Rig Abandonment and Decommissioning for the Next 25 Years

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Mike Marsden-Hill
Mike has 30+ years in the Oil and Gas Industry. Starting on pipelines as a labourer and then working his way up to Project Quality Manager on US$1 Billion + Petrochemical Construction Projects. Currently a Quality Consultant and part-time Author.

Rig abandonment and decommissioning trends face disruption on a scale not experienced before. The normal lifetime of oilfield facilities are already calculated as part of the design remit prior to construction and the relevant ´working life´ determines equipment, machinery and structures commercial usefulness.

The modern phenomena where continuing low oil prices have so adversely affected exploration and subsequent midstream, and downstream activities; rig abandonment and decommissioning have become key issues of concern in the oil and gas industry.

Technology is another key player nowadays, and the onset of new regulatory requirements further tighten the noose on an industry fighting to hold its own on what are shifting sands.

As we all are constantly reminded, time is money. In an industry that is often regarded as a necessary evil in relation to its social, environmental, political and economic impact the future is often questioned. This view is reinforced when the major energy companies, that get their bottom line from energy extraction, are looking for long term sustenance from renewable sources of energy.

Although this is not directly impacting the reasons used for rig abandonment and decommissioning, there is a correlation between what has been the source of revenue and what will be the source of income in the future.

Time and timing factors are always important when executing a project and rig abandonment has similar pressures. These deconstructing projects are driven by much the same criteria as those of construction. With oil prices high decommissioning becomes viable, low and the reverse is the case. Of course, at the end of a wells life, this process must be done regardless.

Highlighting these influences between now and 2050 in the North Sea, that will see major decommissioning of platforms and structures. This will result in further job losses and the resultant detrimental social impact. Income availability for people from all over the globe working in the North Sea, which has now depleted its once massive reserves, will face a downturn. The availability of jobs will diminish and life in that part of the world, in the oil and gas industry, will become appreciably more difficult.

A modicum of light and hope is the fact that the decommissioning process will require skilled, knowledgeable and technical personnel, provided by for the most part by those who have lived their lives involved with oil and gas. It is unlikely that all related oilfield skills will be required and at the levels to offer everyone wanting employment.

The process of decommissioning in itself is subject to regulatory requirements accounting for risk and safety compliance along with all other legal considerations. The actual mechanics of rig abandonment and decommissioning is more the subject of ´Operating Procedures´ for those versed in these forms of demolition. It must be clearly understood that there are just as many commercial decisions relating to these operations and it encompasses a great deal of planning and management to successfully conclude rig abandonment and decommissioning projects.

Estimates reflect large figures to seal off and abandon complex North Sea wells, adding up to as much as 10 billion GBP in the next 10 years. With the inclusion of the decommissioning of structures the one positive aspect will be the resulting contracted workforce being employed for years to come.

The decommissioning industry is still in its early infancy and has suffered problems adapting from construction of fields, wells and their related structures such as rigs and platforms to decommissioning of the same. Attempting to use the same technology to dismantle structures that was used to construct them is not proving fit for purpose. Compounding this negative is the fact that oil companies make no money from the decommissioning process and the aggravation of continuing low oil prices puts a heavy load on already stretched budgets.

Tied into the contractual clauses that all redundant offshore facilities are to be removed as per contract; it is a difficult path to walk. These factors alone are forcing oil companies to search for other solutions and innovate as much as practicable.

Possibly the North East of Scotland could go forward by re-inventing itself and offering its services in a more supporting, auxiliary role lending expertise to consulting, teaching and technical input. The need for a different type of innovation beckons those geared for the inevitable change.

To put what is and will be happening in the North Sea into perspective currently comparisons must be drawn from yesteryear. Far from the heady days of 2000 the oil and gas industry produces a third of the 4.5m barrels per day it did then and is languishing in the red. Financial losses are now the order of the day. Natural wastage of active working personnel has been accelerated by the oil price decline and so all factors give rise to a situation unprecedented in its widespread effects.

As of January 2015, the North Sea was the world’s most active offshore drilling region with 173 active rigs drilling. By May 2016, the North Sea oil & gas industry was financially stressed by the reduced oil prices, and called for government support.

From Wikipedia.

The cost of drilling has become prohibitively expensive with the current financial climate and so rigs in work have had to drop their rates to keep working which often results in a reduction of staff, or wages, or both. Those companies ending their contract terms and unable to continue because of imposed conditions externally and/or internally are faced with the dilemma of maintaining what has now become a non-productive asset. This quickly becomes a liability to the company, and to cut their losses they may well choose to release the asset and wait for circumstances to improve. Once more the financial, the social and the political impacts reverberate worldwide.

The North Sea is indicative of global trends. The bottom line may differ from country to country or region to region but the economic challenge takes no prisoners.

Oil & Gas UK figures show impact of oil price downturn on jobs June 10, 2016 from Oil and Gas UK:

Jobs supported by the UK’s offshore oil and gas industry, currently under the severe strain of continued low oil prices, will have fallen by the end of 2016 by an estimated 120,000 since their peak in 2014.

The analysis, carried out by marketing services company Experian, forecasts that in 2016 just over 330,000 jobs in the UK will be delivered through or supported by oil and gas production.

These jobs are across the whole country and cover:

  • Direct employment provided by companies involved in the extraction of crude oil and natural gas and supply chain companies who directly support this activity.

  • Indirect employment across the extensive supply chain which also exports goods and services overseas.

  • Induced jobs created by the sector’s spending in the wider economy, such as in hotels, catering and taxis.

