Looking for new finds is traditionally thought the exciting part of the oil and gas industry. However, Graeme Fergusson is more interested in the opposite end of the process — plugging old wells and dismantling platforms.
“Our pitch is, ‘dear operators, you don’t want do to this, but we do’,” said the managing director of Decom Energy.
Britain has been investing in the North Sea for more than 50 years. The industry estimates that it could take another 50 to plug thousands of wells and remove hundreds of platforms and thousands of kilometres of pipelines. Executives believe the decommissioning industry, still in its early years, will grow and potentially become a lucrative business in its own right.
The Oil & Gas Authority (OGA), the industry regulator, in June said it estimated the cost to decommission all the infrastructure on the UK Continental Shelf at £58bn from 2018 onwards.
Mr Fergusson hopes his company can capture a slice of the action by taking ownership of declining fields in the final years of production and guiding them through to the end. Decom Energy, he argues, has a key selling point as it can bring its history and expertise as an operator to bear on the challenge. “We see a gap in the market for an operator-led decommissioning specialist,” he said.
It has not been a straightforward journey to reach this point. Decom was formed in 2016 to buy out its operating subsidiary, Fairfield Energy. The latter was launched in 2005 with backing from a clutch of private investors led by private equity group Warburg Pincus to acquire North Sea assets that were being shed by the oil majors and breathe new life into them. Fairfield went on to build a portfolio of fields and in 2008 the company became the operator of assets in the Greater Dunlin Area in the East Shetland Basin, close to the boundary line with Norway.
Fairfield considered an initial public offering in 2010 but this was pulled in part because its portfolio was not broad enough. However, the oil price crash in 2014, which hit the industry hard, finally put paid to its ambitions of becoming a leading North Sea exploration and production group.
In the second half of 2015 the company decided it was time to change direction, said Mr Fergusson. It would transform itself into a decommissioning specialist and start with its own assets in the Dunlin area.
Fast forward to 2016 and Decom Energy Limited was born, backed by its four founders including Mr Fergusson who had joined Fairfield in 2011.
The aim, said Mr Fergusson, was to turn decommissioning into a positive move. Despite the change in strategic direction the company managed to retain most of its core workforce of around 75.
“Engineers like problems,” said Mr Fergusson. The company has already learnt a lot from tackling some of the complex issues in the Dunlin area where three approved decommissioning programmes are already under way. It hopes to offer that expertise to others. Recommended Scottish economy Scotland’s ports gear up for the day North Sea oil runs dry
“Now it’s about striking a deal with the operator,” said Mr Ferguson, adding that talks were under way with several companies about a number of assets. The company will consider different approaches, from offering its expertise as a contractor to taking over the operatorship of mature assets that are beyond the point of major investment.
For Britain’s oil and gas industry it is a steep learning curve. To date, much of the decommissioning activity in other parts of the world such as in the Gulf of Mexico has been of much smaller platforms than in the North Sea. The rough seas also pose a challenge.
Industry executives nevertheless believe decommissioning could become a profitable business with the potential to export the know-how abroad. Aberdeen, the oil capital of the North Sea, was hard hit by the price crash and could also benefit from increased activity.
“Decommissioning is an evolving industry,” said Fiona Legate, senior analyst at Wood Mackenzie, the energy consultancy, adding that “it offers a prize for the supply chain via new business development opportunities”.
Winners will be all the stakeholders involved — from E&P companies if they can reduce their costs as it reduces the total decommissioning bill, to the supply chain in the form of new business opportunities at a time when North Sea development work has been at an all-time low.
“It’s too early too tell when it comes to late life/decommissioning specialists, there is no proof of concept yet,” she added. Reputation is important. The downside to decommissioning is very big Graeme Fergusson
Some work is already under way. Royal Dutch Shell hired the huge, twin-hulled Pioneering Spirit vessel to remove the Brent Delta platform and transport it to Teesside for dismantling last year.
Research is also progressing into new approaches that could reduce costs. A new technique to plug and abandon wells developed by Norway’s Interwell was recently tested for the first time in Europe by Spirit Energy, on an onshore gas well in Yorkshire.
The more experienced companies become, the lower the eventual bill. In its most recent report the OGA said companies already executing decommissioning programmes had made significant efficiencies in the costs of plugging and abandoning wells. Operators are also learning to save money by tackling a large number of wells as part of a single campaign.
“Spreadsheet decommissioning is a thing of the past,” said Mr Fergusson. “Reputation is important. The downside to decommissioning is very big.”