Decommissioning Insight 2018

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DECOMMISSIONING INSIGHT 2018

Contents

1 Foreword 2 Key Findings

4 6 8

3 Decommissioning in 2018

3.1 3.2 3.3 3.4 4.1 4.2 4.3

Survey Development and Methodology 9

Maturity of Estimates

Forecast Expenditure Overview Decommissioning in Context

10 12 16 17 19 22

4 UK Performance Indicators

Expenditure Breakdown Regional Expenditure Delivering Efficiencies

5 Emerging Opportunities - Building an International Business

5.1

Supply Chain Experience and Competition

29 30 31 32 33 34 35 36 37 38 42 44 45 48 50 52 54 55 57 58 58 59 61 62 64 64 65

5.2 5.3 5.4 5.5 5.6 6.1 6.2 6.3 6.4

Technology

Knowledge and Skills

Regulation Vision 2035

The UK’s Role in a Global Market

6 The UKCS in Detail

Forecast Decommissioning Activity Expenditure by Scope Element

Well Decommissioning

Topsides and Substructure Removal

7 International Activity

7.1 7.2

Well Decommissioning

Topsides and Substructure Removals

8 The Scope of Decommissioning

8.1 8.2 8.3 8.4 8.5 8.6 8.7 8.8

Operator Project Management

Post-CoP OPEX

Well Decommissioning

Facilities and Pipeline De-Energising

Topsides Preparation Topsides Removal Substructure Removal

Topsides and Substructure Recycling and Disposal

8.9

Subsea Infrastructure

8.10 Site Remediation

8.11 Post-Decommissioning Monitoring

9 Glossary

DECOMMISSIONING INSIGHT 2018

1 Foreword The UK’s offshore oil and gas industry is entering a new phase of life, with decommissioning taking its appropriate place alongside exploration and production activity across the UK Continental Shelf (UKCS). As Oil & Gas UK’s 2018 Decommissioning Insight report shows, the industry is committed to achieving decommissioning excellence, matching the international reputation for operational excellence it has earned over the last 50 years. This report provides a fresh insight into the UK’s decommissioning market over the next ten years (2018–27) as well as wider North Sea activity in Norway, Denmark and the Netherlands. In doing so it expands the information available to operators planning to decommission assets and broadens supply chain awareness of the demand for their services and expertise around the North Sea. Practioner profiles have been included, with the aim of capturing the UK supply chain’s growing experience, innovative technology and competitiveness. Examples from decommissioning practitioners and recent projects underline the benefits of collaboration and are driving cultural change across the sector. The prize is enormous; the industry will spend around £15 billion over the next decade on decommissioning on the UKCS and is committed to delivering a safe, environmentally sound and cost-effective outcome. Globally, the decommissioning market is estimated to be worth over $80 billion over the next ten years and companies which show mastery of decommissioning in the UK will be well positioned to secure a share of the rapidly growing international market. Cost leadership in decommissioning is essential to extend the productive life of the UKCS and encourage reinvestment in new opportunities. Rapid improvements in productivity and efficiency are already being achieved with good effect. Forecast decommissioning costs per well have fallen by an average of 26 per cent over the last year. Decommissioning spend in 2017 came in almost 30 per cent lower than anticipated at £1.15 billion. Likewise, decommissioning expenditure is set to be almost 20 per cent lower over the next decade, saving almost £4 billion over the period. Such achievements demonstrate that the decommissioning market is maturing, and industry has the capacity and commitment to safely deliver the 35 per cent cost reduction target through a combination of performance improvement, cost control, technological innovation and an openness to adopting new business models. Yet theUKCS is far from in its end game; a steady flowof decommissioning activitymay have helped some companies negotiate the downturn the industry has faced over the last four years, but we are now beginning to see a steady increase in investment. To date, 12 new projects have been approved in 2018 which will attract almost £3.3 billion of capital investment and produce 400 million barrels of oil equivalent over time. Decommissioning expenditure is stabilising and is projected to be about 8 to 10 per cent of total expenditure going forward, competing for funding alongside exploration and production activities.

Decommissioning presents a valuable opportunity for supply chain companies and technology developers right across the UK to develop the capability to meet domestic and global demand. The 'call for evidence' to create a global decommissioning hub announced in Budget 2018 is very timely and will be widely welcomed. We are already seeing decommissioning hubs opening in Shetland, around the east coast of Scotland, in the north east of England and in East Anglia, as the supply chain pursues opportunities at home and abroad. New decommissioning initiatives, in partnership between industry, government and academia, are helping to drive innovation. Leading the way, the Oil & Gas Technology Centre and the University of Aberdeen are developing a new multi-million-pound National Decommissioning Centre to tackle current and future challenges backed by world-class research and development facilities. In last year’s report we highlighted the opportunity for the UK’s decommissioning sector to become a champion of decommissioning excellence within the global arena. As costs fall and expertise grows, we are already seeing encouraging progress towards this goal. Together we can ensure this is achievable, and we hope that the Decommissioning Insight will prove to be a valuable tool for decommissioning practitioners in the UKCS, the North Sea and far beyond.