The industry has recently sustained one of the most severe setbacks in its history. With improved technology in alternative energy sources, an unstable commercial arena, and an uncertain political landscape, energy and indeed oil and gas, plus the associated infrastructure; may well face more challenges ahead.

 

Rig abandonment and decommissioning trends face disruption on a scale not experienced before. The normal lifetime of oilfield facilities are already calculated as part of the design remit prior to construction and the relevant ´working life´ determines equipment, machinery and structures commercial usefulness.

The modern phenomena where continuing low oil prices have so adversely affected exploration and subsequent midstream, and downstream activities; rig abandonment and decommissioning have become key issues of concern in the oil and gas industry.

Technology is another key player nowadays, and the onset of new regulatory requirements further tighten the noose on an industry fighting to hold its own on what are shifting sands.

As we all are constantly reminded, time is money. In an industry that is often regarded as a necessary evil in relation to its social, environmental, political and economic impact the future is often questioned. This view is reinforced when the major energy companies, that get their bottom line from energy extraction, are looking for long term sustenance from renewable sources of energy.

Although this is not directly impacting the reasons used for rig abandonment and decommissioning, there is a correlation between what has been the source of revenue and what will be the source of income in the future.

Time and timing factors are always important when executing a project and rig abandonment has similar pressures. These deconstructing projects are driven by much the same criteria as those of construction. With oil prices high decommissioning becomes viable, low and the reverse is the case. Of course, at the end of a wells life, this process must be done regardless.

Highlighting these influences between now and 2050 in the North Sea, that will see major decommissioning of platforms and structures. This will result in further job losses and the resultant detrimental social impact. Income availability for people from all over the globe working in the North Sea, which has now depleted its once massive reserves, will face a downturn. The availability of jobs will diminish and life in that part of the world, in the oil and gas industry, will become appreciably more difficult.

A modicum of light and hope is the fact that the decommissioning process will require skilled, knowledgeable and technical personnel, provided by for the most part by those who have lived their lives involved with oil and gas. It is unlikely that all related oilfield skills will be required and at the levels to offer everyone wanting employment.

The process of decommissioning in itself is subject to regulatory requirements accounting for risk and safety compliance along with all other legal considerations. The actual mechanics of rig abandonment and decommissioning is more the subject of ´Operating Procedures´ for those versed in these forms of demolition. It must be clearly understood that there are just as many commercial decisions relating to these operations and it encompasses a great deal of planning and management to successfully conclude rig abandonment and decommissioning projects.

Estimates reflect large figures to seal off and abandon complex North Sea wells, adding up to as much as 10 billion GBP in the next 10 years. With the inclusion of the decommissioning of structures the one positive aspect will be the resulting contracted workforce being employed for years to come.

The decommissioning industry is still in its early infancy and has suffered problems adapting from construction of fields, wells and their related structures such as rigs and platforms to decommissioning of the same. Attempting to use the same technology to dismantle structures that was used to construct them is not proving fit for purpose. Compounding this negative is the fact that oil companies make no money from the decommissioning process and the aggravation of continuing low oil prices puts a heavy load on already stretched budgets.

Tied into the contractual clauses that all redundant offshore facilities are to be removed as per contract; it is a difficult path to walk. These factors alone are forcing oil companies to search for other solutions and innovate as much as practicable.

Possibly the North East of Scotland could go forward by re-inventing itself and offering its services in a more supporting, auxiliary role lending expertise to consulting, teaching and technical input. The need for a different type of innovation beckons those geared for the inevitable change.

To put what is and will be happening in the North Sea into perspective currently comparisons must be drawn from yesteryear. Far from the heady days of 2000 the oil and gas industry produces a third of the 4.5m barrels per day it did then and is languishing in the red. Financial losses are now the order of the day. Natural wastage of active working personnel has been accelerated by the oil price decline and so all factors give rise to a situation unprecedented in its widespread effects.

As of January 2015, the North Sea was the world’s most active offshore drilling region with 173 active rigs drilling. By May 2016, the North Sea oil & gas industry was financially stressed by the reduced oil prices, and called for government support.

From Wikipedia.

The cost of drilling has become prohibitively expensive with the current financial climate and so rigs in work have had to drop their rates to keep working which often results in a reduction of staff, or wages, or both. Those companies ending their contract terms and unable to continue because of imposed conditions externally and/or internally are faced with the dilemma of maintaining what has now become a non-productive asset. This quickly becomes a liability to the company, and to cut their losses they may well choose to release the asset and wait for circumstances to improve. Once more the financial, the social and the political impacts reverberate worldwide.

The North Sea is indicative of global trends. The bottom line may differ from country to country or region to region but the economic challenge takes no prisoners.

Oil & Gas UK figures show impact of oil price downturn on jobs June 10, 2016 from Oil and Gas UK:

Jobs supported by the UK’s offshore oil and gas industry, currently under the severe strain of continued low oil prices, will have fallen by the end of 2016 by an estimated 120,000 since their peak in 2014.

The analysis, carried out by marketing services company Experian, forecasts that in 2016 just over 330,000 jobs in the UK will be delivered through or supported by oil and gas production.

These jobs are across the whole country and cover:

  • Direct employment provided by companies involved in the extraction of crude oil and natural gas and supply chain companies who directly support this activity.

  • Indirect employment across the extensive supply chain which also exports goods and services overseas.

  • Induced jobs created by the sector’s spending in the wider economy, such as in hotels, catering and taxis.

The industry has recently sustained one of the most severe setbacks in its history. With improved technology in alternative energy sources, an unstable commercial arena, and an uncertain political landscape, energy and indeed oil and gas, plus the associated infrastructure; may well face more challenges ahead.

 

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