executive summary - oil and gas authority · web viewin 2016 the oil and gas authority published...

MER UK Decommissioning Task Force – Delivery Capability Theme:Contracting and Execution Model Workshops 2016/2017

Delivery Capability Theme, Contracting and Execution Model Workshops 2016/2017Issued for Comment 5 May 2017

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Table of ContentsExecutive Summary.................................................................................................................3

Introduction and Context........................................................................................................4MER UK Decommissioning Strategy 2016.........................................................................................4Previous Related Work.....................................................................................................................4

Workshops..............................................................................................................................6Workgroup members.......................................................................................................................6Facilitation.......................................................................................................................................6Observations....................................................................................................................................6

Identification and Assessment of Delivery Models...................................................................8Boundary Conditions........................................................................................................................8Current Environment – Where are we now?.....................................................................................8Identification of Models...................................................................................................................9Execution Models............................................................................................................................9Business Models..............................................................................................................................9

Conclusions...........................................................................................................................11

Recommended Next Steps.....................................................................................................12

Acknowledgements...............................................................................................................14

Appendix A – Workshop Outcomes.......................................................................................15Appendix A1 – Where Are We Now................................................................................................15Appendix A2 – Definition of Success...............................................................................................16Appendix A3 – Execution Models...................................................................................................17Appendix A4 – Business Models.....................................................................................................18

Appendix B – Proposed Forward Plan....................................................................................19


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Executive SummaryIn 2016 the Oil and Gas Authority published their Decommissioning Strategy and Decommissioning Delivery Programme. The Decommissioning Task Force (formerly the Decommissioning Board) has been established to deliver key elements of the OGA’s Programme and has appointed a Subgroup to lead on the Delivery Capability elements. A key objective of the Delivery Capability ‘theme’ is the definition of one or more transformative execution models, supported by optimized business models to deliver cost savings in decommissioning.

In Q4 2016, the Subgroup assembled a cross-industry Workgroup to progress this objective. Two, 2-day workshops facilitated by Shell’s Front End Development Manager, were held involving 19 participants from operators, regulators and supply chain. The workgroups identified a range of execution and business models from ‘business as usual’ to more radical concepts, which could be applied to one or more elements of the decommissioning scope. The work did not examine how the models could be applied to specific scope elements, but did provide valuable insight into the ‘blockers’ that prevent the use of more innovative delivery models and the ‘enablers’, which could ultimately lead to cost savings.

Further work by the Subgroup after completion of the workshops yielded a series of follow on proposals to facilitate the realisation of cost saving opportunities; these include:

1. Clarification of the economic benefits of bundling platform decommissioning and campaigning well P&A;

2. Greater understanding of ‘what good looks like’ in the cost of platform decommissioning by incorporating recent industry learning’s to generic cost models;

3. Identification and examination of client-contractor alignment under innovative execution and business structures to combine and deliver specific combinations of the decommissioning scope;

4. Development of a method for optimising the utilisation of HLV/SLV’s throughout the economic cycle.

The Subgroup has developed these opportunities into outline scopes of work and deliverables for consideration by the Decommissioning Task Force to confirm the next steps.


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Introduction and ContextMER UK Decommissioning Strategy 2016The OGA’s Decommissioning Strategy (published in June 2016) and Decommissioning Delivery Programme (September 2016) identified Delivery Capability as a priority area in seeking to deliver a 35% saving on a baseline estimated cost of decommissioning. The objective of this element of the OGA Strategy is:

‘… to design, define and deliver a safe, competitive, and globally recognised industry expertise and capability. This will deliver transformational decommissioning solutions and in turn will drive cost reduction, promote investment and maximise economic recovery. These transformative solutions will provide guidance, and potentially requirements, on implementing effective organisational structures, and contractual arrangements, suited to deliver optimal decommissioning projects.’

The Decommissioning Delivery Strategy further identified two deliverables in support of this objective:

i. Definition of one or more transformative execution models for decommissioning

ii. Definition of one or more business models to support optimised execution models

The MER UK Decommissioning Board was formed in March 2016 to deliver the priority areas of the OGA’s Decommissioning Strategy and a Subgroup was created of Decommissioning Board members to deliver the objectives and associated deliverables under the ‘Delivery Capability’ theme.