Michael Tholen, Upstream Policy Director, Oil & Gas UK

The UK Oil and Gas Industry Association Limited (trading as Oil & Gas UK) 2018 Oil & Gas UK uses reasonable efforts to ensure that the materials and information contained in the report are current and accurate. Oil & Gas UK offers the materials and information in good faith and believes that the information is correct at the date of publication. The materials and information are supplied to you on the condition that you or any other person receiving them will make their own determination as to their suitability and appropriateness for any proposed purpose prior to their use. Neither Oil & Gas UK nor any of its members assume liability for any use made thereof.

DECOMMISSIONING INSIGHT 2018

2 Key Findings

INSIGHT

are expected to be decommissioned over the next 10 years 2,379 wells

1,465 wells are in the UKCS, or around 1/5th of the total UKCS well stock

The UK is expected to spend £15.3 billion on decommissioning over the next decade

The rate of decommissioning expenditure is forecast to stabilise at around £1.5 billion per year - almost 20% lower than forecast in 2017

Over 950,000 tonnes of topsides are

slated for removal across the North Sea – of which just over 605,000

tonnes will be from the UKCS

UK ACTIVITY

Over the next decade:

48%

Well decommissioning (well plugging and abandonment) makes up of forecast expenditure, with £7.5 billion expected to be spent 49%

The costs of running platforms and facilities after production ceases (Post-CoP OPEX) remains significant , accounting for just under 10% , or £1.5 billion , of expenditure

of spending will take

Subsea infrastructure removal accounts for 11% £1.7 billion or of expenditure place in the central North Sea, with 30% in the northern North Sea, 15% in the southern North Sea and 7% west of Shetland

Topsides and substructure removals combined account for just over

13%

of the expenditure, £2 billion or

Onshore disposal accounts for just over

of the overall decommissioning spend

The spend over this next decade is almost 20% lower than forecasts made last year would have suggested. Reductions have been driven by improved productivity (including cost reduction, efficiency improvement and deflation) coupled with the movement of activity beyond 2027. This demonstrates that the decommissioning market is maturing and making significant inroads to deliver on its 35% cost reduction target DELIVERING ON EFFICIENCY

Forecast unit well decommissioning costs are reducing across all areas of the North Sea, and have

fallen by an average of

Some individual projects have seen the average amount of days spent on well decommissioning

Forecast costs per tonne for the removal of topsides in the central and northern North Sea have,

while the cost of removal per tonne for a substructure in this area has 16% fallen by

halve

throughout the lifecycle of a project

13%,

fallen by

GLOBAL OPPORTUNITY The UK is the largest market for decommissioning spend over the next decade, representing one-third of expenditure across the top 12 markets

The UK’s structured approach to decommissioning (as envisioned in the Work Breakdown Structure ) is setting a global performance framework

[Wood Mackenzie]

Decommissioning on the UKCS offers first-mover advantage, which the UK’s supply chain can capitalise on, with the correct help Meeting, then beating, the 35% cost reduction target will be key to unlocking the global market, allowing the UK to position itself as an expert on a world scale

The UK is recognised as a global leader in decommissioning shaping the agenda technically,

commercially, regulatory and environmentally

DECOMMISSIONING INSIGHT 2018

3 Decommissioning in 2018

In Summary T his report provides a fresh overview of the emerging by Oil & Gas UK since 2010. The cumulative forecast decommissioning expenditure over the next ten years on the UKCS is £15.3 billion — a significant reduction compared to recent years. Whilst some of the workload is seen to be re-phased beyond the ten-year picture, real-world decommissioning experience is also driving new efficiencies, reflected in the updated forecasts. This progress will be instrumental as the industry, supported by its regulators and government, strives to reduce decommissioning expenditure by 35 per cent over the years to come – a shared goal which supports the policy of Maximising Economic Recovery (MER). Decommissioning is also part of the natural lifecycle of an oil and gas asset. Set in context with the rest of the industry, outlay on decommissioning has risen since 2004 but is still only 8 per cent of the overall expenditure on oil and gas in the UKCS. Investment in new developments continues to outweigh decommissioning expenditure significantly and retaining existing infrastructure will help drive further recovery. Nevertheless, decommissioning is here to stay, and with steady workload and expenditure forecast over the next decade presents an enduring opportunity for the UK supply chain. 2,379 wells are expected to be decommissioned in the North Sea over the next ten years 5,724 km of pipelines are slated for decommissioning by 2027 in UKCS Subsea infrastructure removal accounts for 11.3 per cent of forecast expenditure Unit well costs continue to fall across all areas of the North Sea of decommissioning expenditure across the top 12 markets will be spent in the UKCS The UK is the largest global market for decommissi ning spend over the next decade 8% 48% of UK expenditure is in the central North Sea billion is forecast to be sp nt n deco missioning in the UKCS by 2027 An average billion will be spent per year on the UKCS up to 2027 2,379 wells 5,724 km of pipelines are slated for decommissioning by 2027 in UKCS of decommissioning expenditure across the top 12 markets will b spent in the UKCS The UK is the largest global market for decommis ioning spend over the next decade and rapidly maturing decommissioning market on the UK Continental Shelf (UKCS) and is the latest in a series published

