Sink or swim as wave of decommissioning approaches

Of the estimated £500 billion spent by the UK offshore oil and gas industry between 1970 and 2012, just £2 billion was channelled into decommissioning. The clean-up represents an enormous engineering challenge, one that will take decades and cost tens of billions, writes Rohan Boyle


Production may have been in decline since 2000, but the final chapter in the North Sea oil and gas saga, that in which the vast assemblage of ageing platforms and pipes is pulled up and taken back to shore, has hardly begun.

The benefits to the UK from the once-prolific North Sea fields have been enormous. Between 1970 and 2012, it is estimated that the UK Continental Shelf (UKCS) produced 42 billion barrels of oil equivalent (boe), according to industry body Oil and Gas UK.

Although total recoverable reserves stand at somewhere between 15 and 24 billion boe, a growing number of ageing offshore installations will soon have to be decommissioned.

A strict legal framework of national, regional and international regulations governs what happens to offshore facilities at the end of their life.

In 1995, Royal Dutch Shell provoked widespread outrage with plans, approved by the UK government, to abandon the floating oil storage facility Brent Spar in deep Atlantic water.

The controversy led 15 European states, members of the Convention for the Protection of the Marine Environment of the North-East Atlantic, to ban “the disposal of offshore installations at sea, as well as requiring all the topsides of all installations to be returned to shore”.

Over the next 30 years, virtually all the oil and gas infrastructure on the UKCS will have to be removed from the sea and decommissioned on shore. This amounts to some 475 offshore installations of all types, 10,000 kilometres of pipes, 15 onshore terminals and 5,000 wells. Some 470,000 tonnes of material will have to be retrieved between 2013 and 2022 alone.

To put this in perspective, the contract for removal of nine platforms from the Norwegian Ekofisk oilfield, between 2008 and 2014, amounted to 113,500 tonnes or three times the weight of all the cabs in London.

Removal of nine platforms from the Norwegian Ekofisk oilfield amounted to 113,500 tonnes or three times the weight of all the cabs in London

Exactly how much all this will cost to implement is difficult to calculate as there are many unknowns and fluctuations. However, Oil and Gas UK estimates the total will amount to £10.4 billion between 2013 and 2022, with the total bill climbing to a cumulative £31.5 billion by 2040. New investment in probable developments would add £3.5 billion to the total, but much of this would be incurred after 2040.

Not all this will have to be borne by the industry. The UK government will incur more than half the cost through a 50 per cent tax relief mechanism – 75 per cent for older fields – making the taxpayer one of the most important stakeholders in the process.

A view widely held in the industry, according to the Royal Academy of Engineering, is that a tax rebate to offset decommissioning expenditure was always an essential condition of oil and gas companies’ involvement in the North Sea.

Such is the importance of this measure that any hint of uncertainty over its future is enough to put off new investment in older fields and dissuade new market entrants.

The government therefore acted to bolster confidence last October when it issued the first decommissioning tax relief deeds to seven oil and gas companies operating in the North Sea. These guarantee the tax relief a company will receive, so that even if a future government makes tax changes they can still claim a “difference payment”.

Also recently, the government took steps to streamline the lengthy decommissioning process by issuing a standard template that will allow the regulator, the Department for Energy & Climate Change, to ratify plans more quickly and easily.

First to trial the template was BP with its Schiehallion decommissioning programme. “It took seven months from initiation to approval, compared to up to three years in the case of the Miller oilfield. Also, the document ended up only 42 pages in length. This equates to a major saving in man-hours,” says Alistair Corbett, BP’s decommissioning projects manager.

With so many fields reaching the end of their life, there are rising concerns the supply chain has neither the capacity nor the workforce to handle the large, heavy offshore platforms.

“There’s an opportunity for us [the UK industry]. Billions of pounds of work is coming to us in the North Sea,” according to Trevor Garlick, head of BP’s North Sea operations. “At the moment, there is not the technical capacity or supply chain to meet it. We need to meet it, or Norway, Spain or others will.”

Current figures indicate that the UK faces a major shortage of the necessary skilled workers unless there is a significant increase in engineering and technical graduates as well as sustained retention of experienced workers within the industry.

