2016 North Sea Decommissioning

Market Forecast
2016-2040

Prospects, Technologies, Markets

Contents
Table of Contents
1 Summary & Conclusions ..........................................6 4 Supply Chain ............................................................ 30
Summary ......................................................................................................................................... 7
Conclusions .................................................................................................................................... 8
2 Drivers and Indicators..............................................9
Offshore Oil & Gas and the North Sea .................................................................................. 10
Oil Supply & Demand ............................................................................................................. 11
Oil Price Volatility ....................................................................................................................... 12
Oil Price Impacts ......................................................................................................................... 13
Historical Platform Installations ............................................................................................... 14
Historical Subsea Tree Installations ......................................................................................... 15
Drivers of North Sea Decommissioning ................................................................................ 16
Drivers of North Sea Decommissioning Legislation ........................................................ 17
3 Overview of Decommissioning Process ........... 19
Decommissioning Planning Phase ............................................................................................ 20
Overview of Decommissioning Process ................................................................................. 21
Well Abandonment ..................................................................................................................... 22
Infrastructure Removal .............................................................................................................. 23
Other Considerations ................................................................................................................ 25
Decommissioning HLVs .......................................................................................................... 26
Decommissioning HTVs ......................................................................................................... 27
Decommissioning SLVs ........................................................................................................... 28
Decommissioning SLV: Pioneering Spirit............................................................................. 29
2016 Douglas-Westwood North Sea Decommissioning Market Forecast 2016-2040
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Well Abandonment ..................................................................................................................... 31
Platform Decommissioning System Inerting and Disconnection ................................... 32
Platform Decommissioning Infrastructure Removal & Disposal .................................... 33
5 Market Forecast ...................................................... 34
Methodology ................................................................................................................................ 35
Denmark, Germany, Norway & UK: Total Expenditure ...................................................... 37
Denmark, Germany, Norway & UK: Total Removals .......................................................... 38
Denmark, Germany, Norway & UK: Total Weight Removed ............................................ 39
Denmark: Total Expenditure..................................................................................................... 40
Denmark: Platform & Well Removals ..................................................................................... 41
Germany Summary ..................................................................................................................... 42
Norway: Total Expenditure ....................................................................................................... 43
Norway: Platform & Well Removals ....................................................................................... 44
UK: Total Expenditure ............................................................................................................... 45
UK: Platform & Well Removals ................................................................................................ 46
Onshore Deconstruction .......................................................................................................... 47
6 Appendix .................................................................. 48
Data and Text Conventions ...................................................................................................... 49
2
Contents

