Introduction and Context MER UK Decommissioning Strategy 2016 The OGA’s Decommissioning Strategy (published in June 2016) and Decommissioning Delivery Programme (September 2016) identified Delivery Capability as a priority area in seeking to deliver a 35% saving on a baseline estimated cost of decommissioning. The objective of this element of the OGA Strategy is: ‘… to design, define and deliver a safe, competitive, and globally recognised industry expertise and capability. This will deliver transformational decommissioning solutions and in turn will drive cost reduction, promote investment and maximise economic recovery. These transformative solutions will provide guidance, and potentially requirements, on implementing effective organisational structures, and contractual arrangements, suited to deliver optimal decommissioning projects.’ The Decommissioning Delivery Strategy further identified two deliverables in support of this objective: Definition of one or more transformative execution models for decommissioning Definition of one or more business models to support optimised execution models The MER UK Decommissioning Board was formed in March 2016 to deliver the priority areas of the OGA’s Decommissioning Strategy and a Subgroup was created of Decommissioning Board members to deliver the objectives and associated deliverables under the ‘Delivery Capability’ theme. Members of the Delivery Capability Subgroup are: Craig Shanaghey – AmecFW (Chair) Jonathan Brown – Repsol Sinopec Resources Limited (Co-sponsor) Nigel Lees – Wood Group Sam Long – Petrofac (Co-sponsor) Matt Betts – Halliburton Richard Harrison – Shell David Hay – ConocoPhillips Jim Christie – OGA Martin Fidler – Scottish Enterprise Wendy Richards – UKTI In Q2 2016, the Delivery Capability Subgroup assembled a cross-industry Workgroup to address the execution and business model objectives identified in the Delivery Programme. This note summarises the Workgroup’s activities in Q4 2016 and Q1 2017.
Identification and Assessment of Delivery Models Boundary Conditions The workgroup identified that the assessments of delivery models, should be bounded as follows: Include Late Life operations (from 6 years pre-CoP) Specific discussion on scope is excluded Specific discussion on regulations is excluded Importantly, the did not focus on specific elements of the decommissioning workscope, but took a high-level view of execution and business models, which could be applied in one or more elements of the decommissioning work breakdown structure. Current Environment – Where are we now? The workgroup agreed the following characterisation of the decommissioning sector: Market Fragmented – limited collaboration in scope E&P and development approach – Traditional approach to contracting Lack of Technology investment and planning – uncertainty of scope and timing Lack of timely visibility of demand for Decom services – lack of schedule clarity Decommissioning – lack of confidence and transparency in estimates and hence the ‘size-of-the-prize’ Low experience level and learning slowly Tier 1's Dominate - barrier to new thinking, new ideas Risk approach – focus on risk management, not risk allocation This evaluation set the scene for a discussion around potential execution models, with a short, medium and long-term evaluation of success including the following (full listing in Appendix A): Short Term Medium Term Long Term Simplified contracting and risk allocation Empowered supply chain Cost and schedule transparency Bundling and campaign approach Emergence of models Specialist decommissioning companies Regulatory change to stimulate market innovation Change in long-term liability management Accountability for decommissioning and liability management transferred to dedicated agencies Mature decommissioning supply chain Contractual clarity and acceptance
Business Models A range of generic business models were identified from: Traditional, e.g. traditional reimbursable and lump-sum approaches; to Transitional, e.g. target cost/incentive models; to Radical, e.g. Non-operator funded concepts. Appendix A examines these in more detail. To better understand why the more innovative execution models are not applied across the decommissioning scope and how this could be changed, the following blockers and enablers were identified. Business Models Blockers Enablers Lack of clarity Lack of experience / fear of the unknown/ lack of oil and gas experience Financial strength of contractors – ability to carry risk Agreement on costing/estimates – insufficient benchmarking data Some models have limited applicability Long-term liability Access to tax-relief Lack of political appetite for change Some models require further quantification OGA to improve sharing of actuals, emphasis on duration and cost data Explore other industry contract forms that discourage inappropriate behaviours Legal advice sought on perpetual liability and tax access for asset transfer models
B1 Commercial Alignment Assessments Examine how commercial alignment can be achieved between operator and contractor groups for specific combinations of WBS workscope; e.g. well P&A operations: well services/engineering services/operator Examples of contracting models from non-oil and gas industry experience Identification of novel execution models (based on decommissioning WBS activities) Examination of possible alignment between operators and supply chain on specific business models B2 HLV/SLV Base-load Optimisation Determine how a base-load HLV/SLV programme can be facilitated, which allows decommissioning to absorb capacity. Study into a mechanism for optimising the use of HLV/SLV capacity through the oil and gas economic cycle
E1b Quantify the potential economic benefits of bundling / campaigning: Well P&A Subsea P&A campaigns (primary benefits being the stability of a longer term contract for rig and service providers, learning curves, lends itself to a “hands off” incentivised market approach with appropriate liability provisions / insurance bundling platform P&A, duty holder, rig reactivation Assessment of potential P&A ‘campaigning scenarios’ and generate estimate of cost saving opportunities Subgroup develops Proposal for DTF review (Scope of Work, resourcing, execution model) Agree way forward with DTF Execute E2 Platform decommissioning – Cost Appraisal Examine a generic CNS Platform decommissioning project to quantify commercial risks and hence realistic cost ranges for each WBS element in the project; i.e. identify ‘what good looks like’ based on operator experience to-date Generic cost estimate with ranges of cost/duration for decommissioning Discuss scope with Cost Subgroup – agree way forward
E3 Data Sharing Create delivery mechanism for sharing: Estimated durations for decommissioning activities by activity Data describing technical scope Concept proposal for developing a robust / appropriate means of sharing a range of decommissioning data (actual durations, schedules, scope, etc) Agree need with DTF and identify appropriate lead, i.e. DTF, O&GUK, Other Business Models B1 Commercial Alignment Assessments Examine how commercial alignment can be achieved between operator and contractor groups for specific combinations of WBS workscope; e.g. well P&A operations: well services/engineering services/operator Examples of contracting models from non-oil and gas industry experience Identification of novel execution models (based on decommissioning WBS activities) Examination of possible alignment between operators and supply chain on specific business models Subgroup develops Proposal for DTF review (Scope of Work, resourcing, execution model) Agree way forward with DTF Execute B2 HLV/SLV Baseload Optimisation Determine how a baseload HLV/SLV programme can be facilitated with: flexibility in execution; and price clarity/certainty; Study into a mechanism for optimising the use of HLV/SLV capacity through the oil and gas economic cycle (Potential link to E1a) Incorporate into E1a