approaches to late life & decommissioning strategy development€¦ · •taqa is an...

St Andrews Decom Conference

Approaches To Late Life & Decommissioning

Strategy Development Neil Fowler

Decommissioning Director TAQA Europe

1

Abu Dhabi National Energy Company PJSC (TAQA)

• TAQA is an international energy and water

company listed in Abu Dhabi operating in 11

countries across four continents

• The word TAQA means energy in Arabic

• TAQA has investments in:

o power generation

owater desalination

o oil and gas exploration and production

o pipelines

o gas storage

• TAQA has been in the UK since 2007 and

operates 5 platforms in the UKCS

St Andrews Decom Conference 2

TAQA Europe

Production Projects

Decommissioning Gas Storage


Topics

1. Planning For Late Life & Decommissioning

2. Strategic Success Factors

3. Uncertainties & Decisions

4. Developing Strategies To Account For Uncertainty

5. Summary


Planning For Late-Life & Decommissioning



Decommissioning Dichotomy

Operator

• Lowest cost

• Flexibility of timing

• Retain optionality

• Competitive supply

chain

Supply Chain

• Margin & cashflow

• Defined timing

• Win the work

• Fore-log of work

Definitions

• Strategy

“… is a high-level plan to achieve one or more goals under conditions of uncertainty”

• Tactics

“The study of the most effective ways of securing objectives set by strategy”

“Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before

defeat” *

* Sun Tzu - 5th Century BC


Typical Decision Hierarchy within an Operator

- Create/protect shareholder value

- Debt/finance & liability management


- Well P&A schedule

- Market approach /

tender plan

POLICIES

Head Office

STRATEGIES

Business Unit

TACTICS

Functional Management

- Maximise NPV of asset

base

- Develop & deliver

business plan

- Operating philosophy

- Partner & stakeholder

alignment

- Decommissioning

order, methodology &

cost of options

- Risk management &

quantification

- Divest, sub-contract or

manage internally

- CoP & decommissioning

timing

‘Business as Usual’ Decommissioning

Classical View Of Phases In Projects


Strategic Success Factors


Strategic Drivers


COSTliquidityliabilities

Value TimingCash Flow

Minimise risk

Tax relief

Tax capacityTender

Corporate Decommissioning Challenge

Decom provision competes

with growth opportunity

Pressure on cash flow

Deferment of critical decisions

Inefficient execution & cost growth


escalating

cost trap

Decision

Analysis

Uncertainties & Decisions



“Future outcomes are a function of the uncertainties that you

faced and the decisions that you made”

Probabilistic Decision Analysis

“A structured conversation both qualitative, and quantitative, about the options available and the uncertainties faced”

- Facilitates better decisions by providing a choice of options

- Provides insights by breaking up uncertainty into its component parts

- Engages technical experts in the quantification of risk

- Provides assurance to stakeholders many angles have been considered

- Spreads understanding of the issues that drive decisions throughout the company


Snapshot of Just Some Issues to be Considered (c.40 live issues)

Example Issues for Consideration Category

When to decommission assets Decision

Sequencing of CoP and DP applications Decision

When/how to do topside lifts Decision

When/how to do substructure lifts Decision

Scheduling of well P&A’s Decision

Decommissioning market & cost of services Uncertainty

Derogation strategy & outcomes Uncertainty

Timing of regulatory approvals Uncertainty

Partner alignment Uncertainty

Field/asset performance Uncertainty

Integrity & reliability Uncertainty

Oil price Uncertainty

Tax relief / Capacity ….? Etc etc etc


Example of a Decision - Optionality In Economic CoP Timing

(constant oil price)

0

2

4

6

8

10

12

Asset 1

revenue opex


0

2

4

6

8

10

12

Asset 2

revenue opex

• Asset has steeply declining revenue

• Asset has escalating costs

• CoP “early” leaves economic reserves

• CoP “late” exposes business to quickly

escalating losses

Little optionality in economic COP timing

• Asset has gently declining revenue

• Asset has flat costs

• CoP “early” leaves minimal economic

reserves

• CoP “late” exposes business to minimal

escalating losses

More optionality in economic COP timing

Example of an Uncertainty - Technical CoP Risk Within

Portfolio

Late life assets can be

considerably past their design

life already, non-HSE risks

that change through time

include:

- Loss of corrosion

allowances on production

critical systems

- Obsolescence of control

systems

- Turndown on process

plant at low rates

- Effectiveness of risk-

based inspection strategy

- “Known knowns, known

unknowns, and unknown

unknowns…….”


Example Effect Of Technical CoP Risk On An Asset Cluster

Probability of a major

integrity outage

P10 P50 P90

2 year 4 year 8 year


Asset 1

10,000

bpd

Asset 2

10,000

bpd

Asset 3

10,000

bpd

Asset 4

10,000

bpd

Risked/unrisked production

P90 P50 P10

15% 31% 58%

17.5

mmbbl

36.2

mmbbl

67.7

mmbbl


integrity outage

P10 P50 P90



integrity outage

P10 P50 P90



integrity outage

P10 P50 P90


East Of Shetland Context: 40+ CoP Dates, Multiple

Operators – OGA EoS Workgroup


Developing Late Life & Decommissioning

Tactics That Account For Uncertainty


A starting point to evaluating optionality: Simple “pure”

strategies

Example Plans Possible Basis Capital Investment Asset Order

1 Go quick Integrity threat No development 2,1,4,3,5

2 Base case MER & business plan As per plan 1,2,3,4,5

3 Go slow Market & technology Integrity upgrades 1,2,3,4,5


0

1

2

3

4

5

6

7

2018-2020 2020-2023 2023-2026 2026-2029

Uncert

ain

ty r

an

ge

Time range

Uncertainty range with time

integrity book value market oil price

Key

uncertaintyP10 P50 P90

a £200k £300k £400k

b 40% 65% 85%

c 50 day 75 day 120 day

d 10kbbl 5k bbl 2k bbl

Uncertainty Tables

Key


a £200k £300k £400k

b 40% 65% 85%



Key


a £200k £300k £400k

b 40% 65% 85%



Developing Strategy

The “best” answer is invariably a hybrid, or a compromise, of the pure strategies


