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The decommissioning mindset: Petrofac in the North Sea

Petrofac worker on oil platform

Petrofac’s Late Life Asset Management and Decommissioning teams are all about adopting the right mindset, as Adjacent Oil & Gas Editor Katy Edgington finds out

North Sea decommissioning will be a substantial market over the next 40 years and provides significant opportunities, particularly as the investment outlook for exploration and production remains relatively bleak. One company looking to ride the wave and ensure cost-effective supply chain solutions are available when the inevitable happens is major oilfield services provider, Petrofac. The Group designs, builds, operates and maintains oil and gas facilities for operators around the world, and in the UKCS provides a range of solutions across the asset life cycle from conceptual engineering all the way through to decommissioning.

With around 90% of North Sea oil and gas assets yet to be decommissioned, this is clearly a long game. But according to Business Acquisition Manager for Decommissioning, Sam Long, the phrase ‘early engagement’ is a key pillar of Petrofac’s approach.

“The earlier the operator engages with the contractor community, the more effective the solutions we can put together,” he stresses. “In the late life phase of an oil and gas development it is essential to maximise its economic recovery while simultaneously planning and preparing for eventual decommissioning.”

Getting into the decommissioning mindset

There is the physical transition to a non-hydrocarbon producing facility when Cessation of Production (COP) is reached, but to get to that stage there are also legal, financial and operational transitions that an asset has to go through. Less well documented is the psychological transition – a completely different mindset is required to manage the process properly.

“You have to transition from a project mentality focused on production and maintenance to one very much driven by demolition,” reports Alex Macdonald, who leads Petrofac’s well engineering team. “In terms of leadership, management and expertise in realigning people, that’s a big challenge many organisations are facing right now, and they are dealing with it in different ways. Some try to transition the existing team, others try to draw a line in the sand between one activity and another.”

The business mentality may also be difficult to get around, as the drivers for decommissioning are far removed from those of exploration and production.

“Decommissioning means taking from the bottom line rather than adding to it,” says Long. “At Petrofac, we believe the appointment of a Duty Holder is a very effective way of reducing costs for an operator on a late life asset as it transitions to decommissioning.”

Although certain production innovations and rigless interventions are helping to extend asset life and maximise recovery, the expectation is not – and should not be – on technology to provide cost savings and efficiencies. It is a case of restructuring existing assets and services to achieve new goals, Long insists.

“[Appointing a Duty Holder] gives oilfield service providers the opportunity to coordinate activities on installations far more effectively,” Macdonald clarifies. “Traditionally, the operator has been managing the installation and there are a whole range of different service providers all working under their instruction. When you are able to hand that over to a single service provider, in the vast majority of cases some significant cost savings can be made straight away.”


What is a Duty Holder?

Petrofac pioneered the outsourced Duty Holder model in 1997 and today, as the Duty Holder for 12 onshore and offshore assets both in the UKCS and internationally, is considered an expert in its field.

In the role of Duty Holder, the operations team ensures the safe management and maintenance of assets through the supply of highly experienced and dedicated personnel and tried and tested processes and procedures. From the straightforward supply of manpower, to supervision and performance management, to the complete operations management of an asset – all of which result in a partnership that lets the client dedicate time and resource to its responsibilities as license operator.

In addition to taking responsibility for the installation in this way, Petrofac can also assume responsibilities for the associated infrastructure including wells and pipelines as the Service Operator. Under UKCS legislation this combines Installation Operator (Duty Holder), with Well Operator and Pipeline Operator responsibilities under a holistic operating model.


The benefits of being prepared

Identifying synergies and pooling available resources allows assets and logistics to be managed in a far more effective way. Petrofac is working alongside a number of clients to adopt a hub-type approach for sharing loads, helicopters and vessels, for example, which could offer significant savings for operators. The strategy also keeps a weather eye on future decom requirements.

“We can come on board and continue to manage the production side of the job, but also start to prepare for eventual decommissioning,” says Macdonald. “This involves finding out about the installation, the condition of the wells, and also starting some of those decom activities and preparations ahead of the installation becoming hydrocarbon-free.”

When it comes to risk management and efficient scheduling, the sharing of expertise and resources on a global scale confers many advantages. This is not only in terms of learning from other Petrofac countries and regions, but in access to strong technical expertise, as Macdonald highlights.

“Our breadth of capability means we have access to valuable data from our offshore construction activities, as well as knowledge of heavy lift vessel selection, receiving yards, waste and logistical management. Our global teams regularly develop ways to challenge traditional methodologies.”

