Offshore Decommissioning 2002

Offshore Decommissioning

Opportunities for Scottish Based Businesses

2001
(Including Update at March 2002)

Prepared by Eric Faulds Associates on behalf of

Index

Page

1.0 Introduction 2.0 Executive Summary and Recommendations 3.0 Decommissioning Background 4.0 Numbers, types, locations and weights of offshore installations. 5.0 Market Drivers. 6.0 Business Sectors. 7.0 Steel Platforms 8.0 Concrete Gravity Based Structures. 9.0 Subsea installations. 10.0 Drill cuttings 11.0 Pipelines 12.0 Well Plug and Abandon 13.0 Reuse of Offshore Installations

2 3 8 10

14 18 19 34 37 38 41 44 46

Internet References Appendix A

50 51

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1.0 Introduction
During the next couple of decades decommissioning of offshore structures will be another major opportunity for Scotland. It is vitally important that we understand the size and nature of the opportunity and develop the appropriate strategy to maximise the economic impact to Scotland. Scottish Enterprise Energy has commissioned this study as a first step in identifying the opportunities and informing the industry of the same. Our next task will be engaging other public sector partners as well as industry in appropriate dialogue to determine the future course of action.

The focus of this report is on the decommissioning of offshore platforms. In addition the report will cover other decommissioning sectors such as pipeline decommissioning and drill cuttings where the information and knowledge available is somewhat limited. Re-use of installations for new purposes will also be considered. There is a paucity of reliable information on which to base predictions regarding the development of the North Sea decommissioning market. This is in part due to the fact that there has been very little experience of decommissioning to date and no experience of removing very large offshore structures in any part of the world. In addition, there are no regulations in place regarding aspects such as drill cuttings and pipeline decommissioning. History has shown us that the predictions of likely costs of major new engineering projects, wh ere there is no previous experience, are likely to be seriously underestimated. It is reasonable to expect the same situation will occur in decommissioning, particularly for the early decommissioning projects. A variety of public domain information as we ll as proprietary data have been used in the preparation of this study. There is some lack of consistency in the data due to the different sources but despite this we believe it is sufficiently reliable for the purposes of this report. Scottish Enterprise hope that this study would make a valuable contribution to the subject of decommissioning of offshore facilities, and it would lead to maximisation of economic benefits from this opportunity, to Scotland.

2.0

Executive Summary

The offshore decommissioning market is still in its infancy and as a result there are uncertainties regarding what the total market requirements may be and how the market might develop. However, there are also a number of certainties. The cost of decommissioning will be very high. We estimate that the total for the entire North Sea is unlikely to be less than 20 billion and could easily be 30 billion. This expenditure will be spread over a period of some 20 to 30 years and most importantly, it is a market that is absolutely ce rtain to occur and it will occur on Scotlands doorstep. We also believe that the underlying commercial drivers behind the decommissioning market will ensure that it will be a relatively predictable market without the cyclical swings in demand experience d in the development of the North Sea. In terms of potential decommissioning market value, the tonnage of platforms to be removed provides a good indication of the likely cost. In terms of tonnes of steel contained in the offshore platforms, the approxima te split between countries is shown in the pie chart below:

Scotland 43%

Norway 38%

England 10%

DK NL 2% 7%

The total decommissioning market can be broken down into a number of distinct activities. Whilst there is no North Sea track record for decommissioning it is difficult to be precise about the total value of the market. The chart below gives the order of magnitude of the UK Sector Costs.

Order of Magnitude UK Sector Decommissioning Costs

16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0
To ta l Pi pe lin es & Co A nc re te Pl atf or m s St ee lP lat for m s Dr ill C utt ing s

million

Cost estimate range

It is generally not recognised that plugging and abandoning wells will account for a substantial part of the cost of decommissioning an offshore production platform. This will be a significant expanding market that will require an increase in specialist expertise and equipment. We envisage that companies already operating in Scotland will be able to expand to meet these requirements and lead the way in developing lower cost and more reliable techniques. There may also be opportunities for new players. The requirements for dealing with drill cutting waste deposited on the sea bed beneath many of the installations off the Scottish Coast have not yet been determined but there is little doubt that there will be significant market opportunities for companies in the removal, handling and treatment of both drill cuttings and the associated contaminated water. There is likely to be a significant market in pipeline decommissioning which will be dominated by the need for offshore marine equipment and diving services. However, until the decommissioning requirements are better defined there are no obvious near term business opportunities apart from the removal of small diameter flowlines and cables associated with the decommissioning of subsea installations.

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The greatest near term market opportunities will be associated with the decommissioning of fixed offshore platforms. The key question is how can Scottish business ensure that it secures a large slice of this cake? Approximately sixty to seventy percent of the cost of removing an offshore platform is associated with the offshore heavy lift contractor and currently the heavy lift equipment is owned and operated by Dutch and Italian companies. The vessels typically operate out of The Netherlands or Norway. If the status quo remains then Scotlands slice of the cake for platform removal will be limited to the supply of offshore labour, diving vessels and onshore disposal. The worldwide market for heavy lift vessels is increasing and with the additional requirements of North Sea decommissioning, demand is likely to exceed supply and apply upward pressure on prices. There is a perceived need for additional competition in this market and this is expected to come from the development of a new generation of heavy lift vessels aimed at the decommissioning market but also capable of competing for new installation work. These new designs are being developed in Norway and The Netherlands but there is a unique opportunity for companies with a Scottish base not only to build these new vessels but, more importantly, to operate them. If these new vessels can be based in Scotland then Scotlands share of the market will be greatly enhanced since the vessels base not only influences its maintenance and direct support activities it also influences the operation of associated cargo barges, fabrication of necessary steelwork as well as engineering design and project management work. The recently announced plan by Phillips Petroleum in Norway to use the new technology vessels on the first two removals of Ekofisk installations make it virtually certain that at least one of these new generation vessels will be built and operated. We estimate that if one of the new generation vessels could be based in Scotland then the value of steel platform removal work coming to Scotland could amount to 4.5 billion and there is the additional potential of income from the worldwide platform installation market. Without a vessel based in Scotland the value of removal work coming to Scotland may be as low as 1.5 billion. It will take both political and corporate initiatives to win this prize. There is now a general realisation that the onshore dismantling of offshore installations will not create many jobs. Industry estimates suggest approximately 150 to 200 jobs per annum on average will be required in the UK. We anticipate that there will be a requirement for about three decommissioning yards in the UK. Able UK, based in Teesside is well established to dominate the Southern North Sea market

and the deep water in Shetland along with its proximity to the Northern North Sea fields will give the Shetland Decommissioning Company a distinct advantage over its UK competitors. We believe however that the market could support an additional yard located in Scotland. A feature of decommissioning to date has been the continual slippage in the market getting effectively underway. This has caused problems where a number of companies have invested in the development of new technology only to find the start of the market has slipped. There is no doubt that there will be a tendency for this slippage to continue but there are a number of events planned to occur in 2001 which are likely to be significant.

The Maureen (1) platform will be removed in mid summer and taken to Norway. Whilst benefit to the UK may be limited it will raise awareness of the decommissioning challenge.

It is expected that Phillips Petroleum in Norway will commence the prequalification procedure for 3 of the Ekofisk installations in July this year (2001). For two of the installations new technology lift equipment will have to be used. It is expected these critical contracts will be awarded in Spring 2002.

TotalFinaElf(3) are due to publish their decommissioning plan for the Frigg Field in the very near future. This will be a major decommissioning programme and will include the first large platforms to be decommissioned in the UK sector.

These events will arguably bring a renewed focus on decommissioning and with the expectation of prequalification activities commencing this will require contractors to seriously consider their position and plans for entry into the market. The above summary has focussed on the major activities but given the enormous size of the market a very small slice of the cake will represent a large volume of business for many specialist companies. Although the reuse of offshore facilities and equipment in new locations has received considerable attention and effort by decommissioning specialists, without much success to date, the potential economic benefits suggest that this is not an aspect that should be dismissed. There is a need to identify what markets, if any, could utilise redundant North Sea installations.