billion is forecast to be spent on decommissioning in the UKCS by 2027

8% 35%

Decommissioning accounted for around 8 per cent of overall UKCS oil & gas industry expenditure in 2018 OGA target reduction in decommissioning expenditure by 2035 against a 2016 baseline billion is forecast to be spent on decommissioning in the UKCS by 2027

mmissioning diture across p 12 markets

l be spent the UKCS

m of pipelines slated for missioning

Decommissioning will open new markets for the UK supply chain, a key component of Well decommissioning is the source of greatest cost, with 8% Decommissioning accounted for around 8 per cent of overall UKCS oil & gas industry expenditure in 2018 49% of forecast expenditure up to 2027

y 2027 n UKCS

acti

Decommissioning accounted for around 8 per cent of overall UKCS oil & gas industry expenditure in 2018 ar expected to be decommissioned i the North Sea over the next ten year

unit

cost

Decommissioning on Unit well costs continue to fall across 203

During 2017, the number Decommissioning will open new markets Subsea infrastructure removal accounts for

Meeting, then beating, Decommissioning is a growing market in Decommissioning will open new markets

8 well costs e to fall across

3.1 Survey Development and Methodology Data for this report have been provided by 28 operators across the UKCS, either as part of the Asset Stewardship Survey run by the Oil and Gas Authority (OGA), or separately, and have been compiled on a confidential basis. For the fourth year, data have also been contributed by other countries around the North Sea, specifically Norway, the Netherlands and Denmark. Five key operators provided data fromNorway, 11 from the Netherlands, and three from Denmark. Data from the Netherlands came from NexStep 1 , the joint initiative of Energie Beheer Nederland (EBN) and the Dutch oil and gas industry, represented by Netherlands Oil and Gas Exploration and Production Association (NOGEPA). Oil & Gas UK also collated data directly from operators in Norway and Denmark. The co-operation of all the operators and regulators is greatly appreciated, particularly that of the UK’s OGA. It should be recognised that the forecasts in this report are provided by operators and represent their best estimates at the time of the survey, and timings are therefore subject to change. Similar to last year’s Decommissioning Insight , this report focuses on cost and activities over the next ten years to put the spotlight on tangible opportunities available to the UK’s decommissioning supply chain if industry is, together, able to demonstrate leadership in this space. Over theyears, theUKdecommissioning industryhasdevelopeda standardapproach tomodellingdecommissioning using the Work Breakdown Structure (WBS) and much of the analysis is presented on that basis. An overview of the WBS and the concepts behind it are provided in section 8. A number of decommissioning practitioner profiles have also been included in this year’s report to provide insight on the different activities and skills required throughout a decommissioning project. These profiles illustrate the high levels of experience, competence and technology being applied across the decommissioning scope and are an exciting sign of things to come. 3.2 Maturity of Estimates Each year, UK operators provide the cost classification for each of their decommissioning projects using the Association for the Advancement of Cost Engineering (AACE) classifications. These seek to define the project stage and indicate the degree of uncertainty in the estimates. Class 4 or 5 estimates mean that the projects are in the early planning states where the scope of work is still being defined and feasibility studies are being carried out. Class 5 estimates have an expected accuracy range of -20 to +100 per cent; this range narrows over time. Class 2 estimates, meanwhile, represent projects that are in the contracting stage with some activities already being executed. These have a higher degree of accuracy, of -5 to +20 per cent. Almost 90 per cent of the Asset Stewardship Survey submissions for decommissioning on the UKCS are still Class 4 and 5 estimates, which means there is still a high level of uncertainty in the figures presented. However, year upon year decommissioning estimates have been improving in submissions, and the level of Class 4 estimates has doubled from around 20 per cent last year to 40 per cent this year. 2

1 Nexstep National Platform for Re-use and Decommissioning www.nexstep.nl 2 https://www.ogauthority.co.uk/news-publications/publications/2018/ukcs-decommissioning-2018-cost-estimate-report

DECOMMISSIONING INSIGHT 2018

3.3 Forecast Expenditure Overview In previous Decommissioning Insight reports, forecast expenditure has been relatively consistent, as outlined in Figure 1 below. This year’s forecast indicates a much slower rate of decommissioning expenditure, with an average annual spend of circa £1.5 billion per year. This compares to previous years which typically showed a trend rate of circa £1.8 billion per year. The main drivers of this change and the ‘push to the right’ are the re-phasing of projects over a longer timeframe, leading to a reduction in the expected workload over the ten-year period. Improved investment conditions, a relentless focus on efficient operations and improved commodity prices are helping to improve the ongoing economic viability and productive life of assets. Cessation of production (CoP) dates and decommissioning projects are, therefore, being pushed into the future.

