological innovation initially in the areas of small pools, asset integrity and well construction. More recently, the TLB has announced decommissioning as an additional priority, and with the support of the OGA, will seek to reduce the cost of decommissioning by 50%. To date, ITF has been strategically connected to the TLB’s priority themes and will continue to provide a collaborative platform to stimulate investment opportunities for technology development and deployment.
At ITF we believe an operator’s challenge is a developer’s opportunity. While decommissioning has not formed a large part of ITF’s technology programme in recent years, a growing demand from ITF’s membership and the broader industry has positioned it firmly on the agenda. In recognising that well plugging and abandonment (P&A) represents one of the most expensive elements of decommissioning, and accordingly the most fertile area for technological development, ITF and its membership have prioritised a number of challenges related to P&A. The first initiative sought technologies to improve ‘Through Tubing Logging’ and more specifically, to gauge the quality of the cement and to verify a hydraulic seal behind the tubing and casing. ITF released a Call for Proposals in October 2015 and the 15 global responses received are currently being validated by ITF’s membership. ITF has since launched a second Call in March 2016, targeting technology solutions for the ‘Removal of Casing and Tubing’. This Call in particular has the potential for disruptive technologies such as laser cutting or thermal based removal methodologies.
A prerequisite for all ITF Calls is that the proposed technology must be capable of forming part of a Joint Industry Project (JIP). As an industry, oil and gas is often criticised as being slow at adopting new technologies, with a ‘race to be second’ culture. ITF’s JIP model enables companies to commit to technology initiatives that address a common problem whilst sharing the risks that are inherent in innovation. In this sense, JIPs can form part of a risk mitigation strategy and will prove invaluable in this capital-constrained environment in terms of unlocking discretionary funding for technology development. In order to maintain technological innovation in the short-term, companies should focus on quick wins that are closer to implementation, and consider a phased approach towards those mid-longer term projects where budgets are available. In turn, developers could make their technology more appealing to potential investors by articulating a strong business case with a clear commercialisation plan. We are at the beginning of what is to become a relatively steep learning curve and shared initiatives will form an integral part if decommissioning is to be successfully transformed from an engineering challenge into an opportunity. Whilst JIPs are ITF’s primary mechanism for collaborative technology development, it is not the only form, and ITF will be on hand to assist its members and the wider industry to accelerate the adoption of technological innovation for the UKCS and further afield.
Decommissioning is undoubtedly a collective challenge and while the removal and dismantling of infrastructure can signal the end of the UKCS; in reality, it is only the beginning of what is to become an industry in its own right.