Widespread decommissioning deferrals could lead to a ‘wave of idle iron’, according to a recent analysis, but there are inherent dangers in such a situation writes Fairfield Decom Limited chair Ian Sharp
A recent analysis by the Boston Consulting Group (BCG) predicted that over the next three years, we could expect to see a surge in accelerated shutdowns in the North Sea as operators seek to save money and simultaneously delay planned decommissioning.
BCG painted a picture of a ‘wave of idle iron’ leading to a global decommissioning backlog that would ultimately see the industry “decommissioning older and lower-integrity facilities with potentially less experienced crews, longer and more cost-intensive methods and inflated contractor costs.”
Given this potential scenario, it is all too clear what this could mean for the future of the North Sea. Indeed, considering the loss of skills and employment this scenario could bring, alongside the higher risks and potentially crippling costs that will accumulate, this is surely a good time to ask, “Is the North Sea finally ready to move into the next chapter of its history?”
Having worked in many leadership roles in the North Sea E&P business for over 40 years now, I recognise that it is ingrained in operators to defer decommissioning. The industry has also tended to be rather optimistic about the costs involved. That is just the way it was. But it is now moving into a new chapter, where ingrained, old ways of thinking are just no longer appropriate.
Indeed, it is easy to argue that the industry is already well into that chapter, which is why people are talking about ‘idle iron’. But the truth is there is no such thing as ‘idle iron’. What we really have is an increasing number of degenerating offshore assets. The North Sea is a harsh, unforgiving environment. Things do not just sit there and wait. The longer these assets are left idle, the greater the risk of integrity failure leading to increased costs.
Because that is what happens if you leave an asset idle – it simply rots. Which ultimately just makes decommissioning more challenging, more costly and more dangerous. And, if things do go wrong, then there is the potential for greater reputational damage for an industry that is already under the spotlight.
As an industry, we should not allow that to happen. We need to act now to ensure that the numerous North Sea decommissioning plans that have already been approved by the UK Government are actually put into action; we need to embrace the next chapter.
Essentially that means establishing a viable business model for executing these decommissioning plans, which I believe requires three key building blocks: the right operator, the right people and the right mind-set.
Let us consider the operator first. I fundamentally believe that conventional operators cannot do both decommissioning and E&P alongside each other. Some operators have done successfully, but they do not readily choose to, and many others recognise they simply cannot do both.
But equally, decommissioning must be done by an entity that is an operator at heart. Decommissioning is not something that can be outsourced to a combination of service providers because it involves active joint venture management. A decommissioning entity is needed that has the experience to deal with the commercial aspects of infrastructure associated with these assets and that can be hugely complicated and difficult to manage.
And likewise, a decommissioning entity that has the experience of dealing with all aspects of the supply chain, the regulatory regime, and the many other interested stakeholders from trade associations through to non-governmental organisations is essential.
To be a fully-fledged operator you have to understand the intricacies of being a licence holder not just the responsibilities of being a duty holder. But, of course, it is clear that the majority, if not all operators, do not want to do full time decommissioning. It is not in their DNA; it is not their core business. Unless we create a market in which we see a new generation of credible decommissioning operators – and that will be the new chapter – then there is a high risk of a very poor outcome for the North Sea – where we no longer have the right people with the right skills to do successful decommissioning.
This is where the “Decom Operator” entity adds real value. Fairfield Decom, for example, understands the intricacies of not only managing an asset, but also the commercial arrangements with other operators, duty holders and other key stakeholders. They provide an innovative fully integrated solution for late-life operations and decommissioning, not just a series of outsourced individual activities.
And not having the right people is a real risk. At its very simplest level, some of these assets are 40-years’ old and there are only a few people that really understand their modus operandi. The longer it is left, the higher the risk. And the loss of skilled workers to help complete complex decommissioning work could put a dangerous level of pressure on the remaining workforce, not least because decommissioning operations can be intense and physically exhausting using equipment, such as cranes or manual derricks, that may not have been fully used for heavy lifting for years.
Action is needed now to retain skilled and experienced specialists for decommissioning work. There is a need to move ahead into this new chapter where specialist and proven decommissioning operators begin to address the backlog of decommissioning work and by doing so create a core of skilled specialists who work in conjunction with key teams on the installations to safely and successfully decommission the assets.
And that experience will be essential. The right decommissioning mind-set will be vital. Because unless it has been done before, many workers will not immediately understand the difficulties and complexities from a health, safety and environmental perspective of managing decommissioning.
All early decommissioning work is associated with a dramatic increase in complex, multi-hazard offshore activities and this requires a mind-set shift and active leadership out in the field. It demands much higher levels of workforce engagement than needed on routine operations to ensure that people remain motivated and stay safe. Having decommissioning operators that are dedicated to creating the appropriate mind-sets and capabilities in people who are able to decommission well is going to be critical.
And that is where we, as Fairfield Decom Limited (FDL), aim to set the bar. We have demonstrated what we can do with Dunlin. Our business model is centred around decommissioning. We are not trying to run an E&P business at the same time. We believe it is the right time to get these idle assets off conventional operators’ hands and into the right hands for decommissioning, whether that is with us here at FDL or another new dedicated and specialist decom operator.
It is clear that we are already well into this new chapter for the North Sea, and if the industry fails to get it right, or do it well, then the UK taxpayer will be hurt, there will be integrity and HSE issues, and there will, potentially, be much greater long-term liabilities.
Really the question we should be asking is not so much “Is the North Sea ready for the next chapter?” – it is more along the lines of “When do we start?”