Figure 1: Forecast Comparisons for Cumulative Decommissioning Expenditure

2014 Forecast

2015 Forecast

2016 Forecast

2017 Forecast

2018 Forecast

Actual Expenditure

(£ Billion - 2017 Money)

Cumulative Decommissioning Expenditure

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Source: Oil & Gas UK, OGA

The reduction in expected decommissioning expenditure is in part the result of action taken by industry, the government and regulators to create a more attractive investment proposition in support of the aim of MER on the UKCS. A new wave of companies has been attracted to the basin, acquiring later life assets and revitalising them through new investment (see section 3.4). The improved investment conditions have encouraged a number of asset transfers, often frommajor operators to smaller companies who are better positioned to increase investment and maximise recovery from later-life fields. Examples of this include Chrysaor’s acquisition of the Armada, Everest and Lomond fields and EnQuest taking ownership of the Magnus field, both from super-majors. Transactions like this help boost operational efficiencies, investment levels and future production volumes within these assets.

On top of this, an increasing number of UKCS decommissioning projects have now been carried out, enabling operators and contractors to gain considerable experience in all elements of the scope. The repetition of specific tasks (also referred to as repetitive gains) is driving performance and enabling new efficiencies and improvements in delivery. This in turn helps to develop a greater understanding of the decommissioning process and, when combined with the sharing of lessons learnt, contributes to declining expenditure. This increasing understanding of the decommissioning scope, as well as continuous improvements to the Asset Stewardship Survey, allows more detail and accuracy to be put into operator forecasts. This can be seen in the dataset, with many projects which had been previously reported as single-year campaigns now spread over several years, representing a more realistic approach. The experience means that decommissioning cost estimates are becoming better informed and forecasts now reflect realistic efficiency gains.

Figure 2: Forecast Yearly Decommissioning Expenditure, 2018 to 2027

2,500

2017 Actuals

Post-decommissioning Monitoring

Site Remediation

Subsea Infrastructure

Topsides & Substructure Onshore Recycling

Substructure Removal

Topsides Removal

Topsides Preparation

Facilities / Pipeline De-energising

2,000

Well Decommissioning

Post-CoP Facility Running / Owner Costs

Operator Project Management

1,500

1,000

500

Annual Expenditure (£ Million - 2017 Money)

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Source: Oil & Gas UK, OGA

Evidence of performance improvement is provided by the reduction in actual reported expenditure for 2017. Last year’s Decommissioning Insight report anticipated expenditure of £1.8 billion in 2017; however, actual expenditure came in at £1.15 billion underlining the drive for efficiency, coupled with cost control and limited re-phasing of work. A similar trend was evident in reports for 2016, suggesting that even in the near term, work scopes are being re-phased to match the market. This may be reflective of the market’s ability to liquidate work, coupled with operators’ desire to control the rate of decommissioning expenditure. Nevertheless, it also reiterates the message that there is no rush to decommission late-life assets.

DECOMMISSIONING INSIGHT 2018

Looking at a slightly longer time horizon, last year decommissioning expenditure over the 15 years from 2012 to 2027 would have run to £25.3 billion. It is now forecast to be £21 billion, a fall of 17 per cent. A lot of this reduction is due to work being moved to the future, as discussed in section 3.4 and whilst great care should be taken to avoid forecasting success through a turbulent cycle, the evidence is also building that the industry is delivering on its ability to take 35 per cent out of decommissioning costs over time.

3.4 Decommissioning in Context

Decommissioning activities must also be examined in context with the recent performance of the oil and gas industry.

Wider efficiencies are slowing the pace of decommissioning — The long period of rising oil prices over 2003–14 reduced industry impetus to operate on a low-cost model, and the rapid fall in prices from late 2014 onwards made these inefficient operational models unsustainable. However, the North Sea market has since responded with a renewed drive for sustainability and efficiency.