As part of a push to fill this gap, the oil and gas industry skills body OPITO has launched a drive to recruit suitable ex-military personnel.

Innovation will also play a role in meeting the decommissioning challenge. Edward Heerema, chief executive of engineering group Allseas, is hoping a 382-metre-long, 124-metre-wide catamaran he commissioned will capture a large part of the business.

The giant craft, strong enough to lift four Eiffel Towers, is scheduled to set off from a South Korean shipyard later this year. The success of Mr Heerema’s $3-billion bet will depend on timing. He is hoping that oil companies will be queuing up for its services by the time it arrives in the North Sea.

Decommissioning represents a significant opportunity as well as a challenge for the UK offshore oil and gas industry. The North Sea is not the only place that will be dismantling such infrastructure and the lessons learnt here could potentially be transferred abroad.

CASE STUDY

EX-MILITARY HELP BRIDGE SKILLS GAP

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The UK oil and gas industry faces a skills shortage across all sectors and not just in the area of decommissioning. A report by OilCareers.com and Air Energi estimates that it will require more than 120,000 skilled personnel over the next decade to realise the full potential of renewed investment in the North Sea and recent shale discoveries.

“Specialist disciplines are in very short supply. Graduate programmes are not attracting the right amount of people into the industry and, where good graduates are found, it’s often a case of too little, too late,” the report says.

In a recent survey of the industry by Barclays Bank, 66 per cent of those polled highlighted the skills shortage as the biggest challenge facing the industry.

At the same time, the armed forces are downsizing, creating a potentially sizable source of new recruits. “We’re not going to find a lot of geologists or drilling engineers, but there will be quite a number of people in the military who we think have skills and qualifications that are transferable to our industry,” says Alix Thom, employment and skills policy manager at industry body Oil and Gas UK.

They are generally well trained, safety conscious and very dependable

“The armed services are a good source of technicians, such as mechanics and electricians, while submariners are currently in demand for certain kinds of subsea work,” she says.

The oil and gas industry is already a popular career choice for former soldiers, sailors and airmen, according to training standards body OPITO. Between 2011 and 2013, some 2,500 found jobs in the industry.

“They are generally well trained, safety conscious and very dependable,” says Morven Spalding, skills development director at OPITO. “In addition, their work ethic and familiarity with operations allow them to fill jobs in all sectors of the industry, including offshore positions.”

With 20,000 posts to go in the regular Army by 2020, on top of the 18,000 to 20,000 armed services leavers in any normal year, the number of potential recruits could increase.

To better co-ordinate the hoped-for jobs transfer, the government launched a nationwide programme last year run by the Ministry of Defence, Oil and Gas UK, plus OPITO and the Career Transition Partnership, which helps resettle demobbed service personnel.

One of its top priorities is to increase the level of understanding, both of the experience and skills that ex-services personnel possess, and the skills that are needed in oil and gas. The scheme runs awareness events at military bases as well as training courses.

Some of the larger oil and gas companies already run their own programmes targeting ex-military people. GE Oil & Gas holds career fairs aimed at the military and has what it calls a junior officers leadership programme, while Wood Group PSN runs a course that fast-tracks skilled technicians from the armed forces into the industry.

Oilfield services company Petrofac is also actively recruiting ex-servicemen and women. It uses the Career Transition Partnership to identify candidates who are enrolled on a training programme as a first step in their new careers. On successful completion of the course, they will go into permanent positions, with some ready to go offshore in just eight weeks.

Starting salaries in the industry are between £35,000 and £40,000, according to Dominic Simpson, head of sales at industry website rigzone.com. “Lack of supply and increased demand for qualified staff is putting huge inflationary pressure on wages in the oil and gas industry,” says Kevin Forbes, chief executive of Oilandgaspeople.com.

“There is a lot of press coverage around North Sea oil being in decline, but the truth is there is still 30 to 40 years left in the North Sea, and that estimate increases all the time as new fields are discovered and come online. Anyone looking to get into the industry now will enjoy a career that will easily last their lifetime,” says Mr Forbes.