Figures and Tables

Figures
Figure 1: Tonnage Removed by Country ............................................................................................................7
Figure 2: Capex Comparison S1 and S2 .............................................................................................................8
Figure 3: Global Onshore vs Offshore Oil & Gas Production, 2005-2021.................................... 10
Figure 4: Regional Offshore Oil & Gas Production, 2000-2015 .......................................................... 10
Figure 5: Oil Price & Demand,1990-2015....................................................................................................... 11
Figure 6: World Liquids Production Growth, 2005-2015 ..................................................................... 11
Figure 7: Historical Brent and WTI Oil Prices, January 2010 -January 2016 ................................ 12 Tables
Figure 8: Average Annual Brent Spot Price Forecasts, 2010-2020 .................................................... 12 Table 1: Tax Rates ....................................................................................................................................................... 16
Figure 9: O&G Sector Average Stock Performance Index, June 2014-February 2016 ............ 13 Table 2: Number of Platforms by Size Category ......................................................................................... 16
Figure 10: Quarterly Visible Subsea Production Tree Orders, Q1 2008-Q3 2015 ................... 13 Table 3: Average Age of Platforms by Size Category ................................................................................ 16
Figure 11: Fixed Platform Installations 1990-2015 ...................................................................................... 14 Table 4: Key OSPAR Terms ..................................................................................................................................... 17
Figure 12: Subsea Tree Installations 1990-2015 ........................................................................................... 15 Table 5: Re-use and Disposal of Platform Components .......................................................................... 21
Figure 13: Model Cash Flow for a Development Drilling Project....................................................... 20 Table 6: Forms of Topside Removal.................................................................................................................... 23
Figure 14: Allseas Pioneering Spirit ..................................................................................................................... 29 Table 7: Forms of Steel Jacket Removal ........................................................................................................... 24
Figure 15: North Sea Total Cost Scenario 1 .............................................................................................. 37 Table 8: Heavy Lift Barge Fleet.............................................................................................................................. 26
Figure 16: North Sea Total Cost Scenario 2 .............................................................................................. 37 Table 9: Heavy Lift/Crane Vessel Fleet .............................................................................................................. 26
Figure 17: Number of Platforms Removed by Country .......................................................................... 38 Table 10: Heavy Transport Fleet >5,000t Deadweight Capacity, by Operator ........................... 27
Figure 18: Number of Wells Removed by Country................................................................................... 38 Table 11: SLVs Under Construction ................................................................................................................... 28
Figure 19: Substructure Tonnage Removed by Country ......................................................................... 39 Table 12: Fixed Platform Size Categories ........................................................................................................ 35
Figure 20: Topside Tonnage Removed by Country .................................................................................... 39 Table 13: History of Platforms Offshore Germany ..................................................................................... 42
Figure 21: Tonnage Removed by Size 2016-2040....................................................................................... 39 Table 14: Onshore Cost by Country ................................................................................................................. 47
Figure 22: Denmark Total Cost Scenario 1 ................................................................................................ 40
Figure 23: Denmark Total Cost Scenario 2 ................................................................................................ 40
Figure 24: Denmark Number of Platforms Removed by Size .......................................................... 41
Figure 25: Denmark Number of Wells Removed by Surface/Subsea .......................................... 41
Figure 26: Norway Total Cost Scenario 1 ................................................................................................. 43
Figure 27: Norway Total Cost Scenario 2 ................................................................................................... 43
Figure 28: Norway Number of Platforms Removed by Size ............................................................ 44
Figure 29: Norway Number of Wells Removed by Surface/Subsea ............................................. 44
Figure 30: UK Total Cost Scenario 1 ............................................................................................................. 45
Figure 31: UK Total Cost Scenario 2 ............................................................................................................. 45
Figure 32: UK Number of Platforms Removed by Size ....................................................................... 46
Figure 33: UK Number of Wells Removed by Surface/Subsea ........................................................ 46
Figure 34: Onshore Deconstruction Expenditure Comparison........................................................... 47

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Notes & Acknowledgements

Report Details

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While we have made every attempt to ensure North Sea Decommissioning
the information contained in this document Market Forecast
has been obtained from reliable sources, Editor is published by:
Douglas-Westwood is not responsible for any Steve Robertson
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DW report number 570-16

Date of publication: 15th February 2016
ISBN 978-1-910045-29-9

A supporting databook to accompany the charts and tables presented in this report
is available in Excel format upon request.

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Chapter 3 : Overview of Decommissioning Process