In addition, a number of offshore structures have been reused for new purposes with the reuse of Brent Spar in Norway to form a new quay structure a prime example. There have been suggestions that offshore installations could be used not only for coastal engineering projects but also for offshore aquaculture and power generation utilising wind and wave power. We believe that these ideas require study to determine their merits. It should not be forgotten that the UK government bears a significant part of the cost of decommissioning (up to 60 to 70% in some instances) through tax rebates to the oil companies. The use of redundant platforms to provide wealth creating infrastructure improvements such as quaysides etc may help offset this charge on the UK economy. In conclusion, 2001 and 2002 is likely to see significant developments in the Norwegian sector and investment in new technology lifting vessels. Early action is required if Scottish based companies are to obtain a significant foothold in the market. In particular there are new opportunities to build and operate new heavy lift vessels, to take a lead in developing low cost well plugging technology, to develop sea bed waste handling technology and to utilise offshore installations for renewable energy and aquaculture purposes. All of these business areas have worldwide applications. If business initiatives are not put in place, there is the likelihood that Norwegian and Continental based com panies will gain the lions share of the decommissioning market in UK waters.

3.0 Decommissioning Background.

INSTALLATION DEROGATION? UK REQUIREMENTS

Topsides

NO

Remove

Steel Jacket <10,000 tonnes

NO

Remove

Steel Jacket >10,000 tonnes Concrete Gravity substructure

YES

Can leave footings Must leave 55 metres water column above remaining items

YES

Can dump or leave part or whole in place

Concrete floater

YES

Can dump or leave part or whole in place

Must provide navigation markings

Exceptional case damage etc

YES

Can dump or leave part or whole in place

The footings referred to above are the large heavy sections at the base of steel jackets where the jacket is connected to the foundation piles. The maximum number of steel installation footings that could be left partially in place under these regulations is 34 out of approximately 600 in the North Sea. The application of these new regulations has yet to be put to th e test although Phillips Petroleum in Norway have proposed that derogation should be sought to leave the Ekofisk Concrete Tank structure in place.

3.1

Decommissioning Process.

The decommissioning process in the UK is governed by the requirements of the Petroleum Act 1998. The process is clearly set out in guidance notes (14) published by the DTI. In summary the process is as follows: Stage 1. The Operator of the installation undertakes preliminary discussions with the DTI. This will typically take place 3 to 5 years in advance of the expected decommissioning date. The Operator will outline the likely timetable of future events. Stage 2. Detailed discussions of a draft decommissioning proposal. For straightforward cases where installations are being totally removed this is likely to be

a straightforward process. However if the installation is large and has the potential to be considered for derogation then the OSPAR requirements will have to be taken into account. Stage 3. Consultation with interested parties. Stage 4. Formal submission of the decommissioning proposal and approval by the Secretary of State. Stage 5. Execution of the work. Stage 6. Monitoring of the site if applicable. Particular points to note from the above process are that the Operator of the installation drives the process and the regulator is the DTI who will make the final decision regarding an Operators proposals. Although the regulations set out by the OSPAR Convention are significant for a small number of large installation s the OSPAR Convention is not a regulator and has no decision making role in the process. It is also relevant to note that both the OSPAR regulation and the DTI Guidance notes require Operators to cooperate and share information on decommissioning matters.

Up to three years before decommission

Secretary of State calls for formal Submission

ALL CASES

Preliminary discussions with Government Departments

Detailed submission and consideration of draft programme

Consultation with interested parties

Formal submission and approval of programme

Commence main works and undertake site surveys

Monitoring of site

ADDITIONAL ACTIVITIES REQUIRED FOR DEROGATION

Assessment of options in accordance with OSPAR

Consultation with OSPAR Contracting Parties

Maximum of 32 weeks for OSPAR consultation process

4.0

Numbers, types, locations and weights of offshore installations

There are approximately 600 platforms located in the North and Irish Seas. The exact number quoted by various sources varies, as there is no consistency in how platforms are counted. Fo r example some sources regard two platforms linked together by a bridge as one platform whilst others count these as two platforms. The platforms are located mainly in UK, Norwegian, Dutch and Danish waters. The great majority of installations are fixed platforms comprising a steel jacket fixed to the seabed with piles along with a topsides structure containing drilling, process and living facilities. Approximately 4% of the total numbers are very large concrete gravity based substructures. There are also a number of floating installations and subsea installations The table below shows the location of installations by type and by country.

Country UK (UK) Norway (N) The Netherlands (NL) Denmark (DK) Germany (D) Total

Steel Jacket 227 69 118 39 1 454

Concrete Substructure 12 13 2 1 28

Sub sea 56 54 7

Floating 17 9

Total 312 145 127 39 2 625

117

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It can be seen that the UK has 50% of the total number of North Sea installations located in its controlled waters. The cost of removing a platform increases with size and weight and therefore, for the decommissioning market, the tonnage of materials to be disposed of is more significant than installation numbers. Platforms tend to get larger and heavier as the water gets deeper. The table below gives the total weight in millions of tonnes of offshore platforms by sector and type. Concrete substructures have been excluded.

UK Topsides 1.11 (steel jacket platforms) Steel jackets 1.01 Topsides (concrete 0.28 platforms) Subsea equipment 0.01 Total 2.41 Total weight in millions of tonnes

N 0.75 0.70 0.30 0.01 1.76

NL 0.28 0.06 0.01 0.35

DK 0.09 0.02 0.11

D <.01 -

Total 2.23 1.79 0.59 0.02 4.63

Once again it can be seen that the UK has approximately half the overall tonnage to be decommissioned. In addition it can be seen that subsea installations are relatively insignificant in weight terms. The low weight of the Dutch platforms, which are similar in number to the Norwegian platforms, is due to the fact that they are located in relatively shallow water When the concession map for UK waters is studied it can be seen that platforms in UK waters tend to fall into three distinct clusters. These clusters are in the Southern North Sea (SNS), which can be considered as anything South of Newcastle but mainly off the Norfolk coast, the Central North Sea (CNS) that lies between Newcastle and Wick and the Northern North Sea, which is anything North of Wick but mainly located East of the Shetland Islands The map below summarises the number of fixed steel platforms and the total tonnage of steel in each sector around the UK. The pie chart shows tonnages percentage for each country.

11

Sector Map showing number of steel platforms and total tonnage of steel

Scotland 43%

Norway 38%

National Tonnages

England 10%

DK NL 2% 7%

12

The above analysis has looked at the distribution of offshore installations. There is a lack of good data on other aspects of decommissioning such as pipelines and the treatment of drill cuttings. As a general guide however, the UK and Scotland in particular has the greatest share of the volume of each aspect of decommissioning.

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5.0
5.1

Market Drivers.
Timing.

The fundamental driver influencing an Operator when considering decommissioning is that it is a very high cost outlay with no associated income. A prime objective of both Operator and government is to maximise the production from any field and combined with the financial penalty of decommissioning at the end of field life there is every incentive to delay cessation of production for as long as possible. This may be done by introducing cost saving measures in the production and operating processes and could include selling the asset to a lower cost Operator or by utilising new drilling and production technology or by a combination of all of these measures. An excellent example of field life extension is Shells Auk field, which was installed in 1974 with a life expectancy of no more than 7 years the latest prediction is that it could produce until 2010. Ultimately however fields will become uneconomic either through falling production levels or through a drop in oil price. Both well production and oil price are difficult to predict accurately and hence cessation of production dates may change from time to time with a tendency for dates to recede. It should be noted that a low oil price does not necessarily lead to early decommissioning of installations since, in this instance, the Operators will be cash constrained and will be extremely reluctant to spend money on activities that do not generate income. Although high oil prices will tend to delay the cessation of production of oil fields high oil prices may accelerate the cessation of production from gas fields as consumers maximise their use of lower cost gas in preference to oil. It is also important to note that cessation of production and decommissioning dates are not necessarily closely linked. There may be many years between production shutdown and the start of decommissioning. There are however other drivers that may, in certain circumstances, tend to accelerate decommissioning. Delaying a number of decommissioning projects could build up a significant cash flow problem in the years ahead. Tax offsets will be

14

generated and it may suit an Operator to optimise its tax position by decommissioning earlier rather than later. Some Operators may also have fears regarding the financial strength of some of their partners and would prefer not to delay. It should be noted that all partners in a field are held liable for decommissioning costs. In addition, the Government will not wish to see undue delay which could increase financial risks if some licence owners ceased trading and there will be pressure from fishermen and others to see the sea bed cleared of installations as soon as practically possible. Nevertheless, the overall trend is likely to be a delay decommissioning and this has certainly been the experience to date.