Since 2014, the UKCS has seen:

• Unit operating costs (UOCs) and unit development costs (UDCs) fall by 50 per cent, driven mainly by more efficient working, activity optimisation and challenging the scope of operations and projects • Production increase by 16 per cent, the result of improved production efficiency and a wave of new field developments approved prior to 2014 • A more stable and predictable fiscal regime, as outlined in the UK Government’s Driving Investment Strategy • Improvements in oil and gas prices, both around 30 per cent higher than the 2017 average, and oil prices around 60 per cent higher than in 2016 • The formation of a new regulatory regime led by the Oil and Gas Authority focused on Maximising Economic Recovery, including a mandate to reduce decommissioning costs by at least 35 per cent over time Decommissioning is an inevitable part of the life-cycle of an oil and gas asset, and significant progress has been made in the sector in recent years. Most companies are now fully engaged with regulators, acknowledging that decommissioning is part of the operational life-cycle of a mature oil and gas basin, closely linked to operations. However, the increased resilience has meant there has been no rush to decommission, as was also borne out in last year’s report. Improved preparation and planning are also factors — The downturn has encouraged greater preparedness for decommissioning, with operators looking to shape annual expenditure and tailor activities within their portfolio to meet operational and regulatory requirements. This results in stable forecasting, provides greater transparency for operators and makes expenditure easier to track for regulators and Treasury. Significant resource potential remains on the UKCS, with an estimated 10-20 billion barrels of oil equivalent (boe) still to be recovered. With around 45 billion boe having already been produced, almost one-third of the basin’s potential is still to be realised. Whilst the imperative of cost control across portfolios has driven the shutdown of some mature fields, improved production efficiency coupled with continued brownfield investment is extending the life of many assets.

New field investment is sustaining many older assets — In combination, these factors have improved the investment outlook for new developments in the basin and improved the economic viability of later-life assets, helping to prolong productive life and delay cessation of production. Industry continues to work closely with government and regulators to maintain and build upon the improved investment conditions.

At the time of writing, 12 new fields or field extensions have been given approval in 2018, resulting in around £3.3 billion of new investment and delivering almost 400 million boe over time.

Likewise, the UKCS has seen a wave of more than $8 billion in mergers and acquisition (M&A) activity over the last couple of years, bringing many new operators to the basin. Analysis by Oil & Gas UK has shown that, on average, fields which have changed ownership have seen their productive life extended by five years, stretching to more than a decade in some cases. The introduction of Transferable Tax History (TTH) will facilitate further such transactions by providing greater certainty for companies around access to future decommissioning tax relief, helping to simplify and streamline the deal process. Decommissioning remains a small part of overall expenditure — Total yearly expenditure on the UKCS fell by almost 50 per cent, from around £30 billion in 2014 to around £15 billion in 2017, as E&P companies looked to preserve cash flowamidst challengingmarket conditions. During this period, decommissioning activity represented the only increasing area of expenditure in the basin and there were concerns that decommissioning would become the largest single area of expenditure, dominating activity on the UKCS. However, as a result of recent cost efficiency and operational improvements, the growth of decommissioning has not been as great as many predicted at the beginning of the downturn. Decommissioning still only accounted for around 8 per cent of overall expenditure in the basin in 2017. If current trends continue, by 2020 this could rise to more than 10 per cent, although the level of investment in developing and operating assets will continue to significantly exceed decommissioning expenditure.

DECOMMISSIONING INSIGHT 2018

Figure 3: UKCS Expenditure

E&A Expenditure

Capital Expenditure

Operating Expenditure

Decommissioning Expenditure

Expenditure (£ billion)

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

E 2018

Source: Oil & Gas UK, OGA

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Percentage of Total Expenditure

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

E 2018

E&A Expenditure

Capital Expenditure

Operating Expenditure

Decommissioning Expenditure

Source: Oil & Gas UK, OGA

Well decommissioning increasingly dominates drilling activity — The relatively low number of new fields gaining approval on the UKCS during the downturn has contributed towards a reduction in development drilling activity. Only 71 development wells were drilled on the UKCS in 2017, with total drilling activity falling by 50 per cent throughout the downturn (see Figure 4). During the downturn there has been an increase in well decommissioning activity, with the total number of wells decommissioned in 2017 rising above the number of new wells drilled for the first time. This trend is expected to continue in the coming years unless there is a significant increase in development drilling and exploration and appraisal activity. Much is being done by the drilling community in conjunction with Oil & Gas UK and the OGA to improve well delivery and success will increase overall activity, add to production through existing assets and indeed slow down the pace of decommissioning