Decommissioning Planning Phase

Cessation of Production
The decision on whether and when to
proceed with Cessation of Production
(CoP) programmes will occur as recoverable
reserves are exhausted and the incremental
recovery costs prove financially less attractive.
Oil price is one of the key sensitivities, along
with petroleum tax and O&M costs, which
have traditionally been seen as having an
impact on the timing of CoP, the abandon-
ment of the field and the subsequent begin-
ning of expenditure on decommissioning.
Three financial models have traditionally
been used to identify the optimum point in
time to cease production:
t
Negative net profit (NNP) is the point
where operating costs exceed revenue
from production.
t
A minimum margin on ongoing expendi-
ture requires an additional margin on ex-
penditure to cover allocation of operating
overheads, but like NNP this model fails
to take account of future field cash flows.
t
Maximising remaining Net Present Value
This will ordinarily be the point at which the
remaining NPV equates to approximately
150% of the estimated decommissioning
cost. At this point security provisions will be
triggered and the decommissioning project
team mobilised. In practice this is often
ignored; operators have a strong history of
ignoring the decommissioning costs which
are often deferred as long as possible, even
after the field has been abandoned.
There is a strong correlation between oil
price and abandonment, with a higher oil
price enabling field operators to deploy
enhanced oil recovery techniques. This was
seen in recent years as the stable high oil
price (around $110 a barrel) that lasted
from 2011 to mid-2014 caused numerous
fields to be extended beyond their design
life.
250 Annual Cash Flow
Cumulative Cash Flow
200
Suffering risk
150
100
Cash Flow ($m)
Nevertheless, sustained low oil prices are
likely to impact CoP for fields which are
near or past their optimal life. Numerous
small fields in the UK have had life exten-
sion work which requires a high oil price to
be economic, without it, CoP will undoubt-
edly occur soon.
Two fields have already suffered this fate
with FPS development Athena, which
only began production in 2012, as well as
the well-established Dunlin field that first
entered production in the 1970s, both
reaching their CoP point recently due to
the oil price downturn.
If they had realistic decommissioning
costs built into their balance sheet they
probably should have started decommis- The decision to cease production
sioning some years ago. occurs as recoverable reserves are
exhausted and incremental recovery
Decommissioning Company costs prove financially less attractive.
Oil price, petroleum tax and O&M
costs all affect a fields CoP date.
But the biggest issue that these guys
have is the yearly expenditure to keep Sustained low oil prices will lead to
the platform operable. Just keeping the
lights on, on some of these platforms is CoP for fields that are near or past
20-30 million a year, so again it comes optimal lift.
down to having a good economist on
your team, who can look at the scenarios
of oil price v decommissioning costs v
Opex costs.
Decommissioning Company
Net present value

Loss Profit
(NPV) incorporates into the calculation 50
all future cash flows, including decommis-
0
sioning liabilities and available tax relief
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
over time. -50 Years from Project Start
-100
A key output from the financial analysis is to Payback
identify the critical point that will trigger the -150
commencement of preparing for decommis- -200 Maximum exposure
sioning. Figure 13: Model Cash Flow for a Development Drilling Project

2016 Douglas-Westwood North Sea Decommissioning Market Forecast 2016-2040 20

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Chapter 3 : Overview of Decommissioning Process

Decommissioning SLVs

Impact of Single Lift Vessels
Several SLVs have been conceptualised in
recent years, including the Pioneering Spirit
(previously Pieter Shelte) and Twin Marine
Lifter System. However, Allseas are the only
company who have firm plans to enter a
vessel into the market with the Pioneering
Spirit which already has two decommission-
ing contracts and is due to start work in
2016. Allseas are decidedly confident and
already have plans for an SLV larger than
the Pioneering Spirit, following its comple-
tion, currently named Amazing Grace.
Vessel
Construction
SLVs will have a significant impact on
decommissioning times, with a correspond-
ing reduction in costs. The Pioneering Spirit
will be able to remove some of the heaviest
topsides in the world in one lift something
that would take HLVs significantly longer at
considerably higher costs, due to the need
to use reverse installation methods.
Preparation times for SLVs prior to lifts will
also be about a fifth of those required for
conventional heavy lift crane vessels.
Table 11: SLVs Under Construction
Pioneering Spirit
(ex. Pieter Shelte)
Daewoo Shipyard
The success of SLVs rests heavily on the Pio-
neering Spirits performance. If it completes
operations quickly, with no incidents and
has a day rate that appeals to operators, it
is likely a number of other companies will
build rival vessels.
Should the Pioneering Spirit be a success, it
and the vessels that follow will at least ease
the demand load across the installation,
pipe laying and decommissioning sectors,
creating vessel availability and easing bot-
tlenecks.
Amazing Grace
TBD In design phase
Other concepts for SLVs have been touted, including
the Twin Marine Lifter System that would have been
the first to market had it been ordered and delivered
as expected. This has not been the case and
construction has still not begun. In 2014 the concept
was sold to Shandong Twin Marine and though a
contract to build the vessel was expected to be an-
nounced in 2015, nothing has been forthcoming.
Another SLV, Borealis, was due to be delivered in
2012, however Subsea 7 bought the order in 2009
and re-designed the vessel as a pipelay and heavy
lift vessel.
Twin Marine Lifter
China Petroleum Liaohe Equipment Company
There have been several conceptual
SLVs but only one, the Pioneering
Spirit, by Allseas has actually been
constructed.
Its first job will be the removal of the
Yme mobile offshore production unit
(MOPU) offshore Norway.
It will also be removing the topsides
of the Brent platforms, which all weigh
>20,000 tonnes.
Allseas is already planning to construct
another SLV with a topside lift capacity
of 72,000 tonnes.

