In December, hotel occupancy rates in Aberdeen dropped 4.5% compared to the same period in 2013, according to market analysts LJ Research.
It’s just one of the knock-on effects of the fall in oil prices, with other, more obvious ones being the abrupt slowdown in drilling and near-daily announcements of new job cuts across the sector.
Other effects are harder to predict. For instance, cheap oil makes many developments economically unfeasible, so operators will face business and legislative pressure to bring forward decommissioning and abandonment campaigns.
Equally strong, however, will be the countervailing pressure to cut costs and delay any expenditure that doesn’t directly boost revenue. One expert in plug-and-abandonment (P&A) believes that now is actually a good time to embark on decommissioning campaigns.
Good times for decom works?
Tom Leeson, until recently Halliburton’s global well abandonment strategic business manager, and now principal consultant and well P&A manager with Reverse Engineering, says business logic supports operators grasping the P&A nettle. “In cases where companies have put aside funds for decommissioning this could be a very good time to do the work because the unit rates for the rigs and services you need are going to fall,” he told DecomWorld. “They’re falling already.”
However, he is not surprised that a burst of P&A activity has not happened yet, not least because no one knows how long the period of bargain-basement energy will last. “What I expect to see is an increased focus on strategic planning and engineering because there are going to be more assets that fall into that anticipated window of retirement,” he said, “and that window seems to have got closer because of the drop in oil prices. But by the same token everybody is short on cash, and that will put a squeeze on executing non-revenue-generating activity. So I do not predict any explosion in activity in the short term.” Meanwhile, the cash squeeze highlights a dilemma facing the industry.
The costs of decommissioning and P&A are notoriously hard to estimate, but generally acknowledged to be high
The costs of decommissioning and P&A are notoriously hard to estimate, but generally acknowledged to be high. To bring them down requires the oilfield services sector to invest in research and innovation, but to date the sector has been reluctant to make this investment because operators, who naturally focus on exploration and production, put off P&A for as long as they possibly can. “Unless the service sector has got line of sight on both a volume of work and schedule of when it will happen, there will be a strong reluctance to spend the money on developing the technology or building the tools,” said Leeson. “What happens then is that the industry piecemeals the business and the tools never get built.”
“The service companies do not get the opportunity to make money out of new and better services and the buyers don’t get the benefit of innovation, so nobody wins. So for me what’s exciting is how to try and get everybody together to come to the party and make it happen.”
“For instance, one of the things you really ought to do to get well abandonment costs down is eliminate the need to bring a drilling rig to the location. That doesn’t mean you need to compromise the standards of the barrier you put in the well: it means you need to think differently about how you execute those barriers.
For example, a traditional method might involve section milling, and, again traditionally, to undertake section milling, you really need a rig.
“How could you do it differently? You could come up with something that doesn’t need the rig’s capability. You would need a downhole technology that is an alternative to section milling. There are some on the market and some are getting some traction with at least reasonable results, although some operators are not entirely happy and the tendency is to section mill because they’re not confident that an adequate solution has been brought to the table yet.
“Or you could come up with a unit that has some of the rig’s capabilities but that doesn’t look like a rig and doesn’t cost what a rig costs. Now the economics of that are tricky because you wouldn’t have the flexibility of deploying it into the drilling market when decommissioning work dries up.
But it could be a cost-effective alternative to the rig, and also release more rigs to go and do what they’re designed to do, which is drill. But who is going to invest in designing and building a unit like that when you don’t know when the work is coming?”
There is anecdotal evidence that the costs of decommissioning and P&A tend to turn out higher than the original estimate. This is a generalisation, and there are exceptions, but in some cases the costs are significantly higher.
The fact is, operators are only just beginning to grapple with this. In 2013 the Performance Forum, the group of global operators who share data and commission research, completed a piece of unprecedented research into actual decommissioning costs in the North Sea.
“This is the first time anyone’s actually gathered completed project data to be able to come up with real numbers,” said Aileen Jamieson, Performance Forum director and vice president of natural resources for consultant Turner & Townsend.
The full results were not made public, but the exercise was deemed important enough for the group to embark on a similar study for P&A costs.
There is anecdotal evidence that the costs of decommissioning and P&A tend to turn out higher than the original estimate
According to another expert, poor integrity from the beginning of wells’ lifecycle and a lack of monitoring after they are shut in creates nasty, costly surprises when it comes to permanent abandonment.
“Conditions always change,” said Dr. Liane Smith, director and founder of asset integrity company Wood Group Intetech, in a 2014 interview with DecomWorld. “So the fluids selected for suspending the wells originally may no longer be suitable. And yet, those wells might have been off the radar for operational monitoring for several years and nobody has any records about their conditions.” Leeson invokes US defense secretary Donald Rumsfeld’s famous formulation about “unknown unknowns”.
“The difficulty,” he said, “is if the cost overruns are caused by unknowns, how do you estimate for that? It takes time and a high level of attention to detail to get reasonable numbers.
“In one case I know of an organisation used what they thought was an appropriate methodology to isolate and abandon multiple reservoirs, and when they’d finished there was still pressure on the annuli. Where was that coming from? Whatever method they’d used, it hadn’t worked, and in some cases we don’t really know why the method fails. You can’t get your hands on a well bore like you can on a structure on the seabed to examine what you have. There’s no choice but to do it again.”
“Over the past couple of years operators around the world have become aware that decommissioning and abandoning wells are serious issues. Wells comprise anywhere from 30% to 60% of the total decommissioning cost, and it’s the area decommissioning managers feel most uncomfortable about because it’s the area of biggest uncertainty and potential for cost overruns. Is it a problem on people’s desks now? Yes. Definitely.”
Offshore Energy Today is sharing the above article with permission from DecomWorld staff, who interviewed Mr. Tom Leeson.