Figure 4: UKCS Wells Activity

300

Exploration Appraisal

Development

Decommissioned

250

200

150

100

Number of Wells per Year

2010

2011

2012

2013

2014

2015

2016

2017

Source: OGA

by 2027 in UKCS

wells

DECOMMISSIONING INSIGHT 2018

are expected to be decommissioned in the North Sea over the next ten years

4 UK Performance Indicators

In Summary P rojections of decommissioning expenditure over the next decade have been assessed using the industry’s standard WBS. Expenditure is expected to be lower across all the elements of the WBS, with reductions of up to 29 per cent in removals and 19 per cent in well decommissioning over the period. Whilst the re-phasing of activity has an impact, some of the forecast reduction is also driven by improved cost estimates based on better knowledge of the scope and are reflective of recent improvements in performance. This becomes clear when examining the average costs for individual activities presented by operators in this year’s data submission. In particular, the average forecast cost to decommission a well is falling across the North Sea. This reduction reflects the efficiencies that have been realised during well decommissioning projects over the last two years, with some individual operators reporting savings of 16 to 17 days per well between the start and end of a project. Reductions in the average cost per tonne to remove are also visible in the topsides and substructure forecasts. There is a 13 per cent reduction in the removal costs per tonne for topsides in the central and northern North Sea and a 16 per cent reduction in removal costs per tonne of substructure in the same region. Industry is beginning to track this success. Results show that project experience is feeding future estimates, leading to reductions, and driving towards delivery of the 35 per cent reduction target for decommissioning by 2035. Subsea infrastructure removal accounts for 11.3 p r cent of forecast expe diture During 2017, the number of wells decommissioned rose above wells drilled for the first time 8% 5,724 km of pipelines are slated for decommissi ning by 2027 in UKCS Decommissioning accounted for around 8 per cent of overall UKCS oil & gas industry expenditure in 2018 Unit well costs continue t fall across all areas of the North Sea Decommissioning will open new markets for the UK supply chain, a key component of of dec mmissioning xp nditure across the top 12 markets will be spent in the UKCS billi n is forecast to be spen on decommissioning in the UKCS by 2027 8% 48% of UK expenditure is in the central North S a billion is forecast to be spent on decommissioning in the UKCS by 2027 An average billion will be spent per year on the UKCS up to 2027

The UK is the largest global market for commissioning spend over the next decade

Unit well costs continue to fall across all areas of the North Sea An average

unit

cost billion will be spent per year on the UKCS up to 2027

#1 OGA target reduction in decommissioning expenditure by 2035 against a 2016 baseline Decommissioning on the UKCS offers first-mover advantage for the UK supply chain 48% of UK expenditure is in the central North Sea 35% 203 fields in the UKCS are to undergo decommissioning activity over next decade 49% Well decommissioning is the source of greatest cost, with

M th

379 ells

t u

pected to be missioned in rth Sea over xt ten years mmissioning diture across p 12 markets l be spent the UKCS

infrastructure l accounts for cent of for ast enditure m of pipelines slated for missio ing y 2027 n UKCS

p to r

unit Decommissioning accounted for around 8 per cent of overall UKCS oil & gas industry expenditure in 2018 cost

of forecast expenditure up to 2027

Meeting, then beating, 203 fields in the UKCS

Decommissioning is a growing market in

16 well costs e to fall across 17, the number

Decommissioning on Decommissioning will open new markets

4.1 Expenditure Breakdown

Figure 5 shows the spread of costs over a decommissioning project. The forecast proportions of decommissioning expenditures over the next ten years bear similarities to previous Decommissioning Insight reports.

Figure 5: WBS Expenditure by Activity, 2018 to 2027

Topsides & Substructure Onshore Recycling ● Onshore waste handling ● Deconstruction ● Decontamination

Subsea Infrastructure & Pipelines ● Removal of Pipelines ● Removal of Mattresses ● Removal of Subsea structures

Site Remediation and Post-decommissioning Monitoring ● Debris Clearance ●Monitoring Requirements

Removals ● Removal activities for the topsides ● Removal activities for the substructure

12%

Facilities & Pipeline De-energising and Topside Preparation ● Engineering down and cleaning topsides and pipelines ● Preparation of platform for unattended mode

13%

Well Decommissioning ● Spread rate and services

associated with phase 1, phase 2 and phase 3 decommissioning of wells Operator Costs ● Project management services throughout Preparation of decommissioning programme ● (Post CoP OPEX) Operational expenditure after occurrence of Cessation of Production

49%

17%

Source: Oil & Gas UK, OGA

DECOMMISSIONING INSIGHT 2018

Data collected in 2018 suggest that the profile of expenditure within each WBS element remains consistent with previous Decommissioning Insight reports. The four largest areas of spend are:

1. Well decommissioning (49 per cent): £7.5 billion is forecast to be spent over the next decade, a reduction from the £9.2 billion forecast made from data gathered in 2017.

2. Operator costs (17 per cent): A combination of decommissioning project management and the cost of operating a platform after production is ceased. This amounts to £2.5 billion over the next ten years, or a slight reduction from the £2.9 billion last year.

3. Removals (13 per cent): This is the combined costs of topsides and substructure removals and amounts to £2 billion over the next ten years. This is a notable reduction from the £2.9 billion in last year’s findings.

4. Subsea infrastructure (12 per cent): This includes activities related to pipelines, mattresses and subsea structures, and amounts to £1.7 billion of expenditure over the next decade. This is a reduction from £2.3 billion last year. Understanding the key cost drivers helps focus attention on delivering efficiencies in decommissioning. With progress geared towards achieving the 35 per cent reduction target by 2035 it is important to highlight these drivers and set key performance indicators (KPIs) to measure progress. The Decommissioning Task Force — a group formed as a result of the MER UK initiative — is currently developing these KPIs for decommissioning in partnership with industry and the regulators, which will aid in assessing whether these targets are being met.