5.2

Cooperation

With all Operators having to face the loss making business of decommissioning and combined with the fact that it is not core business there is the basis for a much more cooperative approach between Operators compared to new field development. In addition, OSPAR regulation requires cooperation and DTI Guidance Notes state: The Government is keen to encourage Industry co-operation and collaboration at the decommissioning stage.

5.3

Politics

Although different fiscal regimes exist in Norway and the UK the net effect of both is that the Governments have to contribute a significant amount to the decommissioning costs either directly in the case of Norway or indirectly through tax relief in the UK. An important consequence therefore, is that both Government and Operator objectives are aligned as far as reducing decommissioning costs are concerned. On environmental issues however there is the potential for divergence in that Operato rs would generally prefer to see environmental issues evaluated on the basis of sound science whereas Governments will tend to be more sensitive to emotionally based public opinion. However, in reality, environmental considerations, although important, are unlikely to have a further significant effect on the installation removal market. The same cannot be said about the removal of drill cuttings and pipelines

15

from the sea bed. Environmental issues will continue to play a significant role in establishing the extent of these particular markets. To date there has been limited political interest in ensuring that the UK maximises its opportunities in this large new market. Most new business development has been Norwegian based and without political pressure we will probably see Norway taking a disproportionate amount of the North Sea decommissioning business. Although EU trading rules do not permit Norway and the UK to protect their decommissioning markets the Basel Convention on the export of waste which, in essence, requires each country to dispose of its own waste could arguably be applied to offshore decommissioning. There is therefore an expectation that although Norway will tend to have an advantage in special situations such as Brent Spar and Phillips Maureen, where deep water is particularly significant, the vast majority of UK offshore installations will be decommissioned in the UK.

5.4

Effects of Drivers

It is important to appreciate that the market drivers in decommissioning are distinctly different from new field development. Although both are high cost activities new field development costs are offset by income to be generated from the investment. Decommissioning costs must be met from cash available at the time of implementation and any overrun in expenditure will have an immediate effect on a companys annual profit. In new field development, time is normally a critical factor, particularly once project development gets underway. In decommissioning, time will be relatively unimportant and this is likely to have a significant influence in the way the market develops. Generally, the longer a project is delayed the better the financial return for the Operator in terms of net present value. The need to get a new project completed on time tends to minimise cooperation between projects, even within the same company. Decommissioning is likely to see much more cooperation between companies. The fundamental driver of high cost no income for the Operator will arguably lead to a strong drive to create an industry with the greatest overall efficiency and hence lowest possible cost consistent with safe and environmentally acceptable practices. An efficient offshore decommissioning industry will require the following features:

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The best possible technolog y available when needed. Competition. Innovation. Equipment and human resources available when needed. A predictable and smooth workflow without boom and bust periods.

The greatest single problem to date with respect to developing new technology has been the trend for decommissioning start dates to continually slip. The development of new heavy lift vessels has been particularly hampered in this respect with several companies commencing development aiming for a market commencing in 2001 only to find that it will not commence until 2003 at the earliest. Maintaining a development team for an additional two years is clearly a significant burden. The flexibility of decommissioning timing should however bring benefits in that it will be feasible to delay a decommissioning start whilst a particular piece of technology is developed if it can be shown that this will reduce cost. Another advantage arising from the potential to delay is the expectation that it will be easier, compared to new field development, to obtain contractual commitments from a client prior to a developer investing capital in new hardware. The oil industry is fully committed to the belief that competition drives down costs by focussing on efficiency and encouraging innovation. There is no reason to believe that the decommissioning business will be any different. We believe that boom and bust periods will be less likely in the decommissioning market. Our expectation is that contracts will generally be let on a multi-project basis spread over a number of years and that the combination of timing flexibility and a determination to keep costs down will smooth out the work flow. If a peak in demand arises and is driving up costs then the projects will simply be delayed until supply and demand are back in balance.

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6.0
6.1

Business Sectors.
General

Offshore decommissioning can be broken down into a number of distinct business sectors comprising the decommissioning of steel platforms, concrete gravity based platforms, sub -sea installations, drill cuttings, pipelines and well plug and abandonment. An indication of the order of magnitude costs of potential decommissioning costs for each of these sectors is shown in the chart below. (Subsea decommissioning is excluded as it is small in comparison to the other sectors)

Order of Magnitude UK Sector Decommissioning Costs

16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0
To ta l Pi pe lin es & Co A nc re te Pl atf or m s St ee lP lat for m s Dr il C utt ing s

million

Cost estimate range

It must be emphasised that the above numbers can only be regarded as rough estimates but they do give an indication of the relative size of each sector.

18

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7.0
7.1

Steel Platforms.
Cost Breakdown
The estimated decommissioning cost of this sector, excluding the cost of plugging and abandoning wells, is in the order of 4 to 7 billion for the UK sector. From our cost database we can derive the breakdown shown below of the major business sectors within the steel platform decommissioning market.

Marine support contracts 21%

Materials & Fabrication 15%

Marine HLV 30%

Onshore 29% Onshore scrapping 4% Offshore Support 10% Design & management 10%

Offshore Preps 10%

Each sector will be discussed below:

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7.1.1

Heavy Lift Vessel (HLV).

Virtually all offshore platforms were installed using heavy lift crane vessels such as shown below. Similar vessels will be required for the removal of the installations

These specialist vessels with their unique lifting capacity up to 12,000 tonnes are, not surprisingly, expensive pieces of equipment with costs ranging from typically 350,000 to 500,000/day and higher for exceptional lifts. The heavy lift vessel will be the key resource during the offshore removal process.

7.1.2

Marine Support Contracts.

The heavy lift vessel will need the support of other specialist services. In particular diving support, underwater cutting equipment, tugs, supply boats and cargo barges.

7.1.3 Offshore Preparation.

Before the heavy lift vessel can remove the topsides a considerable amount of preparation work will have to be carried out prior to lifting. For example the facilities will have to be cleaned of residual hydrocarbons where necessary and pipework, ductwork, cables, structural steel etc. will have to be cut to release each section being lifted. In addition, the lifted sections will require a thorough inspection and are likely to need new lifting eyes to be attached to the structure which also may require strengthening. All this work will require an offshore labour team.

7.1.4

Offshore Support.

Although some of the offshore preparation work may be able to be carried out while the platform has adequate safety and life support facilities it is likely to reach a stage

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where a flotel (accommodation vessel) is required to provide the necessary support to the labour team. In addition crew changing, equipment and supplies, catering, etc. will be required to be provided via helicopter and supply boat.

7.1.5

Design and Management.

Clearly, a major decommissioning project will require an onshore team of engineers to design a safe and efficient removal method and will need a team onshore and offshore to manage the project.

7.1.6

Materials and Fabrication.

It is often not appreciated that there is likely to be a substantial amount of fabricated steel requ ired to ensure that the various platform sections can be safely lifted and supported during transport to shore. This work will be heavy structural steel fabrication. It is expected that this work will create many more jobs than those created with onshore d isposal work.

7.1.7

Onshore Disposal.

Although onshore scrapping and waste disposal is perhaps perceived as a major part of decommissioning it is in fact a relatively small part of the work as far as costs and jobs are concerned. When steel structures are removed they will either have to be reused, which is considered to be an unlikely occurrence in most cases, or brought to shore for dismantling and disposal. The basic requirements for an onshore decommissioning site are that it must have a strong quayside with a water depth of around 9m, and ideally over 20m, along with adequate space to layout the offshore facilities. In addition, hard standings with a closed drain system will be required and there will be a need for craneage and cutting plant. Existing technology will be capable of dealing with onshore disposal. The amount of hazardous wastes such as asbestos, radioactive material, etc. which will come ashore with the structures will be very small relative to the total amount of materials. However, these wastes will clearly need to be treated and disposed of in accordance with regulations. Existing technology is capable of dealing with these wastes. The disposal of low-level radioactive waste known as Low Specific Activity (LSA) scale which forms on some pipework will need careful consideration by both

21

contractors and authorities. In the UK there are a limited number of sites which are licensed to remove the scale material and the UK depository for low level wastes at Drigg does not have sufficient capacity under its current licence to take all of the North Sea waste.