Shandong Twin Marine

Owner Allseas Allseas SLVs can offer significant time and cost
(JV between Twin Marine Heavy-Lift and Shandong Shipping Corp.)
savings to operators.
Order Date 2007 - -

Delivery Year 2016 Expected 2021 - Success will depend on operator will-
ingness and competitive day rates.
Max. Lift Capacity (Topsides) 48,000 tonnes Planned 72,000 tonnes 34,000 tonnes

Max. Lift Capacity (Jacket) 25,000 tonnes Unknown 16,000 tonnes

Max. Speed 14 knots Unknown Unknown

Draft 10-25m Unknown Design draft 8.5m, Submerged draft 22.75m

Estimated Cost () 3bn > 3bn Unknown

Following the delivery of Pioneering Spirit, Allseas has

Allseas announced in May 2015 that Pioneering Spirit As part of the unique commercial offering an insurance
announced the construction of an even larger ship
Notes should be ready to start its first platform removal in the package is being developed which will allow fixed-price
(160m wide), which is intended for the installation and
North Sea later in the year. platform removal.
removal of the largest vessels.

2016 Douglas-Westwood North Sea Decommissioning Market Forecast 2016-2040 28

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Chapter 4 : Supply Chain

Platform Decommissioning Infrastructure Removal & Disposal

Operators BP
The operator of the platform to be removed Shipyards will often work in partnership with ConocoPhillips
may award a contract for the whole decom- specialist decommissioning disposal and waste Shell
BG
missioning process to a duty holder who will management companies to establish facilities
Perenco
be responsible for the engineering and project at their yard. For example, in June 2015 joint
Amec Foster Wheeler
management of the complete decommission- venture (JV) partners Peterson and Veolia Operators
Aker Solutions
ing phase including infrastructure removal. invested in a decommissioning facility in Great
BIS Salamis
Yarmouth port.
MMO providers
EPC / Project Management
Operators must ensure the structural integrity The supply chain within the UK can be
of their infrastructure before it is removed. considered somewhat constrained due to the
These services will often be sub-contracted by shipyard and onshore infrastructure limita-
the duty holder/project manager or directly by tions. It is likely that UKCS suppliers may be
the operator. overlooked for UKCS disposal contracts due HLV SLV
Veolia
to the capabilities of Norwegian and Dutch Heerema Allseas
Bureau Veritas
HLV and SLV vessel contractors yards. SAL Shangdong Twin
Cape
HLVs and SLVs used for the removal of plat- McDermott Marine
forms will usually be contracted directly by the Supply chain integration
operator or platform duty holder. In recent years there has been a call for the MMO Providers HLV / SLV Contractors
supply chain to become more integrated with
For reverse installation or piece small de- the packaging of services across the supply
commissioning methods, support vessels will chain to ease the supply chain, share experi-
Bibby Offshore
often be required to transport the removed ence and expertise as well as managing the
Technip
modules back to shore for disposal. Most HLV risk involved.
Subsea 7
contractors will have the required support
vessels and barges in their fleet. In particular there is a call for waste manage-
ment service providers to be involved in the Support Vessel Contractors
Waste management & shipyards decommissioning process from an earlier
The platform operator or duty holder will stage.
usually be responsible for awarding waste ABLE
management contracts to a waste man- Kvaerner Veolia
agement service provider, who will then Peterson UK & Veolia Sureclean
contract the shipyard or port to be used. The AF Decom Offshore
operator may directly contract the yard/port
themselves. Shipyards/Ports Waste Management

