Decommissioning is an inevitable part of every oil and gas asset’s life. Operators will start thinking about this end-of-life phase as production plateaus, reservoir pressure drops, operational running costs rise and facilities start to degrade. Other issues such as oil demand, the volume of recoverable oil resources, geo-political tensions and energy market outlook will also impact this decision.
Offshore exploration and production investments have been on the decline year by year since the oil price crash in 2014, as operators both scaled down activity and focused on cutting costs in an effort to make projects more robust and commercial following the crash.
According to Rystad Energy, the recent collapse in crude oil demand and prices due to the Covid-19 pandemic has exacerbated the situation further and led to an increased focus on capital discipline and investment cuts. This marked decline combined with the failure of new discoveries to replace production is pushing many operators to consider “sweating” their existing assists rather than writing them off.
Decommissioning eats into profits and spending on innovation
Oil and gas facilities are expensive and complex structures, they represent a huge investment for the operator. Naturally, the longer they run and more productive they are, the better the ROI for the operator. Decommissioning is a lengthy and capital intense project that diverts cash and human resources away from revenue growth areas of the business.
Increased spending on decommissioning may limit the room for operators to invest in other segments such as exploration, development and enhanced oil recovery projects. Arne Sigve Nylund, executive vice president for Development and Production Norway at Equinor said: “Field life extension is an excellent way of managing resources as it creates high value from established fields, where we co-operate with our suppliers on safe operation and lower emissions every single day.”
Oil and gas operators are also under additional pressure to reduce their emissions. Prematurely retiring assets and tearing up the seabed for new projects will only increase their carbon footprint and damage their reputation in the eyes of both the public and investors who are increasingly anxious about climate change.
Existing oil and gas facilities are also ripe for repurposing for renewable energy e.g. carbon capture, electrification, hydrogen transportation and storage, if operators remove infrastructures from the ocean they will miss out on this opportunity to capture green revenue.
Converting assets for green energy will not only support the energy transition and decarbonization goals, it will also free up a significant amount of capital that can be redirected more efficiently and help operators get the most value out of their on-going projects.
Operators need to shift their mind-set towards intervention
Traditionally, intervention has been viewed as a costly measure that typically only occurs when problems arise that are severe enough to significantly impact production. By only addressing issues post-failure or after production has massively declined, operators do not get much value from their intervention – deferred production and unplanned costs for remediation can quickly add up. As a result, many operators are slightly jaded when it comes to the concept of intervention.
Oil and gas operators should view life extension intervention as a means to securing optimally consistent performance. To get the most value from life extension and optimization measures, operators should adopt a more proactive approach to asset operation and maintenance.
Proactive intervention should be viewed as a means to securing increased operational excellence, optimal consistent performance and greater predictability. On-going incremental improvements are cheaper than a reactionary response to a disaster. Oil and gas assets are expensive and complicated installations that exist in harsh offshore conditions, so for the sake of health and safety it’s better to nip problems in the bud before they evolve into something much more serious.
Leveraging digital innovation to extend field and asset life
Rystad Energy estimates that of the 3,000 oil and gas fields producing today, 50% could still be producing in 2030 due to improved depletion rates through the use of advanced technology. Innovative technologies, such as IoT sensors and digital twins, can be applied to workflows, data and operations across the value chain to maximize efficiency, which will help drive down overall costs without compromising outcome.
The digital maturation of the oil and gas industry is enabling operators to amplify the results of interventions through the application of advanced technologies. A minor increase in production performance or recovery can yield a significant increase in value generation.
Laser scanning and sophisticated tagging systems enable project engineers to create a clear 3D visualization of a field or asset, accurate-to-the-millimetre as it’s built, no matter how different from the original design. With these models, engineers are then better able to design and test new infrastructure or planned modifications to determine the best course of action whilst onshore.
These detailed and interactive visuals can also help teams to understand the context for their operations and the limits of their equipment e.g. the amount of weight a structure can carry, the support needed to make a structure stable or space restrictions. This will also help determine how suitable assets are for green energy modifications. The digital twin can also be used to test alternative what-if scenarios and support teams in making decisions that will ensure the site works better for longer.
To find out more about how FutureOn can help your company digitalize your operation or for enquiries and partnership opportunities please contact us or book a demo.