7.2

Steel Installation Technology Issues.

7.2.1 Conventional Heavy Lift Vessels.

The offshore steel platforms were generally installed by first transporting a steel jacket structure on a barge, see photo below, launching the jacket into the sea and pinning it to the sea bed using steel piles.

The topsides structures were placed in position using a heavy lift vessel such as the one shown below:

In principle, it should be feasible to reverse the topsides installation process simply by utilising a heavy lift vessel to remove the sections in the same sequence as they

22

were originally installed. For the majority of offshore installations this should be technically straightforward. There are however two problem areas worth noting. 1. The preparation of the offshore structures to make them safe to lift could be extensive. Over the years many modifications may have taken place, such as the installation of additional fire and blast walls following the Piper Alpha disaster, which make the sections too heavy to lift without removing the excess weight. Additionally all the interconnecting structural, electrical and mechanical interconnections between each section will have to be cut taking into account that the pipework may contain hydrocarbon residues. Efficient cold cutting techniques will therefore be required.

2. Whilst it is feasible to lift a very large deck of up to 12,000 tonnes from a

cargo barge using two cranes acting in tandem as in the photo above, it will be difficult to reverse the process in anything other than flat calm sea conditions since placing a large deck structure onto a moving barge could result in serious damage to the barge. In these cases the large decks may have to be cut into smaller pieces or alternatively new stronger barges or shock absorbing technology will have to be introduced. The jacket installation process of launching the structures into the sea utilising gravity clearly cannot be reversed for removal. Current technology requires the jackets to be cut into lift size pieces for removal by a heavy lift crane vessel. The following issues arise with the larger jacket structures:

A large number of underwater cuts of structural members will be required. This could be several hundred for a large structure.

Very thick steels, up to 75mm and potentially greater, will have to be cut. Efficient underwater cutting technology will be required.

Some jacket sections, the pile clusters in particular, will be extremely heavy and will require complex lifting arrangements to ensure a safe lift.

Great care will be required to ensure that, as the structure is progressively removed, the remaining structure remains stable.

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7.2.2 New Technology Lift Vessels.

There are a number of companies actively developing a new generation of heavy lift vessels. The objective of the new vessels is to lift off the topsides of offshore installations in a single lift and a number of the vessels also aim to remove jackets in a single piece for transport to shore. The lifting capacity of these new vessels will be up to 20,000 tonnes and potentially higher. The vessels will equally be able to be used for offshore installation as well as removal. These vessels can be compared to giant floating forklift trucks where the forks fit under the deck and by deballasting the vessel the deck can be lifted from the substructure. Graphic impressions of the Pieter Schelte being designed by Excalibur Engineering bv (6)are shown below. The picture sequence indicates how the topsides and jacket of a large installation can be removed in two large lifts and transported to shore. Installation of a new platform would simply reverse this process.

24

A similar sequence is shown below for the Marine Shuttle (7) being designed in Norway. There are a number of other vessels being developed essentially along similar principles to the vessels indicated to the Pieter Schelte and the Marine Shuttle.

The oil companies are currently studying the technical issues associated with these vessels. However, to date no commitments have been made to use these vessels.

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7.3

Steel Installation Market Development.

The removal of the steel installations will be the most significant activity in the decommissioning market and has received the greatest amount of study and consideration to date. Nevertheless, as stated previously, there is virtually no experience of the market in the North Sea and although a considerable amount of decommissioning has taken place in the Gulf of Mexico the amount of learning that can be transferred is limited. This is primarily due to the much greater size and weight of the North Sea installations, particularly those in Scottish waters. The following development predictions must therefore be treated as speculative. The development of the North Sea construction market has been characterised by cyclic activity where there has been an overheating of the market driving up prices and equally there have been slack periods when there has been an overprovision of resources. Although there have been a number predictions of decommissioning dates and work flow such as the one shown below showing jobs forecast published by the North Sea Decommissioning Group (8), part of the Government/Industry Pilot Task Force.

NSDG Jobs Forecast

Decommissioning Jobs - Spread
Decommissioning Jobs Early-Late Spread
3,500.00

Onshore Decommissioining Onshore Preparation

3,000.00

Design Offshore Deconstruction Well Abandonment HLV DSV

2,500.00

2,000.00

1,500.00

1,000.00

500.00

2000 2001 2002 2003 2004 2005 2006 2007 2009 2010 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2008 2011 2022

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The above would seem to predict a similar boom and bust pattern for decommissioning. However the reader will note that the activity peaks occur at 2005, 10,15, 20 25 and 30. These round number peaks are almost certainly a reflection on the inaccuracy of the predicted cessation of production date for each field. The fact that decommissio n dates need not closely follow cessation of production is ignored. We are firmly of the opinion that the above pattern of decommissioning will not happen in practice because of the common goal of driving down cost and the fact that timing is not a significant issue in decommissioning projects. If a boom period is developing and tending to drive up prices, then projects will simply be delayed until a better balance of supply and demand is reached. A good example of this smoothing in practice is the published plan for the decommissioning of 14 platforms in the Ekofisk field in the Norwegian sector. Phillips original plan to spread the decommissioning work over four campaigns stretching from 2003 to 2015 (2). (This is currently under review with work not now expected to commence until 2004) We believe a more realistic pattern of decommissioning activity is indicated in the chart below.

Potential shape of UK platform Decommissioning Market

Number of platforms decommissioned per annum 12 10 8 6 4 2 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040

As far as the near term market is concerned the prospects are as follows: Maureen (1) A contract has already been awarded to Aker to remove this installation in the summer of 2001 and to dismantle the installation in Norway. Like Spar, Maureen is a unique type of structure where the deep water of Norway has highly significant advantages compared to UK sites for decommissioning. The fact that

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Maureen will go to Norway for decommissioning should not be seen as an indicator for future decommissioning of steel platforms. Ekofisk (2). A huge field in the Norwegian sector where 15 installations are now redundant. Two of the insta llations are in UK waters although they come under Norwegian regulation. The platforms are in approximately 70 meters of water and are typically 8,000 tonnes total weight although there are significant differences above and below this figure. The field is operated by Phillips who have submitted decommissioning plans to the Norwegian Government for approval. The need to decommission these platforms is largely driven by subsidence of the reservoir and the sea bed which has resulted in the topsides of the installations being at risk of being damaged by storm waves. The decommissioning programme is therefore not directly driven by production levels or oil price. The current intention is that Phillips will formally commence the tendering process in July 2001 with an invitation to contractors to prequalify for the decommissioning of the two installations in the UK sector with the proviso that new lifting technology must be used and in addition they will seek contractors for the decommissioning of the concrete tank storage installation. It is expected that contracts will be let in Spring 2002. The requirement to use new technology for the two UK installations and the need to build the new lift vessels means that offshore removal is not likely to commence until 2004 o r 2005. Frigg (3) This is another major decommissioning project consisting of 5 large platforms plus a wrecked jacket structure. Three of the platforms are in the UK Sector and two are in the Norwegian Sector. Three of the platforms are Concrete Gravity Base Structures. It is anticipated that production in the field will cease in 2003 which would suggest the earliest decommissioning date is likely to be 2005. The Frigg Field installations will be the first large steel jacket and concrete installations to be decommissioned in the UK Sector and must be a key target for UK companies wishing to enter the decommissioning market. Hutton TLP (13) This is another unique structure with an early decommissioning date. The tension leg configuration makes this platform an excellent candidate for reuse at other locations throughout the world and it is expected that the unit will be sold in the near future and removed from the field in 2002 or 2003. There will also be a requirement to remove a seabed template and anchora ges. North West Hutton. This platform was expected to be an early decommissioning project but the current high oil price has given it an extended period of economic life. Subject to the oil price remaining high it is thought unlikely that decommissioning of this installation will commence before 2005.

