On a worldwide basis, the industry decommissions an average of 120 offshore rigs a year.

The prospective decommissioning of over 2,000 aging offshore oil and gas platforms,
subsea wells and related assets is an upcoming challenge for companies as well as
government treasuries…

Offshore oil drilling, pioneered in the Gulf of Mexico in 1947, is also the first to experience
the need for decommissioning with foreseeable costs of $26 billion. In the area of the UK
continental shelf alone, the probable cost of prospective future closures is estimated at £50
billion. A new study by IHS Markit predicts that global spending on decommissioning will
increase from $2.4 billion in 2015 to $13 billion a year by 2040. In the next five years, Europe
will account for about 50 percent of global decommissioning spending, as major oil and gas
structures in the North Sea are removed. In the North Sea, Australia and New Zealand,
decommissioning of offshore oil and gas installations is at a pioneering stage, in which the
technological, environmental, regulatory, political and financial aspects are evolving.

This feature looks at the debate regarding whether the industry should remove major
installations or leave rigs in place and turn them into reefs, and the financial challenges of
decommissioning. “At present, there are two main options being discussed—removal and leave
in place,” says Paul Jardine CEO of Quatre, a provider of exit strategy management solutions
(ESMS) for clients with environmental liabilities in the energy industry.

Platform removal observer program (NOAA, galvestonlab.sefsc.noaa.gov)

Total or Partial Rig Removal

The official policy in many parts of the world encourages total removal of redundant offshore
oil and gas rigs. Decommissioning in the North Sea is governed by the 1998 Convention for
the Protection of the Marine Environment of the Northeast Atlantic (OSPAR), which bans
dumping installations and requires operators to return the marine environment to its natural
state. Under the auspices of OSPAR, between now and the mid-2050s, around 470 platforms,
5,000 wells, 10,000 km of pipelines and 40,000 concrete blocks will have to be removed from
the North Sea. For UK-owned installations alone, this could cost as much as £17.6
billionbetween 2016 and 2025, according to industry body Oil and Gas UK. Regulatory
requirements aside, there are also practical engineering problems and financial costs of total
removal of installations.
Engineering Challenges

“Rig removal poses huge engineering challenges,” says Peter Bruce, managing consultant and
specialist in impact assessment for oil and gas decommissioning for at Ramboll Environ. “To
remove the rig platform or topside, companies have a choice of three options: One is to take it
apart using the rig’s own crane and place the scrap on a barge for recycling elsewhere. The
second is to dismantle the platform, module by module and float it to shore by barge. The final
option is the removal of the platform, leaving the legs in place. A staggering engineering feat
was achieved in April 2017, when Shell’s Brent Delta platform’s topside, weighing 24,000
tons, the same as 2,000 London buses, was separated from its supporting legs and removed in
a single-lift operation. A specially designed series of cranes placed between the bows of the
twin-hulled giant catamaran lifted and transported the topside to a yard in Hartlepool on the
English east coast for dismantling.

Removal of the topside still leaves the supporting legs, which are made either of metal or
concrete. In the case of metal, it is possible to cut the rig frame just below the seafloor and lift
it to the surface in a single piece. Cutting by a combination of abrasive water jets, hydraulic
shears and diamond saws attached to robot submarines or remotely-operated vehicles is
common. Lasers may be used in future to speed up the cutting process. Concrete legs are more
difficult to remove. For example, the 170-m tall concrete legs of Shell’s Brent Delta rig were
left in place. “It is not surprising, due to the engineering challenges and the material
biodegrading with time, that the main support column was left in place,” comments Jardine. In
addition, energy companies are likely to want to leave in place materials such as drill cuttings,
often contaminated with oil, which would be costly and difficult to remove. However, the now
decommissioned Brent Spar was cleaned of toxic residues, broken up and used as a foundation
for a ferry terminal to help defray the costs.

Left in place?