4.2 Regional Expenditure

Figure 6: UKCS Decommissioning Expenditure Breakdown

West of Shetland 7%

Southern North Sea and Irish Sea 15%

Central North Sea 48%

Northern North Sea 30%

Source: Oil & Gas UK, OGA

The portion of expenditure in the southern North Sea has reduced from last year’s forecast, which reported that 19 per cent of the cost would be spent in this region. This is for two reasons: 2017 and 2018 saw a high level of well decommissioning activity in the area, with 83 wells decommissioned, meaning there is now less work to carry out; in addition, the work carried out enabled new efficiencies, repetitive gains and project experience, leading to a reduction in the days spent decommissioning each well. It is hoped that the experience gained in the southern sector can be transferred to the central and northern areas. The proportion of expenditure also highlights the complexity of the work to be carried out in the central, northern and west of Shetland regions. While there are a large number of installations in the southern North Sea, the shallower waters mean installations are smaller and decommissioning projects are generally less complex than the large installations found further north.

DECOMMISSIONING INSIGHT 2018

Figure 7: WBS Element Allocated Spend by Region

100%

Central North Sea

Northern North Sea and West of Shetland

10%

14%

90%

80%

18%

70%

60%

50%

53%

40%

46%

30%

Breakdown Structure Component

20%

Proportion of Total Expenditure for Each Work

21%

Total: £5.6 Billion

Total: £7.4 Billion

10%

14%

100%

Site Remediation and Post- decommissioning Monitoring

Southern North Sea and Irish Sea

11%

90%

Subsea Infrastructure & Pipelines

80%

23%

70%

Topsides & Substructure Onshore Recycling

60%

50%

Removals

40%

Facilities & Pipeline De-energising and Topside Preparation

43%

30%

Breakdown Structure Component

20%

Well Decommissioning

Proportion of Total Expenditure for Each Work

10%

Total: £2.3 Billion

Operator Project Management & Post-CoP Facility Running / Owner Costs

10%

Source: Oil & Gas UK, OGA

May not add up to 100% due to rounding

Exploring these expenditure proportions in depth, we can begin to see the nuances of the various decommissioning projects in different sectors of the UKCS. For example, well decommissioning amounts to the largest expenditure in all areas, however, there is a significant regional difference, with the central North Sea anticipating 53 per cent and the southern North Sea estimating only 43 per cent. This is due to the complexity of the wells in each area, with the central North Sea hosting a larger number of subsea wells — typically more expensive to decommission — than the southern North Sea. Operator costs account for greater levels of expenditure in the central North Sea (21 per cent) and the northern North Sea (14 per cent) than in the southern North Sea (10 per cent). Again, this is due to the complexity of the assets, with central and northern North Sea assets typically costing more to operate due to their size. Project management costs in these areas are also more significant, owing to the size of projects, level of engineering and therefore the teams required. The southern North Sea has a greater proportion of cost assigned to the removals scope (23 per cent) when compared with the central North Sea (7 per cent) and northern North Sea (18 per cent). Even though the topsides and substructures tend to be smaller in this region, because the complexity of well decommissioning is lower and operator costs are less, a greater proportion of cost is assigned to removals. The proportion of spend on subsea infrastructure is relatively consistent across the regions, with the central North Sea forecasting 10 per cent, the southern North Sea allotting 11 per cent and the northern North Sea 14 per cent. The proportion is perhaps greater in the northern North Sea due to the depth of water and therefore the complexity of the removals. While these four components have been identified as key drivers, industry must remain vigilant in delivering efficiencies throughout all elements of the work scope to reduce the overall cost of decommissioning. For example, it is clear that facilities de-energising and topsides preparation form a significant cost base in these regions, with 9 per cent of the total forecast to be spent in the southern North Sea, 7 per cent in the central North Sea and 4 per cent in the northern North Sea. Although there is regional variation, in some cases this element alone may represent the same amount of expenditure as the larger components identified above.

DECOMMISSIONING INSIGHT 2018

4.3 Delivering Efficiencies

All regions in the UKCS are seeing efficiency improvements in well decommissioning and removals. This is borne out in the dataset in the following section.