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7.4

Steel Installation - Market Opportunities

7.4.1 Heavy lift vessel.

Of all the business sectors the heavy lift vessel market is the most dominant. The heavy lift vessel is the key piece of equipment required for removal of an offshore installation and therefore has tended to take on the role of main contractor with other sectors such as marine support, material and fabrication, onshore scrapping and design and project management being subcontracts or part of a joint venture. The heavy lift contractor will therefore have a strong influence over 60 to 70% of the platform decommissioning costs. It is important to understand the market requirements of these key players in the decommissioning market. These are:

1. A deep water port. These extremely large lifting vessels have a minimum draught of about 20 metres. There are no ports on the UK East coast that meet this requirement. This limits their home port to either Rotterdam or a number of locations in Norway. Rotterdam is the favoured location particularly for Heerema which is a Dutch company. The choice of home port is important since it tends to be the focus of all activities associated with the operation of the vessel. 2. Cargo barge berths. Cargo barges to carry the structures either to or from the installation site are an essential part of the lift vessel equipment spread. The heavy lift companies own a fleet of these barges with additional barges being hired from specialist supply companies when required. The company owned barges tend to be moored in locations close to the operations centre of the heavy lift vessels themselves which is of course outside the UK. 3. Steelwork fabrication. It is not generally appreciated that for removal (or installation) of large offshore platforms several thousand tonnes of temporary steelwork will have to be fabricated. These are special lifting aids and grillage steelwork that must be installed on the cargo barges to both spread the load on the barge and to facilitate removal of the structures from the barge. The fact that the grillage steel needs to be installed on the cargo barge and the lifting aids need to be available on the lifting vessel means that fabricators in the vicinity of the vessel and barges home port tend to have an advantage.

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4. Diving and underwater vehicle support. The removal of the underwater elements of offshore platforms will require the steel legs and bracings to be cut. The number of cuts could amount to several hundred. Scottish based companies are already well placed to meet this market. 5. Offshore preparations for lifting. There will be a considerable amount of labour required to prepare the platform topsides for lifting. Modules will have to be cleaned, the interconnecting structural, electrical and mechanical systems will have to be cut, lifting points will have to be fitted, etc., etc.. Some or all of this work may be undertaken by contractors already on the installation as part of an Integrated Services Contract or it may have to be supplied entirely by the Heavy Lift Contractor. Either way the existing Aberdeen based service companies are extremely well placed to get this work. 6. Engineering and Project Management. There will be a considerable amount of engineering work required to ensure that the offshore dismantling process undertaken by the Heavy Lift Contractor is undertaken in a safe way. The requirement will primarily be for structural engineers. Currently this work is undertaken by Heerema in their Leiden office and by Saipem in their London office. There is no reason to believe that this pattern will change and therefore there will be limited opportunity for Scottish Companies. Similarly the contractors project management team will normally be based at the contractors head office. It can be seen from the above that as things stand today there is limited opportunity for major involvement by Scottish companies to contribute to the heavy lift contractor activities which in turn account for 60 to 70% of the platform removal market. The supply of offshore labour and underwater vehicles and equipment will be the most significant contributions from Scotland. Can this situation by remedied? In our view this will not be easy. Even if a quay with 20 metres water depth were to be built it is difficult to envisage the vessels relocating from their well established bases. Particularly now that the heavy lift market is becoming increasingly more global. There will be a greater opportunity for barge mooring and the associated structural fabrication to be ba sed in Scotland particularly when decommissioning becomes an established business and if cargo barges become dedicated to decommissioning

30

work. The onshore decommissioning yards themselves will be an obvious possibility to attract this business since the barges will be delivering their cargo to these yards. There is also potential benefit for both the onshore disposal contractor and heavy lift contractor if barges with cargo are over-wintered at the dismantling yard and the dismantling work carried out on the barge. In this way the onshore disposal company would save the considerable expense of taking the structures off the barge and in return the heavy lift contractor would save on mooring costs. Scotland is well placed to supply the necessary underwater services but to maintain this position it is critical that the Scottish companies keep ahead of technology development, particularly with respect to underwater cutting technology. A more speculative but potentially much more rewarding approach for Scottish business would be to attract one or more of the new technology lifting vessels. Firstly there is the potential to build or fit out these new vessels in Scotland but more significantly, as far as sustainable business is concerned, there is the opportunity to have these vessels based in Scotland not only to serve the North Sea decommissioning market but also the world wide installation market. By having the vessels based in Scotland there is the potential to attract the full range of support activities as w as the direct jobs associated with the heavy lift vessel and its ell management. In most cases these new vessels are being developed by design houses or development companies without the necessary expertise to operate the new vessels. They must link up with established construction companies before they can become a credible force. There is clearly an opportunity for established Aberdeen based offshore construction companies to link with the providers of the new vessels.

7.4.2 Onshore Disposal.

We believe tha t the myth that decommissioning would be the saviour of the Scottish fabrication yards has largely been dispelled. However we consider it important to emphasise that the value and jobs potential of onshore decommissioning is relatively small. In a recent s tudy as part of the Pilot Task Force (8) it was estimated that onshore disposal would provide only 8% of the total decommissioning jobs associated with platform decommissioning. This is the equivalent of 150 jobs per

31

annum in the UK averaged over a 25-year period. Given that there will be a ramp up and tail off of jobs then a peak job requirement of perhaps 200 can be envisaged. Even if these estimates are doubled the prediction is still a very low number of jobs compared to the numbers involved in fabrication. These estimates have recently been supported by Aker in Norway who are predicting a requirement for 100 jobs on average and a requirement for two decommissioning yards to serve the Norwegian sector. (The Norwegian market is approximately two thirds the size of the UK market). We estimate that the UK could support 3 onshore decommissioning yards. The established Able UK yard on Teesside is well placed for the Southern half of the North Sea and the proposed facility in Shetland is particularly well placed for the larger Northern facilities. The access to sheltered deep water gives Shetland a particular advantage over other UK sites. There is perhaps potential for another yard to be located in Scotland. The existing fabrication yards such as Nigg, Ardersier or Methil are obvious candidates but there are a number of factors acting against them in their current fabrication mode. Namely, overheads, high labour costs compared to the demolition industry and management with a fabrication mind set. In short the existing facilities are too sophisticated to be competitive. In the event that one of the existing fabrication yards ceases trading as a fabricator then it would be feasible to reinstate the yard for onshore decommissioning. With the UK likely to have an overcapacity in onshore decommissioning capability for some time, possibly 10 years, we would not recommend investment at this time unless it is part of a diversified development with alternative income streams.

7.4.3 Other areas

As explained previously the decommissioning market is potentially very large and there will be opportunities for small and medium sized enterprises to play a significant role. Examples are given below:

Weight engineering. Before an old structure can be lifted it will be necessary to accurately check the actual weight to be lifted. This estimate will have to take into account the many modifications that are likely to have taken place over the life of the installation. It is quite conceivable that structures will have to be reduced in weight before they can be lifted. There will therefore be a

32

requirement for engineers to accurately check weights and to calculate centres of gravity. Structural Engineering. There will be a considerable amount of structural engineering calculation required to enable these installations to be safely removed. NDT Inspection. As well as checking the weight of structures it will be essential to check that the load bearing members of the structure are still sound and that corrosion or other defects are not compromising the safety of the lift. Environmental assessment. The media attention given to Shells Brent Spar proposal has created an impression that there are significant environmental hazards associated with the decommissioning of offshore structures. Brent Spar was a unique type of installation and cannot be used as a guide for the decommissioning of typical offshore platforms. Whilst environmental management will be important and there will be an ongoing requirement for specialist support in this area it should not be regarded as a major element of typical decommissioning projects. Equipment reuse. The difference between a successful onshore disposal contractor and an unsuccessful one may prove to hinge around success in maximising the sale of reusable equipment rather than simply scrapping it. There is a huge difference in value between resale and recycle but it requires specialists to identify the markets for surplus equipment.

