Following publication of the MER Strategy on 18 March 2016 (as considered in our previous Law Now), and as foreshadowed in the Oil & Gas Authority (“OGA”) Corporate Plan which was published on 4 March 2016, the OGA is working to develop a series of strategies to pave the way for new approaches to the oil and gas lifecycle in the UKCS in key areas.
On 30 June 2016, the OGA published its first strategy, in relation to decommissioning (the “Decommissioning Strategy”). This has been produced in collaboration with industry and MER UK Boards and is available here.
The Decommissioning Strategy builds on the OGA priorities for decommissioning (as set out in the OGA Corporate Plan): achieving the maximum extension of field life; and ensuring decommissioning is executed in a safe, environmentally sound and cost effective manner. The OGA considers that if these aims can be achieved, the UK will achieve a competitive market advantage in global decommissioning.
Decommissioning - Current Status
The task at hand is vast, with over 250 fixed installations, over 250 subsea production systems, over 3000 pipelines and around 5000 wells in the mature UKCS basin. Further complexity comes from the interlinking of assets, with many installations at different stages of field life relying on shared infrastructure. Against the background of the overall MER UK Strategy with its Central Obligation that “relevant persons must, in the exercise of their relevant functions, take the steps necessary to secure that the maximum value of economically recoverable petroleum is recovered from the strata beneath relevant UK waters”, the task of identifying the best time and approach to decommission particular infrastructure may require a number of competing interests and viewpoints to be balanced; a broader assessment will need to be taken than may have been the case in the past, considering all viable options for and all users (and possibly potential users) of infrastructure before it is decommissioned. Decommissioning needs to be navigated without prejudice to, and in balance with, all of the other factors that have been identified as the key components to achieving MER UK and complying with the Principle Objective.
Decommissioning Strategy - Priorities and Implementation
The OGA Corporate Plan set out three Key Performance Indicators for decommissioning: to reduce decommissioning costs, to maintain or improve policy positions, and to develop demand-led supply positions in the supply chain market. This is expanded in the Decommissioning Strategy which focuses on three key priorities:
1. Cost certainty and reduction
Cost estimates remain high due to the immaturity of the decommissioning industry in the UKCS – estimates reported in the Decommissioning Strategy provide a cost range between £28 billion and £66 billion from now until 2050 for UKCS decommissioning, with the mid-point of this wide margin being £47 billion. The OGA has adopted a MER target for this to be reduced by at least 35% to an estimated £30.5 billion. The Decommissioning Strategy states the OGA will proactively promote and influence improvements in technology and a strong relationship between government, industry, academia and the OGA, to create more certainty and reduce financial burdens, and suggests that experience should be sourced from other sectors and industries in addition to decommissioning experience in other parts of the world. However, with no real large-scale decommissioning experience in the UKCS, it is difficult to estimate how attainable this MER target will be.
2. Decommissioning delivery capability
The OGA seeks to enhance demand-led supply chain experience through transparent, collaborative and efficient working practices. It is theorised that this will stimulate investment and aims to put the UK into a position to gain global recognition and create export opportunities.
3. Decommissioning scope, guidance, and stakeholder engagement
This priority is broad, with the OGA seeking to achieve a continued revenue stream from the UKCS through increased recovery, decreased production and maintenance costs, extended asset life, new technology to assist with and reduce cost of decommissioning, and the export of that technology.
The intention is that the detailed implementation of the Decommissioning Strategy will be overseen by the MER UK Decommissioning Board. The Board sits under the MER UK Forum, which brings together government, industry and the OGA to work towards seven key priorities, of which decommissioning is one, each having its own MER UK Board.
The aims of the OGA in the Decommissioning Strategy are significant, and will require significant buy-in from industry to make real progress. Use of a ‘Decision Quality’ process is proposed by the Decommissioning Strategy as a method of aiding delivery of the priorities by advancing “alignment and commitment across all stakeholders”. As is envisaged for each of OGA’s strategies, the Decommissioning Strategy is expected soon to be followed by a ‘delivery programme’ containing further details to improve its impact, aiming to create new or improved practices and behaviours that will in turn help achieve its aims. The Decommissioning Strategy and any other new OGA guidance will not replace, but rather is intended to complement, existing DECC guidance on decommissioning (available here).
Although it comes with ambitious targets, the Decommissioning Strategy is intended to ensure that the industry explores all viable options for infrastructure and, when infrastructure is ready to be decommissioned, it is carried out in the most cost effective way. The long-term aim is to establish a positive and world leading decommissioning industry from which all stakeholders will benefit.