Members of the Delivery Capability Subgroup are:

Craig Shanaghey – AmecFW (Chair)

Jonathan Brown – Repsol Sinopec Resources Limited (Co-sponsor)

Nigel Lees – Wood Group

Sam Long – Petrofac (Co-sponsor)

Matt Betts – Halliburton

Richard Harrison – Shell

David Hay – ConocoPhillips

Jim Christie – OGA

Martin Fidler – Scottish Enterprise

Wendy Richards – UKTI

In Q2 2016, the Delivery Capability Subgroup assembled a cross-industry Workgroup to address the execution and business model objectives identified in the Delivery Programme. This note summarises the Workgroup’s activities in Q4 2016 and Q1 2017.

Previous Related WorkIn 2013, as part of a consultation with the Industry Council under the Department of Business Innovation and Skills (BIS), Oil & Gas UK facilitated a series of workshops to identify cost reduction opportunities in decommissioning. A number of proposals were identified, including development of new business models for delivering decommissioning.


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This earlier work identified a number of opportunities that arose from a different approach to decommissioning, but also highlighted a number of legal, fiscal and commercial challenges that needed to be overcome to make further progress. During this recent workshop exercise, the Delivery Capability Subgroup recognised that their work supported the conclusions of the previous study and many of the blockers to a different approach are still to be overcome.


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WorkshopsWorkgroup membersThe Delivery Capability Subgroup held a series of meetings in Q3 2016 to frame the work required and identify the cross industry Workgroup to deliver the objectives. The Workgroup consisted of the following people representing operators, contractors and the OGA. All contributors gave their preparation and attendance time ‘pro-bono’:

Alex Neame – Centrica

Craig Shanaghey – AmecFW

Gregor Nicol – ExxonMobil

Jacob Terpstra –Shell

John Gillies – ExxonMobil

John Ibbotson – Oil and Gas Authority

Jonathan Brown – Repsol Sinopec

Katy Heidenreich – Oil and Gas UK

Matt Betts – Halliburton

Mike Burnett – ConocoPhillips

Nigel Lees – Wood Group

Richard Heard – Oil & Gas UK

Roger Essen – Decom North Sea

Sam Long – Petrofac

Shirley Allen – Pinsent Mason

Simon Seward – Shell

Tiana Walker – AMEC FosterWHeeler

Trevor Crowe – Shell (Facilitator)

Willem van Es – Wood Group

FacilitationTwo workshops were held, each over two half days to spread the commitment. Not all members of the workgroup were able to attend all meetings, with 12-15 people attending each session.

The workshops were facilitated by Trevor Crowe, Shell’s Front End Development Manager and consisted of the following structure:

1. Agree Boundary Conditions – what is and isn’t included2. Where are we now - Current perceptions and characteristics of the market place 3. Definition of success (following the workshop) - short, medium and long-term4. Identification of Business and Execution models5. Actions

Inputs and outcomes in these sections of the work are presented in Appendix A.

ObservationsDuring the course of the workshop process, the following observations were made: The two planned outcomes, i.e. business and execution models, may or may not be linked

and hence were considered sequentially in the workshops to identify all possible combinations.


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The framing premise was not focused at a specific area or areas within the overall decommissioning work breakdown structure and hence the applicability of execution or business models was considered at a high-level


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Identification and Assessment of Delivery ModelsBoundary ConditionsThe workgroup identified that the assessments of delivery models, should be bounded as follows:

Include Late Life operations (from 6 years pre-CoP) Specific discussion on scope is excluded Specific discussion on regulations is excluded

Importantly, the group did not focus on specific elements of the decommissioning workscope, but took a high-level view of execution and business models, which could be applied in one or more elements of the decommissioning work breakdown structure.

Current Environment – Where are we now?The workgroup agreed the following characterisation of the decommissioning sector:

Market Fragmented – limited collaboration in scope E&P and development approach – Traditional approach to contracting Lack of Technology investment and planning – uncertainty of scope and timing Lack of timely visibility of demand for Decom services – lack of schedule clarity Decommissioning Costs – lack of confidence and transparency in estimates and hence

the ‘size-of-the-prize’ Low experience level and learning slowly Tier 1's Dominate - barrier to new thinking, new ideas Risk approach – focus on risk management, not risk allocation

This evaluation set the scene for a discussion around potential execution models, with a short, medium and long-term evaluation of success including the following (full listing in Appendix A):

Short Term Medium Term Long Term Simplified contracting and risk

allocation Empowered supply chain Cost and schedule transparency Bundling and campaign

approach

Emergence of late-life/decommissioning models

Specialist decommissioning companies

Regulatory change to stimulate market innovation

Change in long-term liability management

Accountability for decommissioning and long-term liability management transferred to dedicated agencies

Mature decommissioning supply chain

Contractual clarity and acceptance

Decoupling from oil price cycle


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Identification of ModelsThe workshops focussed on identifying a range of execution and business models, which could be applied across the decommissioning scope – these are identified with the assessed pro’s and con’s in Appendix A.