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8.0
8.1

Concrete Gravity Based Structures. (GBS)

General

There are relatively few concrete GBS platforms in the North Sea with 12 in the UK and 13 in Norway. Whilst regulations require that the topsides of concrete platform must be removed and brought to shore or re -used the regulations recognise that it may be extremely difficult to remove the concrete substructures of these platforms. The regulations therefore permit exceptions or derogations to be permitted from the general rule of complete removal. Although the offshore removal of the topsides from the concrete platforms may be more challenging compared to the steel platforms we do not see significantly different technologies or equipment being required. There may be a greater requirement for temporary lifting aids relative to the steel platforms but given the relative ly small number of concrete GBS platforms this will not be significant in the overall market place. The more significant issue is the feasibility of removing the concrete substructures from their offshore location and bringing them inshore for breaking up. Although a Norwegian study carried out in 1998 concluded that it would be feasible to remove concrete structures their work considered a second generation structure with systems built-in to assist the refloatation. Even for the second generation platforms the risks are not inconsiderable and there is a general belief within the industry that whilst it may be feasible to refloat the concrete structures the risks to both personnel and environment will generally be unacceptably high. This view has been reinforced by Phillips Norway concluding that they wish to leave the concrete tank installation in place in the Ekofisk field. There are no reliable published estimates of the costs of decommissioning the concrete GBS structures but if the platforms are removed from the field there is no doubt that the costs will be extremely high. Even the leave in place option will have significant costs associated with it. Not only for the removal of the topsides but also for the cleaning of the oil storage tanks.

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8.2

Concrete Platform Technology Issues

Studies are underway to assess the viability of removing these platforms but to date little has been published. The generally recognised problems associated with removal are: 1. Restoration of buoyancy. Many penetrations through the concrete walls and base slab will have to be plugged to restore buoyancy to the structure. The feasibility of establishing reliable plugs is questionable. 2. Release of the soil suction. The soil beneath the base of the installation will have to be pressurised to release the natural suction that will exist between structure and soil. 3. Grout and soil may adhere to the underside of the structure when the structure is refloated. The consequences of this heavy mass suddenly detaching itself from the base will have to be assessed. 4. Many of the pipework systems used for installation will have corroded and become unserviceable. 5. The structures may have suffered in-service damage and deterioration which will be difficult to measure. An alternative to total removal would be to take off the deck from the platform and to leave the concrete legs sticking out of the water with suitable navigation warnings. Removal of the deck section should be relatively straightforward using conventional heavy lift vessels. However there are question marks regarding how clean the oil storage cells need to be before the structure is abandoned and what methods can be used to clean them given that access is extremely limited. It seems likely that the tank cleaning process could produce large quantities of contaminated sea water which will have to be cleaned before returning the treated water to the sea. Rather that leave the legs protruding above the sea surface it has been suggested that the legs should be cut off underwater. Interna tional guidelines requires the cut to be made at least 55 metres below the sea surface. This option will require the development of underwater concrete cutting technology and will require a detailed engineering assessment to determine the viability of the idea.

35

Some platforms will however be easier to remove than others and any that are brought inshore for demolition will require a suitable deepwater site and nearby drydock. Loch Kishorn is an obvious candidate for consideration in Scotland.

8.3

Concrete Platform Market Development.

This is a particularly difficult market to predict. The picture should become clearer in the next few months when TotalFinaElfs plans for the decommissioning of the three concrete platforms in the Frigg field are published. (Two of the three platforms are in the UK sector with the other being in the Norwegian sector). If as expected, the majority of the installations remain in place then the market development will be limited to cleaning and monitoring activities. Like the steel platform decommissioning market, we see no reason to believe that decommissioning of concrete installations will not be spread over a number of years to minimise peaks and troughs.

8.4

Concrete Platform Market Opportunities.

If some or all are brough t inshore for decommissioning then there will be a need to reopen a dry dock facility such as Kishorn and there will be a high number of jobs in comparison to the steel structure decommissioning activity. We estimate that it could take two to three years at an inshore location to demolish a concrete GBS whose weight may be as great as 350,000 tonnes. Assuming the majority of the concrete platforms remain in place then opportunities will exist for companies to provide the technology and the services to clean the storage cells before the structures are left to decay naturally which may take several hundred years. Given the difficulty in accessing the storage cells it is not clear what the best methods of cleaning will be but there is little doubt that this activity will be time consuming and expensive. Disposal of the waste hydrocarbons and cleaning fluids is also a potentially expensive operation. There will be a requirement for ongoing monitoring of the platforms if they are left in place.

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9.0
9.1

Subsea installations.
General

The market for the removal of subsea installation is relatively small in comparison to the overall market. The work will be undertaken almost exclusively by diving and ROV specialists.

9.2

Technical Issues.

We do not believe that there are any significant technology issues associated with the removal of subsea installations.

9.3

Market Development.

This is a relatively small market sector and we believe that the technology and capability is in place to undertake this work. Like the other markets, there will be timing flexibility and it therefore seems likely that these smaller projects will be used to smooth the utilisation of personnel and equipment between larger decommissioning projects.

9.4

Market Opportunities

We do not envisage any significant new market opportunities other than an eventual expansion of existing capabilities as the decommissioning of subsea activities increases.

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10.0 Drill cuttings.

10.1 General

Beneath many of the installations in the Central and Northern North Seas there are accumulations of rock cuttings deposited on the sea bed as a result of the drilling of wells. These cuttings are contaminated by oils used to make up the drilling fluids and are potentially toxic if disturbed. There is estimated to be over 1 million cubic metres of cuttings on the sea bed in the UK sector. The industry has initiated a wide ranging study along with other interested parties to determine the Best Environmental Practice and Best Available Techniques with respect to these cuttings piles. All reports completed to date are published on the UKOOA website (9). At this point in time it is not clear if the best solution will be to leave the cuttings in place or to remove them. With so much uncertainty, it is not feasible to give a reliable estimate of the value of this market but if the majority of the piles have to be removed from the UKCS then the cost is likely to be over a 1 billion and could be significantly greater.

10.2

Technical Issues

The basic issues are: From an environmental standpoint is it better to leave the cuttings undisturbed on the sea bed to naturally degrade over time or is the best overall solution to remove them? If the answer is to remove some or all of the cuttings what is the best technology to d evelop to undertake this task with minimum environmental impact? Are there alternative solutions to removal such as covering the cuttings or perhaps using biotechnology methods to accelerate natural degradation? If the cuttings are removed there will be considerable quantities of contaminated water brought to the surface. Tests to date have had a water/cuttings ratio as high as 10/1. How and where can this water be treated?

38

If the cuttings are removed how are they to be disposed of? The ideal would be to identify an economic reuse for the material since the cuttings do not make good land fill material.

All of the above issues are being studied in the UKOOA research and development project.

10.3

Market Development

Until the current research and developm ent programme is complete it is not clear how this market will develop. It seems likely that there will be a need to remove some drill cuttings the minimum will be that required to get access to remove the platform structure and the maximum could be the removal of all drill cuttings. Waste regulations will tend to dictate that all UK sector cuttings return to the UK and all Norwegian cuttings return to Norway for disposal. The removal of cuttings will require the development of specialist equipment a nd processes. It seems likely that an integrated solution will be required combining the removal method, the water and cuttings handling process and the onshore disposal processes. If we assume that the removal requirement will be greater than the minimum then there will be a requirement for at least two companies offering competitive solutions.

10.4

Market Opportunities

This is a potentially large market in which there are no current players. There will be significant opportunities for innovative solutions and technology development. We believe the important areas to consider are: In-situ measuring and monitoring equipment. Development of leave-in-place solutions. Development of underwater suction pumps to remove the material from deep water. On-ship water treatment equipment.

39

Onshore water receiving and treatment plants. Onshore cuttings cleaning. Re-use of cuttings material.

Companies interested in this market should keep abreast of the UKOOA initiative and should consider having solutions developed for the Ekofisk and Frigg decommissioning projects.

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11.0 Pipelines
11.1 General

According to DTI figures there are 10,430 km of offshore pipelines in the UK. Like drill cuttings the decommissioning requirements for pipelines are unclear. There are no international rules or guidelines available. The guidelines issued by the DTI indicate that decisions will be taken in the light of individual circumstances and with little pipeline decommissioning having been undertaken to date there are no precedents on which to base any predictions of the likely size and shape of the pipeline decommissioning market. The Norwegian Ministry of Oil and Energy has taken a lead in researching the possible options and has recently published the results of their studies (10). It would seem that the final outcome will include a number of solutions including leaving in place, trenching and burying or totally removing. It is impossible to predict at this stage the mix of solutions that will be applied and combined with the fact that there are no reliable cost estimates for each of these solutions it is not possible to give a reliable cost estimate for this market. Using the range of costs quoted in the Norwegian study and adjusting for the greater length of UK pipelines then a low estimate based on trenching only of 325 million is obtained with a high estimate of 3.8 billion for complete removal. Allowing for a range of different solutions then a cost range of 1 billion to 3 billion could be considered reasonable given the current uncertainties. These costs will be totally dominated by the cost of specialist marine construction equipment.