“Leaving in place will mean leaving the rig’s legs, as with the Brent Delta, whilst the top part,
the platform is removed,” says Jardine. For a start, complete removal is expensive for
companies as well as governments. It also leaves operators facing the problem of what to do
with the recovered material. It is likely that only the metals, cabling and plastics will be worth
recycling, while the rest after decontamination will be sent to a landfill. The topsides of
platforms can be refurbished, if structurally sound, but most of the material is not reusable.
“Since marine life already uses artificial reefs and wrecks as havens for breeding, there is an
increasingly strong environmental case to leave some rigs in place and allow them to remain
as artificial reefs.” In fact, Bruce says, “it might be better to leave a substantial part of such
installations where they are, since they can provide a beneficial environment for marine life.”
As of July 1, 2015, 470 rigs have been converted to permanent artificial reefs in the Gulf of
Mexico to act as marine oases.
Giant sponge, Platform A389 (rig2reefexploration.org)

Apart from the environmental benefits, there are significant cost savings. A case in point is that
of MCP-01, a concrete-based platform in the North Sea which was decommissioned between
2006 and 2009. Around 13,000 tons of steel was taken from the facility to Lerwick in Shetland
and Stord in Norway for dismantling and recycling at a cost of £387 million. It would have
cost just £11.7 million to make safe and leave in place according to Jonathan Hughes, CEO of
the Scottish Wildlife Trust.

Given the cost and environmental benefits, it is not surprising that the concept of turning rigs-
to-reefs is being considered for projects as far afield as the waters off Australia, California and
in the North Sea. Another alternative use for such structures can be seen off the coast of
Malaysia, where the Sea Adventures Centreconsists of an old oil rig converted into a 25-room
hotel and diving school. Perhaps, in these times of sustainability, old rigs could be turned into
platforms for wind turbines, data storage centers or even luxury homes?
Seaventures Dive Rig (seaventuresdive.com)

Paying for decommissioning

Who should pay for decommissioning is now a burning question for energy companies and
governments alike? Major companies, including Shell, have put aside funds toward the cost of
decommissioning. That companies should pay was the norm as Jardine explains,
“decommissioning of old projects was funded by the revenue of new projects. This was fine in
the days of high oil prices, but today is a different matter. Since low oil prices mean little spare
cash is available to fund such projects.” In many cases, a large proportion of decommissioning
costs is likely to come in the form of tax reliefs offered by sovereign governments whose
revenues did well from the fields in their prime. In the UK and New Zealand, companies expect
local taxpayers to contribute toward the cost of decommissioning by way of tax relief. In
essence, this could mean that an estimated £50 billion decommissioning cost would attract a
tax refund of £25 billion. However, tax relief is normally given in the belief that the company
will make further profit and pay taxes, which is not the case with decommissioning. Moreover,
as Jardine points out, “if the cost of decommissioning goes up, so does the cost for UK
taxpayers.”

Today, governments and regulators are seeking to protect themselves against the growing cost
of decommissioning, and energy companies are looking for an alternative funding solution.
One option is to rely on the private sector to set up what is in effect a pension fund for oil and
gas fields. Under the scheme, an oil company would pay an agreed annual amount into a ring-
fenced Special Purpose Trust (SPT), dedicated to paying for decommissioning and
reinstatement purposes and protected against the prospects of insolvency. “Essentially, the SPT
funds are used to pay for the decommissioning, reinstatement and for any other associated cost
related to the decommissioning,” says Jardine. This private sector solution protects the public
purse from decommissioning liabilities and ensures that economic recovery of remaining oil
and gas is maximized—a considerable factor in the case of the North Sea. In addition, an
insurance policy offering protection against environmental liabilities after decommissioning
would allow operators to step away from assets.

Prospects

The possibility of peak demand, rather than peak oil, ushering in an era of low oil prices will
impact a company’s ability to pay for decommissioning projects. Similarly, governments
everywhere face constrained finances. Worldwide, costly offshore mature fields are coming to
the end of their useful life at a rapidly accelerating pace–and at an alarmingly increasing cost.
Therefore, Jardine advises, “an industry culture of passing matters on will no longer do. There
is a need for a proactive culture for planning for decommissioning and tidying up when you
finish.”