Execution ModelsA range of generic execution models were identified from:

Traditional, e.g. individual contracts for different services; to

Transitional, e.g. cross-industry aggregation of scope; to

Radical, e.g. scope aggregation and clearing house concepts.

Appendix A examines these in more detail.

To better understand why the more innovative execution models are not being applied across the decommissioning scope and how this could be changed, the following blockers and enablers were identified.

Execution ModelsBlockers Enablers

Difficulty in valuing new models: Lack of clarity of scope and allocation of risk precludes an understanding of the benefits and value of challenging the ‘norm’

Fear of the unknown: Without previous experience to demonstrate success, adoption of alternative models is resisted

Long-term liability: With long-term liability resting with owners, there is resistance to reducing influence over the process of decommissioning

Lack of market facilitation: The size and timing of the decommissioning market is not clear and hence new models are not being developed

Ownership and establishment of more radical models: Lack of motivation to develop new or novel execution models due to lack of market visibility

Improved data sharing: Sharing of scope and market opportunities to stimulate innovation

Benchmarking of actuals to improve cost transparency: Clarity of a cost basis to identify areas where innovation to reduce cost is required

Pro-active aggregation/facilitation: Collaboration between owners and regulators to aggregate scopes and engage with supply chain

Development of risk sharing models based on cost and data transparency: Clarity on scope and lessons learned to understand risk profiles of individual projects

Sharing of case studies

Business ModelsA range of generic business models were identified from:

Traditional, e.g. traditional reimbursable and lump-sum approaches; to

Transitional, e.g. target cost/incentive models; to

Radical, e.g. Non-operator funded concepts.


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Appendix A examines these in more detail.

To better understand why the more innovative execution models are not being applied across the decommissioning scope and how this could be changed, the following blockers and enablers were identified.

Business ModelsBlockers Enablers

Lack of scope clarity Lack of experience / fear of the unknown/ lack of

oil and gas experience Financial strength of contractors – ability to carry

risk Agreement on costing/estimates – insufficient

benchmarking data Some models have limited applicability Long-term liability Access to tax-relief Lack of political appetite for change Some models require further quantification

OGA to improve sharing of actuals, emphasis on duration and cost data

Explore other industry contract forms that discourage inappropriate behaviours

Legal advice sought on perpetual liability and tax access for asset transfer models


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ConclusionsIn seeking to contribute to the OGA’s Delivery Capability objectives, these workshops have identified the range of delivery models that could be applied to the decommissioning scope. At present, execution and business models that are familiar to the oil and gas industry are being applied to decommissioning scope. The workshop teams have highlighted the blockers and enablers for the application of more transitional and radical models, which would represent the ‘transformative decommissioning solutions’, aimed for in the OGA objective statement.

From the work performed by the workgroup, the following overall conclusions are offered:

A wide range of business and execution models have been identified, many of which are recognisable to the oil and gas industry

More radical variants offer advantages, but are a step away from Business As Usual Barriers to Transitional models, i.e. those which are a logical extension of current

practice, typically relate to providing a common understanding of scope, transparency on cost and duration

Barriers to Radical models relate more to legislative requirements, e.g. Section 29 and 34 and a need for a more innovative approach to risk management

A more focused look at contracting frameworks in other industries would be beneficial

The workgroup recognises that the progress against the objectives has been incremental and has developed a forward plan (shown in the section ‘Recommended Next Steps’ below), which seeks to highlight the areas where the greatest return on effort can be realised in terms of decommissioning cost reduction.


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Recommended Next StepsThe Delivery Capability workgroup has identified opportunities to further develop the execution and business models identified in the workshops to deliver cost reductions. These are summarised below, with more detailed delivery plans included in Appendix B:

Cost Reduction Opportunity Objective Outcomes

Execution Optimisation

E1a

Quantify the potential economic benefits of bundling / campaigning:Topsides and Jacket Removals

Examine potential benefits of deferral to facilitate campaigns, specialist removals to decouple from schedule of limited numbers of high capacity HLVs.