11.2

Technical Issues.

Pipelines associated with offshore oil and gas production can either be buried, lie in open trenches or simp ly lie on the sea bed. The key decommissioning issue is the cost and environmental effects of removing the pipelines versus the environmental effect of leaving them to decay in situ particularly the effect it may have on fishing activities. The larger diameter export pipelines have a heavy coating of concrete surrounding the pipe that makes them

41

more difficult to remove and recycle compared to the smaller infield pipelines which have less heavy coatings and can often be removed from the sea bed by reeling up onto a ship. Leaving buried pipelines in place in areas where the sea bed is stable would arguably not pose significant problems for fishermen. However, some of the Southern North Sea areas are prone to the movement of sand waves which can alternately bury and uncover pipelines. There will be arguments that these pipelines should be removed. For pipelines lying on the sea bed, research suggests that trenching the line will be a significantly lower cost option compared to complete removal. For unburied lines it would be feasible to dump rocks over the lines to provide cover but there are strong objections to this solution from fishermen. The final solution may well be a mix of removal, trenching and covering but at this point in time no firm predictions can be made. If lines are to be left in place then clearly they will need to be flushed and cleaned.

11.3

Market Development

There is little doubt that there will be an ongoing market for the removal of small diameter lines and cables which are not buried. This market can be served by the existing capability in underwater services. There is also likely to be a requirement for trenching of pipelines since this appears to be one of the favoured decommissioning options. There is also likely to be a requirement for the total removal of pipelines in some areas where trenching or leaving on the sea bed are not acceptable in the long term. In either event, there will be a need for specialist marine equipment.

11.4

Business Opportunities

The near term market is likely to be limited to the removal of relatively small lines and cables which can be accommodated by the existing contracting market.

42

Longer term opportunities need to await further research, dialogue between interested parties and regulator guidance. At the present time there are no indications of any early activity with respect to research or regulatory developments. However the market is potentially large.

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12.0 Well Plug and Abandon

12.1 General.

Interest in decommissioning has, to date generally been concerned with onshore disposal of structures which is in fact one of the smallest sectors in the market and little attention has been paid to well abandonment which is likely to account for almost a third of the cost of decommissioning a production platform. Well abandonment cost estimates are highly variable ranging from the cost of straightforward platform based wells, the cost of difficulties arising from corrosion of the well tubulars through to the costs associated with complex high temperature high pressure wells and to subsea wells. There are reportedly 2,400 wells to be plugged and abandoned in the UK sector and we estimate that the total cost of this activity could be in the order of 1 billion to 1.5 billion.

12.2

Technical Issues.

This is a highly specialised activity which will typically be carried out by specialist contractors for both platform and subsea wells. It is likely that platform wells will be abandoned in a phased manner during the final years of production. In this way the associated overhead costs can be shared with other installation activities. With the cost of well abandonment being a major element of field decommissioning there is obviously an interest from oil companies in new technology to help reduce these costs. Techniques using coiled tubing are now being utilised and no doubt further research and development work will be needed to tackle the challenge of reducing costs whilst at the same time increasing reliability. A conference sponsored by Robert G ordon University in Aberdeen on 28 th and 29 th March 2001 is believed to be the first of its kind to focus on North Sea well plug and abandonment issues and is a sign that greater attention is now being paid to this important subject.

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12.3

Market Develop ment

In the Gulf of Mexico well plug and abandonment is generally undertaken by specialist contractors using techniques that do not require the use of a drilling rig. It seem likely that similar developments will occur in the North Sea although it remains to be seen whether rigless techniques will be suitable in all cases in the North Sea. In the UK there are already companies developing specialist equipment and expertise for the North Sea market. The size of the future market suggests that there will be further openings for specialist operators and equipment developers.

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13.0 Reuse of Offshore Installations

13.1 General

Much of international and national environmental legislation on waste is based on the waste hierarchy that says, in order of importance: 1. Minimise the creation of waste. 2. Reuse assets rather than create new. 3. Recycle materials rather than use new resources. 4. Dispose of the material in landfill or by incineration. Whilst close to 100% of the material in offshore platforms can be recycled it is clearly more desirable if the assets can be reused. There are two distinct aspects to the reuse of redundant offshore platforms. Namely reuse in whole or in part for hydrocarbon production or for reuse for non-oil and gas related purposes.

1.2

Reuse for oil and gas production.

In the Gulf of Mexico reuse of redundant platforms is a well established process. In the North Sea area, several oil companies have put considerable time and effort into trying to find a buyer for their installations but to date there has been no success. We believe the reasons for the lack of success are a combination of the following:

Limited number of North Sea assets decommissioned to date. North Sea is a mature area that is almost exclusively using subsea and floating production technology to develop remaining reserves. Therefore there is not a market within the North Sea for old platforms.

The ageing North Sea structures and their large size are not well suited to new developing areas in the world There is an attitude amongst designers that new is best.

Whilst there will no doubt be reuse of the more versatile of the North Sea structures such as the Hutton TLP and the FPSO installations it is difficult to envisage a reuse market developing on the scale of the Gulf of Mexico.

46

Nevertheless, there is a very significant financial prize on offer if a platform can be sold rather than scrapped and we therefore anticipate that efforts will continue to be made to sell installations. We are not aware of any studies having been undertaken to identify where potential reuse markets might lie. If they do exist, then we would expect them to be located in developing areas such as China, Far East, Eastern Europe, Asia and West Africa. A study of these markets could be considered to determine if there is scope for reuse of North Sea assets. An essential ingredient of being able to reuse installations is to be able to match sellers with potential buyers. A Dutch company, The Web Platform Brokers (11), has been set up to undertake this function with the aid of the world wide web. The sale of a complete platform including jacket and topsides to a new owner such that the facility is a close fit to the new requirements is unlikely. In particular the jacket structures will be difficult to reuse without the new water depth being very close to the original North Sea location. A more realistic reuse is to take the topsides of a North Sea installation and place it on a new support structure. It is even more realistic to envisage particular sections of a topsides structure such as the living quarters, drilling rig, power generation modules etc. being used in new locations. Ultimately there will be an overlap with the onshore disposal industry which will also be aiming to sell as much reusable equipmen t as possible. If markets can be identified and buyers matched with sellers then there could be a limited but profitable business in removing, modifying and reinstalling North Sea platforms.

13.3

Reuse for non-oil and gas purposes.

13.3.1 Reuse offshore

It is important to regard a redundant platform as an asset rather than an industrial relic destined for the scrap heap. The challenge, therefore, is to identify the best use of these assets in position in the North Sea. It is a mistake to believe that structurally these installations are nearing the end of their life. Indeed the concrete structures are likely to survive for several hundred years without maintenance and the challenge of

47

finding a new use for old concrete installations is particularly relevant since many of them are unlikely to be moved. There have been many reuse ideas put forward in the past such as prisons, hotels, casinos etc. most of which have no likelihood of being financially viable. There are however two generic areas which we believe merit further study to determine if there is any prospect of viability.

Power Generation.
There is an abundance of wind and wave power at the offshore platform locations. Whilst there may be limited space available to mount wind turbines we feel there may be opportunities to harness considerable quantities of wave power. One of the serious proposals considered by Shell for the reuse of Brent Spar was the use of Spar as a hub for an array of wave power generation buoys using a novel technology being developed by Ocean Power Technologies Inc in the United States. The proposal was to generate 15 MW of power using Spar. A large offshore platform would clearly be capable of generating a much greater output. If the legs of the concrete platforms are opened to the sea then it may be viable to generate power from the resultant oscillating air column in the legs using the same principles as being put into practice by Wavegen (12). Lastly, an idea brought to our attention by a Norwegian environmental pressure group, Bellona, is to use offshore platforms to generate large power outputs from gas turbines but rather than discharge the exhaust gases to the atmosphere the gases would be injected into underground reservoirs. In this way large amounts of fossil fuel power could be generated without atmospheric emissions. Question marks have been raised regarding the economics of laying power cables from offshore to land but it is interesting to note that BP are planning to lay cables from land to some of their offshore installations so that power can be supplied from onshore stations. These same cables could presumably be used in the opposite direction.