Bad outcomes

• Low oil price

• Poor production

• High cost

• Poor PM

Good outcomes

• High oil price

• Good production

• Lower cost

• Good PM

“expected” outcomes

247th November 2018 Decommissioning Overview

Communicating Strategy & Aligning Stakeholders

https://www.google.co.uk/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=2ahUKEwjqiPaB8LzeAhVLJBoKHXyfCDIQjRx6BAgBEAU&url=https://www.shutterstock.com/search/stakeholder&psig=AOvVaw2pjDwkMTkssRX4kT1pSATD&ust=1541494330958061

Summary


• Operator’s planning for late-life and decommissioning is a complex

challenge, much more-so than often perceived

• Understanding uncertainty is fundamental to developing a successful

strategy for late-life operations and decommissioning

• Decommissioning tactics have strategic implications for Operators, and

need to be prepared for scrutiny and challenge at the highest levels –

internally & externally


Key Messages


Decommissioning Dichotomy

Operator

• Lowest cost

• Flexibility of timing

• Retain optionality

• Competitive supply

chain

Successful Strategy

• Maximised value

• Clear plans

• Best technology for the job

• Reduced uncertainty about future

revenues and cost

• Stakeholders aligned around plans

Supply Chain

• Margin & cashflow

• Defined timing

• Win the work

• Fore-log of work

Disclaimer

St Andrews Decom Conference

▪ THIS PRESENTATION IS NOT AN OFFER OR SOLICITATION OF AN OFFER TO BUY OR SELL SECURITIES. IT IS SOLELY FOR USE AT AN INVESTOR PRESENTATION AND IS PROVIDED AS INFORMATION ONLY. THIS PRESENTATION DOES NOT CONTAIN ALL OF THE INFORMATION THAT IS MATERIAL TO AN INVESTOR.

▪ This presentation has been prepared by Abu Dhabi National Energy Company P.J.S.C. ("TAQA"), is furnished on a confidential basis only for the use of the intended recipient and only for discussion purposes, may not be amended and supplemented and may not be relied upon for the purposes of entering into any transaction. This presentation may not be taken away, reproduced (in whole or in part), distributed or transmitted to any other person without TAQA’s prior written consent. In particular, this presentation is not for distribution to retail clients. If handed out at a physical investor meeting or presentation, this presentation should be returned promptly at the end of such meeting or presentation. If this presentation has been received in error it must be returned immediately to TAQA.

▪ The information contained in this presentation has been obtained from sources believed to be reliable but TAQA does not represent or warrant that it is accurate and complete. The views reflected herein are those of TAQA and are subject to change without notice. All projections, valuations and statistical analyses are provided to assist the recipient in the evaluation of the matters described herein. They may be based on subjective assessments and assumptions and may use one among alternative methodologies that produce different results and, to the extent that they are based on historical information, they should not be relied upon as an accurate prediction of future performance. These materials are not intended to provide the basis for any credit or any third party evaluation of any securities or any offering of them and should not be considered as a recommendation that any investor should subscribe for or purchase any securities.

▪ This presentation does not disclose all the risks and other significant issues related to an investment in any securities/transaction. Prior to transacting, potential investors should ensure that they fully understand the terms of any securities/transaction and any applicable risks. This document is not a prospectus for any securities and does not contain an offer to sell any securities. Investors should only subscribe for any securities on the basis of information in the relevant prospectus and term sheet, including (without limitation) the risks described in the relevant prospectus, and not on the basis of any information provided herein. The merits or suitability of any securities to any investor's particular situation should be independently determined by such investor. Any such determination should involve, inter alia, an assessment of the legal, tax, accounting, regulatory, financial, credit and other related aspects of any securities.

▪ The information contained in this presentation is subject to change without notice and past performance is not indicative of future results. TAQA is under no obligation to update or keep current the information contained herein. No person shall have any right of action (except in case of fraud) against TAQA or any other person in relation to the accuracy or completeness of the information contained in this presentation. No person is authorized to give any information or to make any representation not contained in and not consistent with this presentation and, if given or made, such information or representation must not be relied upon as having been authorized by or on behalf of TAQA.

▪ No action has been taken or will be taken that would permit a public offering of any securities in any jurisdiction in which action for that purpose is required. No offers, sales, resales or delivery of any securities or distribution of any offering material relating to any such securities may be made in or from any jurisdiction except in circumstances which will result in compliance with any applicable laws and regulations. Specifically, the securities referred to herein have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”), or under the securities legislation of any state of the United States, or the applicable securities laws of Canada, Australia or Japan. The securities if and when issued, will not qualify for distribution under any of the relevant securities laws of Canada, Australia or Japan. The securities of TAQA may not be offered or sold in the United States absent registration under the Securities Act or pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act.

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