Assessment of potential topsides and jacket decommissioning ‘bundling scenarios’ and generate an estimate of cost saving opportunities

E1b

Quantify the potential economic benefits of bundling / campaigning:Well P&A

Examine potential benefits of P&A campaigns

Assessment of potential P&A ‘campaigning scenarios’ and generate estimate of cost saving opportunities

E2

Platform decommissioning – Cost Appraisal

Quantify commercial risks and hence realistic cost ranges for each WBS element of a ‘generic’ CNS platform; i.e. identify ‘what good looks like’ based on operator experience to-date

Generic cost estimate with ranges of cost/duration norms for decommissioning

E3

Data Sharing Create delivery mechanism for sharing: Estimated durations for

decommissioning activities by activity

Data describing technical scope

Concept proposal for developing a robust / appropriate means of sharing a range of decommissioning data (actual durations, schedules, scope, etc)


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Cost Reduction Opportunity Objective Outcomes

Business Models

B1

Commercial Alignment Assessments

Examine how commercial alignment can be achieved between operator and contractor groups for specific combinations of WBS workscope;e.g. well P&A operations: well services/engineering services/operator

Examples of contracting models from non-oil and gas industry experienceIdentification of novel execution models (based on decommissioning WBS activities)Examination of possible alignment between operators and supply chain on specific business models

B2

HLV/SLV Base-load Optimisation

Determine how a base-load HLV/SLV programme can be facilitated, which allows decommissioning to absorb down-cycle capacity.

Study into a mechanism for optimising the use of HLV/SLV capacity through the oil and gas economic cycle


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AcknowledgementsThe Delivery Capability Subgroup would like to acknowledge the significant contribution made by members of the workgroup who involved in these workshops and consolidating the outcomes.


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Appendix A – Workshop OutcomesAppendix A1 – Where Are We Now


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Appendix A2 – Definition of Success


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Appendix A3 – Execution Models


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Appendix A4 – Business Models


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Appendix B – Proposed Forward PlanCost Reduction Opportunity Scope Deliverables Proposed Way Forward

Execution Optimisation

E1a

Quantify the potential economic benefits of bundling / campaigning:Topsides Removal

Consider a more detailed work breakdown structure’ under make safe, prepare for cold stack, pre-prepare for removal. This phase needs to consider subsea infrastructure to determine interface requirements for cleaning and flushing. HLV spectrum of requirements and potential for new market entries. Assign costs and dependencies.

Assessment of potential topsides and jacket decommissioning ‘bundling scenarios’ and generate an estimate of cost saving opportunities

1. Subgroup develops Proposal for DTF review (Scope of Work, resourcing, execution model)

2. Agree way forward with DTF

3. Execute

Jacket Removals Potential benefits of deferral to facilitate campaigns, specialist removals to decouple from schedule of limited numbers of high capacity HLVs.

Delivery Capability ThemeContracting and Executing Model Workshops 2016/2017

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Cost Reduction Opportunity Scope Deliverables Proposed Way Forward

E1b

Quantify the potential economic benefits of bundling / campaigning:Well P&A

Subsea P&A campaigns (primary benefits being the stability of a longer term contract for rig and service providers, learning curves, lends itself to a “hands off” incentivised market approach with appropriate liability provisions / insurancebundling platform P&A, duty holder, rig reactivation

Assessment of potential P&A ‘campaigning scenarios’ and generate estimate of cost saving opportunities



3. Execute

E2

Platform decommissioning – Cost Appraisal

Examine a generic CNS Platform decommissioning project to quantify commercial risks and hence realistic cost ranges for each WBS element in the project; i.e. identify ‘what good looks like’ based on operator experience to-date

Generic cost estimate with ranges of cost/duration norms for decommissioning

Discuss scope with Cost Subgroup – agree way forward


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E3

Data Sharing Create delivery mechanism for sharing: Estimated durations for

decommissioning activities by activity

Data describing technical scope

Concept proposal for developing a robust / appropriate means of sharing a range of decommissioning data (actual durations, schedules, scope, etc)

Agree need with DTF and identify appropriate lead, i.e. DTF, O&GUK, Other

Business Models

B1

Commercial Alignment Assessments

Examine how commercial alignment can be achieved between operator and contractor groups for specific combinations of WBS workscope;e.g. well P&A operations: well services/engineering services/operator

Examples of contracting models from non-oil and gas industry experienceIdentification of novel execution models (based on decommissioning WBS activities)Examination of possible alignment between operators and supply chain on specific business models



3. Execute

B2 HLV/SLV Baseload Optimisation Determine how a baseload HLV/SLV programme can be facilitated with:i) flexibility in execution;

andii) price clarity/certainty;With the aim to absorb lift capacity for decommissioning

Study into a mechanism for optimising the use of HLV/SLV capacity through the oil and gas economic cycle (Potential link to E1a)

Incorporate into E1a


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when it arises in the economic cycle


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