An evolving contracting model

Diverse skill sets are certain to be a boon given the challenges thrown up when decommissioning North Sea assets, many of which were designed in the 1960s and 1970s without much thought to their future removal. Alongside obvious technical issues such as the limited number of vessels available for conducting heavy lifts, there is a cautiousness among operators around the sanctioning of decommissioning activity.

“The key fear is one of project cost escalation,” Macdonald relates. “For many organisations, large scale decommissioning projects would be a significant step out in their experience.

The contracting model for executing this type of work is also evolving, particularly around transferring project management responsibility and, to a degree, commercial risk. This is where the service sector can significantly de-risk an operator’s project execution by working together in a collaborative framework and applying the lessons gained from executing decommissioning projects for other clients.”

If an efficient decommissioning market is to emerge, the risk relationship between the operator and the contractor is another critical issue that will need to be addressed.

“It is a stumbling block,” Long admits. “It’s an area which a lot of people are looking at and asking, how can we enable the contractor to execute more on behalf of the operator? The reality is that both parties will have to come to the table and find a sensible way of sharing risk.

“Operators are not designed for decommissioning of abandoned structures – it’s not what their shareholders want them to be doing – but at the moment the legal frameworks, in the UK in particular, almost force it on them to lead that process.”

Environmental regulations and obligations are tied up in decommissioning design, for every element from gravity base structures and steel jacket footings to seabed debris such as drill cuttings piles. Studies continue to investigate the merits of total removal versus leaving offshore structures in situ; meanwhile operators and contractors follow the existing laws and guidelines as a matter of course.

High expectations of service providers

One of the repercussions of the recent low oil price environment has been that operators are asking far more from service providers, and looking to really leverage their expertise, as Macdonald can attest.

“In an awful lot of cases we used to have very well-worked solutions from operators – they did a lot of the technical design, came up with their own particular answer, and just went out for a range of prices from service providers. Now, many of the operators are looking for a technical solution as well as a commercial proposal.”

With the market as it is, operators find themselves able to garner significant interest despite asking service providers to invest far more time in advance of contract award.

“In the past, you would never have had the time and resources because you were too busy doing contracted work,” explains Macdonald. “Right now, while projects have slowed down, you are able to differentiate yourself. Whereas before it might have been a case of ‘lowest cost wins’, now it’s more that the ‘best solution wins’.”

In fact, he cites this as one of the fundamental reasons behind Petrofac winning a recently completed contract with Tullow Oil for well plugging and abandonment on the Horne and Wren platform. The firm has reported savings of $2.5 million for Tullow Oil due to their use of a jack-up lift barge instead of a rig, as well as deployment of a pipe recovery technique rather than a heavy lift vessel.

Maximising economic recovery in late life

“As Duty Holder on board, we were able to work together to coordinate all the activities around the platform, ensuring seamless integration of services. During the well cleaning, the heavy lift contractor came on board and performed simultaneous operations.

While we were working on the wells, they were also onsite on the jack-up lift barge doing preparations in terms of safety platforms, lifting points, and so on. That saved a huge amount of money for the client because usually it would have to be a separate activity.

“Now the wells have been plugged and abandoned, it’s completely hydrocarbon-free, all of the preparations have been done for the heavy lift.”

Working with operators during the late life of an asset allows Petrofac’s teams to maximise economic recovery in terms of the number of barrels returned whilst also improving knowledge of the individual asset. This approach delivers more surety around the best way to decommission an asset and estimate associated costs. Petrofac has recently assumed Duty Holder status on BP’s Miller asset – where it has responsibility for asset operations, logistics and support services, thereby enabling BP to focus on project management and removal of the Central North Sea asset.

From concept to removal

A strong operator-service provider relationship is useful in dealing with the situation and uncertainty that still surrounds much decommissioning and late life work, with both sides working together to find the most effective solution.

“The fewer interfaces there are, the more cost effective the projects are,” Long adds. “If a large contractor takes charge of project management and general contractor management on an operator’s behalf, it becomes a one-on-one relationship as opposed to multiple staff having to manage multiple contracts.”

In the UK, because it is a very mature basin, decommissioning activity is gaining pace, but a number of other regions are also starting to consider it more seriously.

“We’re starting to look at quite a few projects in Asia-Pacific – areas like Australia, New Zealand – and also other areas such as Norway,” says Macdonald. “This is not just going to be a UK thing; for the next 20 years this is going to be a major activity for the oil and gas industry worldwide. Through our breadth of capability we’re poised to support clients on their decommissioning journey: from concept to removal.” ■

Sam Long – Business Acquisition Manager for Decommissioning

Alex Macdonald – Managing Director, Well Engineering

Petrofac

 

From Adjacent Oil & Gas 5, November 2016

01/11/16

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