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Chapter 5 : Market Forecast

Methodology

DWs North Sea Decommissioning Market Forecast is produced using a combination of in-house databases (and external sources for verification purposes) which track projects on an individual basis. Our in-house model forecasts
weight and spend using this data and estimated costs of decommissioning work.
Data from Government Organisations
Historical Field Production

Forecast Field Forecast Hub Forecast Platform Tonnage Tonnage

D&P Model Production Oil and Gas Decommissioning Number of Lift
Production Price - HLV Days Removed

Hub Revenue Number Day Rates Scenario 1

of Platform Cost Cost
Hub Data, Collates Field Data Removals $ Millions

Number of
FPS Model
FPS Removals
Abandonment &
Decommissioning
Dates for Each Hub
Well Well
DW Offshore Oil & Gas Database

Decommissioning Days
Model Removal

Number Day Rates Scenario 2

of Platform Cost
Cost
Removals $ Millions

Field Data: Platform Tonnage

FPS Units Offshore Field O&M Tonnage
Platforms Costs Hub O&M Costs Decommissioning Number of Lift
O&M Model - SLV Days Removed
Trees

Data Models Model Outputs Assumptions Outputs

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Chapter 5 : Market Forecast

Denmark: Total Expenditure

FPS Removal Heavy Transport FPS Removal Heavy Transport

Onshore Deconstruction PSV Onshore Deconstruction PSV+DSV 2016-2040
Substructure Removal Topside Removal Substructure Removal Topside Removal
S1 Total Spend $ bn

Expenditure ($bn)
Expenditure ($bn)

Well Decommissioning Well Decommissioning

S2 Total Spend $ bn

Danish decommissioning activity will

peak in two distinct periods.

Virtually all Danish production comes

from fixed platforms FPS remov-

2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
als.

Figure 22: Denmark Total Cost Scenario 1
Denmark summary The Siri and Gorm hubs are the other two
Though smaller than both Norway and the that we expect to be decommissioned, with
UK, Denmark has a number of fixed platforms abandonment for both expected in 2035.
which will reach the end of their commercial
life in the next few years. Gorm has a large number of platforms with
two small, six medium, one large and two
Decommissioning will take place in main extra large platforms expected to be removed
periods which are built around the abandon- by the end of the forecast period.
ment dates for the major hubs in the country.
Four are due to be abandoned in the forecast The Siri hub consists of three medium and
period significantly less than Norway and one extra large platform. It also has three
the UK. subsea wells % of all subsea well removals
2016-2040 in Denmark.
We expect the Dan and Halfdan hubs, as well
as their tieback fields, to all be abandoned in Unlike the other two countries mentioned,
the later years of this decade, with decommis- Denmark has floating platforms, with the
sioning work running until 2023. vast majority of production coming from fixed
wellhead platforms.
Figure 23: Denmark Total Cost Scenario 2
Well decommissioning will represent only
% of the total spend in S1 and % in
S2 far less than in other countries. This is
due to the lack of subsea wells, which cost
significantly more to P&A and remove than
surface wells.
Scenario 1
Total spend in S1 for Denmark will be $ bn
over 2016-2040, % more than in S2. This
is a higher difference than both Norway and
the UK due to a higher percentage of spend
in the region being focused on platform
removals.
The entire platform removal and onshore
deconstruction process will cost $ bn, %
of total country spend, essentially a reverse of
These tie into hubs, two of which are
coming to the end of their commercial
Norway and the UK. Topside and substruc- life.
ture removal will lead spend, representing
% and % of the total forecast expendi- Dan and Halfdan hubs first to be
ture respectively. removed 2019-2023.
Scenario 2 Only four subsea well removals well
Total expenditure in S2 will be almost $ bn, decommissioning will account for a
with onshore deconstruction accounting for smaller proportion of spend than in
the highest proportion of spend outside of Norway and the UK.
well decommissioning ( % of the total).
There is a relatively even split of spend in S2
with heavy transport accounting for % fol-
lowed by substructure removal with % and
topside removal with %. The relatively small
percentage taken up by platform removal
demonstrates the cost saving that can be
made with SLVs.