Figure 8: Historical Variation in Well Decommissioning Cost Forecasts in the Central and Northern North Sea and West of Shetland

Average Forecast Cost Platform Wells

Average Forecast Cost E&A Wells

Average Forecast Cost Subsea Development Wells

Estimated Cost per Well (£ Million - 2017 Money)

2014 2015 2016 2017 2018

Platform

E&A

Subsea Development

Source: Oil & Gas UK, OGA

Well Decommissioning

2016 Survey Average 2017 Survey Average 2018 Survey Average

Platform Wells

£5.38 million £10.93 million

£4.88 million £10.11 million £6.92 million

£4.19 million £9.33 million £5.02 million

Subsea Development Wells

Exploration and Appraisal Wells £6.98 million

Figure 9: Historical Variation in Well Decommissioning Cost Forecasts in the Southern North Sea and Irish Sea

Average Forecast Cost Platform Well

Average Forecast Cost E&A Suspended Well

Average Forecast Cost Subsea Development Well

Estimated Cost per Well (£ Million - 2017 Money)

2014 2015 2016 2017 2018

Platform Wells

E&A Wells

Development Wells

Source: Oil & Gas UK, OGA

Well Decommissioning

2016 Survey Average 2017 Survey Average 2018 Survey Average

Platform Wells

£2.32 million £8.18 million

£2.81 million £7.77 million £3.44 million

£1.70 million £5.35 million £2.29 million

Subsea Development Wells

Exploration and Appraisal Wells £7.44 million

Forecast well decommissioning costs are seen to be decreasing, with step changes in almost all areas of the UKCS year on year. Across the data set and in operator interviews, well decommissioning has been identified as an area of success in cost reduction and in estimated ‘days per well’. These repetitive gains are being applied to yearly reported forecasts, contributing to this downward trend.

DECOMMISSIONING INSIGHT 2018

Approaches to Cost Reduction in Well Decommissioning As the largest category of decommissioning expenditure, wells are an important area in which to drive cost reductions and efficiency improvements. Oil & Gas UK expects costs to continue to fall as industry experience grows. Operators have reported the following successful measures to reducing costs based on lessons learnt: • A campaign approach — Decommissioning multiple wells in one campaign means mobilisation costs are spread across several wells and incremental improvements in approach can be cascaded across the campaign. Some operators have reported time savings per well of more than one-third over the course of large, multi-year campaigns. • Adoption of a risk-based approach — Analysing the risk to develop a scope of work that is appropriate on a well-by-well basis has significantly reduced costs for some operators. Each well has a different risk profile and the scope of work is developed accordingly. • Cross-operator collaboration — By vessel sharing, adding wells to the campaigns of other operators in the area, and opportunities for cross-operator campaigns. • Continued investment in technological advancements — Technological advancements continue to enable new ways of working which drive down cost. The Oil & Gas Technology Centre (OGTC) currently has ten well decommissioning projects ongoing in its Wells Solution Centre. These projects are actively seeking to create efficiencies and reduce expenditure in well decommissioning. • Optimising the activity schedule — For platform wells, this could mean ordering work to reduce the distance the drilling derrick must travel across the platform between wells, leaving the highest-performing wells until last. • Alternatives to use of the existing drilling derrick — Consideration of a wide range of alternatives to the existing drilling derrick for well decommissioning such as rigless methods, or removal of the topsides to enable a workover rig to be used. • Early removal of subsea infrastructure — Reducing the amount of subsea infrastructure around the well-site prior to carrying out subsea well decommissioning reduces the time spent manoeuvring around complex subsea infrastructure landscapes. • Assessing the well condition — Using a light well intervention vessel (LWIV) to set plugs and carry out logging on subsea well stock to assess the well condition prior to beginning the campaign. The approach ultimately adopted to carry out well decommissioning depends on various factors, with no single approach being appropriate for every situation. Operators are learning from each other through proactive networking and sharing lessons through conferences and forums.

PRACTITIONER PROFILE

Ikon Science Ikon Science is a specialist consultancy with a track record of subsurface geoscience innovation. It has developed considerable expertise in solving international oil and gas E&P challenges through exploration, development, production and more recently, in decommissioning. Ikon’s main areas of business in well decommissioning are in overburden flow risk evaluation to help determine an appropriate barrier strategy to safely isolate the reservoir; carrying out independent reviews of well decommissioning designs against national regulations; and working directly with their clients’ subsurface teams to develop well decommissioning programmes. Over recent years, Ikon has been actively focused on the well decommissioning market in the UK and it now accounts for 40% of the company’s European geopressure services business. Its client base is predominantly the independent oil company sector. Ikon has a global presence and significant experience across all continents both offshore and onshore, conventional and unconventional plays, shallow and deep water, and HPHT regimes. The team at Ikon is built around the disciplines of geophysics, geology, petrophysics, geopressure, geomechanics and drilling and it is this skill base with its extensive subsurface knowledge that is brought to bear in the pursuit of cost effective and safe well decommissioning solutions. Over the coming years the demand for Ikon’s skills and experience is set to increase as oil and gas assets in the North Sea are coming to the end of their field life. Globally, areas such as Southeast Asia, Latin America, West Africa, the Arabian Gulf, Egypt, India, China, and Australia are all beginning to face similar challenges in well decommissioning. Such demand will see Ikon seeking to export its experience gained in its UK business into these emerging markets.

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