The accuracy of cost estimation and the competence of execution will be crucial.
It is possible to safely extend the life of Oil and Gas infrastructure with careful thought, planning and an understanding of the nature of the assets in question. In most cases, the key is to spend maintenance time and money where it provides the most benefits. This period of extended life is critical to safe and efficient decommissioning and can be used by asset owners to prepare for final decommissioning. Ultimately, the extra few years will allow for planning and preparation that will likely save significant amounts of money.
Few decommissioning projects have been conducted in the Middle East region and, therefore, there is a relatively small amount of experience and number of lessons learned. Nonetheless, the oil industry is particularly adept at applying global learnings locally. It will be important to blend experience and knowhow from outside the region with local knowledge, skills and capabilities, particularly given the costs involved.
The nature of decommissioning projects exposes companies to considerable risk of overspend but, in our experience, the best way to control such risks is not to delay planning. Ideally, operators should produce a coherent execution plan which takes account of timing, geographical groupings, talent management and experience.
Creating a good plan is crucial to success. This plan must also contain a realistic and robust cost model. Cost is a key concern, but if the pre-execution cost estimates are unrealistic from the outset, this can drive poor project execution practices.
The accuracy of cost estimation and the competence of execution will be crucial. Underestimates of cost will, at least initially, artificially boost the balance sheet of companies and will influence the scope of work selected for decommissioning Overestimates can be equally as harmful. Excessive estimates will promote an inefficient use of capital, while inaccurate estimates may also lead to excessive demands on public funds. In each case, the lack of clarity around decommissioning costs will create difficulties for public finance planning.
Engagement with stakeholders and the supply chain is necessary for successful and cost-efficient projects. The exact nature of this engagement will vary from one decommissioning project to another, but likely stakeholders include:
- Government authorities and regulators
- Industry interest groups
- Scientific and technical organisations
- NGO interest groups
- In the case of offshore facilities, representatives of the fishing and tourist industries
Engagement with the supply chain also improves the chances of success. Too often operators do all the planning and option screening in-house, then tender on the basis of time and expenses. This practice, however, all but ensures that they miss the opportunity to access new ideas, techniques and technology. It also precludes access to industry capabilities that reside within the supply chain and which may have added value in the option screening process.
Engagement with stakeholders and the supply chain is necessary for successful and cost-efficient projects.
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