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Chapter 5 : Market Forecast

Norway: Platform & Well Removals

Extra Small (Wellhead/Flare) Platform removals In comparison there are 49 platforms that
Small The number of removals will grow almost weigh more than 5,000 tonnes, accounting
2016-2040
exponentially over the forecast period, with for 75% of the total number of platforms
Medium
a limited amount of activity in the early part to be removed. This underlines the amount Platform Tonnage Removed m
Platforms Removed

Large
of the forecast before it ramps up later. This of time and cost that will be required using Platforms Removed
Extra Large
is a result of the abundant reserves that a HLVs and the reverse installation method.
Wells Removed
number of the major hubs in Norway still
possess, meaning they can keep producing The Yme MOPU will be the first job for the Subsea
84% of well remova %
ill take place
economically for many years. SLV Pioneering Sprit. The platform has never 2031-2040. Surface %
produced due to cracks in the grouting of
The dominance of large and extra large the platforms legs, which was discovered
platforms can be seen throughout the after installation. The platform will be trans- Norway is dominated by heavy plat-
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
forecast period and platforms under 1,000 ported straight to shore for deconstruction forms with % of platforms weighing
tonnes will account for only % of remov- after attempts to reuse it were found to be over 5,000 tonnes.
Figure 28: Norway Number of Platforms Removed by Size als ( platforms). None of these will impractical. The removal will be completed
Well removals Surface wells will account for a high propor- be removed until 2038 as they are part of with a single lift of the MOPU which weighs The Yme MOPU (15,000 tonnes) will
The number of well removals in Norway tion of removals at %, but this will not be major hubs which are expected to produce 15,000 tonnes. be the first single lift job for the Pio-
will grow significantly over the forecast mirrored in the cost. They will only repre- into the 2030s. neering Spirit, scheduled for mid-2016.
period, with the last ten years accounting sent % of total well cost, demonstrating
for 84% of all removals. the higher costs associated with subsea well Major opportunity for well removal
work, particularly in harsh conditions. companies, particularly from 2031
Subsea
This trend applies to both surface and onwards.
subsea wells, with the majority of fixed and Despite this there are surface wells to Surface
floating production units expected to come be removed 2016-2040, with a cost of al-
to the end of their life at the end of the most $ bn. This highlights that there is still
Wells Removed

forecast period. a large market for those companies who

specialise in the plugging and abandonment
With a cost of nearly $ bn and a total of of surface wells.
subsea wells to be removed, the im-
portance of subsea decommissioning work Key subsea developments that we believe
is clear. This should be a major focus for the will be decommissioned over the forecast
small number of companies capable of ex- period include tiebacks to the Norne FPSO
ploiting this area of the market, particularly ( wells), Alvheim FPSO ( wells) and the
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
as the number of wells in the UK will begin Heidrun TLP ( wells).
to decline in the 2030s. Figure 29: Norway Number of Wells Removed by Surface/Subsea

2016 Douglas-Westwood North Sea Decommissioning Market Forecast 2016-2040 44

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