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An alternative suggestion to exporting electricity from an offshore installation is to use the offshore power for t e electrolysis of seawater to produce hydrogen the fuel for h cars of the future. The viability of the above and similar ideas is clearly highly questionable but we believe that there is sufficient merit to justify a serious investigation to determine if the ideas should be discarded or developed.

Aquaculture.
We have been advised by fish farming specialists that there is a desire in the fish farming industry to move away from inshore areas to more exposed offshore locations. This would open up new disease free areas and opportunities to raise different species. Suggestions put forward are to have fish cages that can be lowered below the wave zone for much or the year but raised during the summer period for harvesting. Other ideas have suggested using platforms as nursery areas for development of young fish which would eventually be released to the wild. We are not competent to judge the merits of these ideas but given the current pressure on fish stocks there is an argument for looking more closely at these ideas.

It is conceivable that both power generation and aquaculture could occur at the same location.

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Internet References.
1. http://www.phillips66.com/maureen/default.htm 2. http://phillips.netpower.no/ 3. http://www.totalfinaelf.no 4. http://www.shell.com/uk-en/directory/0,4010,25268,00.html 5. http://www.ospar.org 6. http://www.excalibur-engineering.com 7. http://www.msoinc.com 8. http://www.pilottaskforce.co.uk 9. http://www.ukooa.co.uk 10. http://odin.dep.no/oed/norsk/html/rapporter/14/#_Toc475861887 11. http://www.web-platform-brokers.com 12. http://www.wavegen.co.uk 13. http://www.huttontlp.com 14. http://www.og.dti.gov.uk

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APPENDIX A

Offshore Decommissioning.

Opportunities for Scottish Based Businesses Update to the initial report prepared for Scottish Enterprise.

March 2002

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Introduction The purpose of this report is to update the reader of the initial report prepared for Scottish Enterprise entitled Offshore Decommissioning Opportunities for Scottish Based Businesses. The major part of the initial report remains valid at the time of this update (Ma rch 2002). However during the last nine months there has been significant progress on Maureen, Ekofisk and Frigg Decommissioning Projects. Maureen Decommissioning. On 26 th June 2001 the successful refloating of the Maureen installation in the UK Sector was achieved. Maureen was a unique steel gravity structure that presented significant engineering challenges to ensure that the structure could be released from the seabed suction and retain a stable floating position. The operation took place according to plan and the installation is now being dismantled by Aker in Stord Norway. Ekofisk Decommissioning. The change of Government in Norway last year has delayed approvals of the Ekofisk Decommissioning Project and as a result the project is running about six months behind the original proposed schedule. Approvals to go ahead are however now in place and there are firm plans to move ahead as outlined in our earlier report. Significantly, the proposal to seek derogation from the OSPAR requirement for total removal of the concrete tank has been achieved and it is anticipated that Norwegian Government approval to leave the tank in place after the storage tanks have been cleaned and the topsides removed. The total cost of Ekofisk Decommissioning has been quoted by Phillips to be NOK8 billion (625m). The schedule shown below was published in July 2001. The approval delays have resulted in a delay of about 6 months to this programme.

As can be seen from the programme Phillips intend to award four con tracts during 2002 and 2003. 1. Tank Cleaning The cleaning of the storage tanks represents a considerable challenge. Access is extremely limited and currently technology does not exist to adequately clean the liquids and sediments in the tank structure. The safety hazard arising from the very high levels of Hydrogen Sulphide in the water are also a significant challenge. Phillips are currently sponsoring the competitive development of tools that will have the capability to clean the tanks. It is the intent to undertake the cleaning work in 2003 2004 prior to commencing the topsides removal work in 2005.

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2. Front End Engineering Development (FEED). The FEED contractor will be responsible for drafting the technical part of the tender documents for the removal contracts for the Tank Topsides Removal and the 36/22A and 37/4A platforms. The challenge for this contractor will be to develop a document that will be applicable to the different execution concepts that could be utilised in the removal contracts. In addition, the FEED Contractor will be responsible for collating and collecting the technical data required by the bidders. The status of this contract is that tenders have been submitted to Phillips with contract award and commencement of the work in June 2002. 3. Tank Topsides Removal. Although the tank topsides were partly constructed in a modular format the later addition of an outer concrete ring to overcome problems of subsidence of the original platform means that conventional heavy lift cranes such as Heeremas Thialf or Saipems S7000 cannot readily reach the modules. The options available are to remove the topsides piece small, to skid modules to positions where a heavy lift crane can reach or perhaps erect a very large crane on the tank itself. The optimum solution may be a combination of these possibilities. The determination of the optimal solution requires study using the specific contracting resources and at the same time Phillips wishes to ensure competitive tendering for the work. The tendering process being undertaken is to prequalify up to six contractors who will undertake front-end engineering studies before going on to formally tender for the work. It is understood that the contractors will receive a financial contribution from Phillips towards the cost of their engineering work. It is not clear if all six contractors undertaking the studies will be invited to tender. The status of this process is that prequalification questionnaires have been submitted by interested contractors. The successful six contractors will be announced some time before the start of the study phase in June 2002. The front-end studies are scheduled to be complete by the end of 2002 and tendering is planned for Q2 2003 and award Q3 2003. 4. 36/22A and 37/4A Removal (Norpipe Booster Platforms) These platforms, which are located in the UK Sector, will be used by Phillips as pilot projects for the use of new technology lifting systems. It is a stated requirement that traditional lifting techniques may not be used for the removal of these platforms. Subject to proposals being technically acceptable and competitively priced compared to traditional removal methods Phillips intend to award contracts to two contractors. One for each platform and subject to satisfactory execution of the removal work the new technology contractors will be invited to tender for the remaining Ekofisk removal work. The contracting process being adopted by Phillips is similar to that being adopted for the Tank Topsides. Up to six contractors will be invited to undertake front-end engineering studies prior to being invited to tender for the work. The status of the process and future timing is the same as for the Tank described above. Further information on Ekofisk decommissioning can be found at http://phillips.netpower.no/

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Frigg Decommissioning. In November 2001 TotalFinaElf published the second draft of its Decommissioning Programme. Extracts of the proposed decommissioning solutions and associated costs for both the Norwegian and UK Sector installations are given below: The most significant points to note are that TotalFinaElf are proposing that the concrete gravity structures are left in place with their topsides removed. The total cost of the Norwegian Sector work is 138m with the UK Sector being 122.3m giving a total of 261.1m. In addition the cost of plugging wells and taking the topsides facilities out of service is estimated to be a further 78.7m. Costs are 2001 money, 50/50, with an exchange rate of 13.08NOK = 1. Accuracy is estimated at -24%/+31% with an 80% confidence level. Alternatives chosen and costs of decommissioning Frigg UK Facilities

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Alternatives chosen and costs of decommissioning Frigg Norwegian Facilities

The proposed schedule is shown in the extract below:

The full decommissioning programme may be downloaded at www.totalfinaelf.no.

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Other UK Decommissioning Programmes. The Hutton TLP structure is planned to be re moved from location during summer 2002 and is expected to be sold for reuse as an offshore platform. A buyer and planned use have not yet been announced. In summer 2003 it is planned to remove the sub-sea anchorages for disposal or reuse onshore. There remains an expectation that BPs NW Hutton will be one of the first of the large (over 10,000 tonne) steel jacket structures to be decommissioned. At the time of writing there are no indications of when this may happen. The earliest possible would be a 2005 removal but 2006 onwards would be more realistic. Commentary The publication of the Ekofisk and Frigg Decommissioning Programmes along with the commencement of tendering for the Ekofisk work has brought about the anticipated renewed interest from offshor contractors. e The intent of Phillips to remove the two booster platforms using new technology gives an increased likelihood that these new vessels will be built although there remains a question mark regarding the risks associated with investing in a new vessel on the basis of only one guaranteed contract. There remains the prize for Scottish Companies to participate in both building and operating these new vessels.

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