Woodmac: Offshore decommissioning in Asia Pacific could cost $100 billion

Decommissioning of nearly 2,600 platforms and 35,000 wells in the Asia Pacific region could cost over $100 billion.

This is according to the energy analytics company Wood Mackenzie, whose latest analysis published on Thursday said that decommissioning in Asia Pacific was an activity various stakeholders were largely unprepared for.

According to Woodmac, unclear government regulations coupled with a lack of experience in the region could mean high initial costs and potential for mistakes.

Wood Mackenzie’s Asia upstream analyst Jean-Baptiste Berchoteau, said: “With over 380 fields expecting to cease production in the next decade, the magnitude and cost of work can no longer be ignored. Through learning from global decommissioning projects, the industry can adopt and adapt practices best suited for Asia Pacific’s own set of challenges.”

The company said that it identified four levers to cut costs and decommission Asia Pacific on a budget:

• Transferring knowledge between regulators, operators, and service sector firms

Woodmac claims that it would be more efficient to adopt guidelines and processes already in place elsewhere in the UK or the Gulf of Mexico, rather than “reinventing the wheel.”

Operators, particularly those with extensive experience in offshore asset retirement, according to Wood Mackenzie, have a key part to play in helping draft regulations. For instance, Chevron and Shell are already collaborating with Thai and Bruneian regulators respectively through knowledge transfer and pilot project initiatives.

Senior analyst Prasanth Kakaraparthi said: “While the primary focus should be on cutting costs and maintaining health and safety standards, this is a great opportunity for countries in the region to develop service sector expertise through knowledge transfer.”

• Choosing optimal commercial and contracting strategy

Sound project management and pragmatic contracting strategies are critical to avoid cost blowouts.

While major companies have the necessary skills in-house, WoodMac expects other players to use project management companies to help execute the project on a strict timeline and within budget.

Lump sum, unit cost, and day rate contracting strategies are suited to different levels of risk. The well plug and abandon (P&A) phase is usually the riskiest as live hydrocarbons are involved and there is poor availability of data on well conditions.

The company believes that unit cost contracts where the contractor performs well P&A or facility removal at a fixed cost per unit that includes a margin are better suited for the APAC region.

• Adopting innovative technologies to cut cost

Woodmac also emphasized the recent innovative approaches to conventional decommissioning with the potential for significant cost savings like Petronas’ rig-to-reef solution on two platforms at the Dana and D-30 fields in Block SK-305 off Malaysia in 2017.

Rig-to-reef consists of using the decontaminated platform structures to create an artificial reef at a designated location. In addition to being significantly cheaper, rig-to-reef provides an eco-friendly solution for sustaining habitats for marine life. The technique is particularly attractive at water depths of 10 to 30 meters, where reef structures and associated marine life are the most prolific.

• Achieving economies of scale

On average, well P&A accounts for half of the decommissioning costs so any cost reduction in this category will have a significant impact

About 30% to 50% cost reductions have already been observed in the Gulf of Mexico and the UK on rig daily rate or unit rate contracts. For areas with a large number of aging wells and platforms, batch decommissioning offers huge cost-saving opportunities.

Wood Mackenzie suggests using the approach further across blocks with different operators, with participants jointly contracting for a larger piece of work to reduce per unit costs.

Berchoteau added: “While the decommissioning situation in Asia Pacific might look grim at the moment, we note that Chevron is taking a proactive approach in the Gulf of Thailand, and we expect the major to set a benchmark for large-scale decommissioning costs in the region.”