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SUPPLY CHAIN NEEDS IN DECOMMISSIONING – NOW AND IN THE FUTURE

Sam Long

Business Acquisition Manager,

Decommissioning, Petrofac

8 September 2016

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Agenda:

1. Introduction and HSE

2. Petrofac: an introduction

3. Supply Chain and decommissioning

now and in the short term

4. Future Supply Chain needs

5. Closing remarks

6. Q&A

Disclaimer: as a Contractor, Petrofac cannot comment in regards to supply chain needs to the

same degree as an Operator. Opinions expressed herein reflect Petrofac interpretation of market

requirements and do not necessarily reflect the expectations of our clients

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PETROFAC:

AN INTRODUCTION

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Petrofac– in general

Petrofac is a major oilfield contractor,

providing Engineering and

Construction (E&C), Operations

and Maintenance (O&M), Well

Engineering, training and other

specialist services to Operators

around the world

We employee 18,200 personnel,

with a turnover of $6.84BN (2015)

We have major operations

in the North Sea, Middle East

and Asia Pacific

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Petrofac– in decommissioning

Petrofac has the capability and the

experience to help existing and new

clients on their journey; whether

that’s at project start-up, through

ongoing and late life operations,

onto decommissioning

We are building a Centre of

Excellence for decommissioning

in the North Sea

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Decommissioning is the final phase of the asset lifecycle and involves the whole supply chain

NORMAL OPERATIONSLATE LIFE ASSET

MANAGEMENTDECOMMISSIONING

DISCRETE SERVICES

INTEGRATED PACKAGE

DUTY HOLDER (INSTALLATION OPERATOR)

SERVICE OPERATOR

DISCRETE SERVICES

INTEGRATED PACKAGE

DISCRETE SERVICES

INTEGRATED PACKAGE

SERVICE MODEL(S)

FOCUS AREAS

Uptime and production focus

FOCUS AREAS

Optimised O&M, reduced CAPEX,

decommissioning preparation

FOCUS AREAS

Cost management

and HSSE protection

COP

CUSTOMER

SUPPLY CHAIN

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Decommissioning activities can be packaged in multiple ways…

TOTAL PACKAGE

SOLUTIONS

Individual service

lines examples:

• Well Engineering

(P&A)

• Decommissioning

studies and

estimates

Joined up service

lines, common

customer interface

example:

• P&A and

cleaning/flushing

Integrated service

lines, with shared

Project Management,

Project Services and

single focal point

examples:

• Duty Holder in

Decommissioning

• EPCm of P&A and

decommissioning

projects

Total

decommissioning

solutions provided

by Petrofac and

selected partners

INTEGRATED

SERVICES

BUNDLED

SERVICES

DISCRETE

SERVICES

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Petrofac decommissioning services and projects

CURRENTLY PROVIDING:

• Well Plug and Abandon campaign,

Tullow Horne and Wren (UKCS)

• Duty Holder in Decommissioning,

BP Miller (UKCS)

• Asset management review,

Talisman Sinopec (UKCS)

• Duty Holder oversight, decommissioning,

Tullow Horne and Wren (UKCS)

• Late Life Asset Management (LLAM),

ENI Hewett (UKCS)

PREVIOUS PROJECTS:

• Hutton TLP topsides separation project,

Conoco (UKCS)

• AH001FPU strip down and rebuild,

Ithaca/Petrofac (UKCS)

• Bacton Gas Terminal decommissioning,

ENI (Onshore, UK)

• Decommissioning Cost Estimates,

multiple, confidential (Europe and Africa)

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SUPPLY CHAIN NEEDS,

NOW AND IN THE FUTURE

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OGUK WBS – a baseline

OGUK WBS is a

common baseline for

projects and planning

OPERATOR

PROJECT

MANAGEMENT

FACILITY RUNNING/

OWNER COSTS

WELLS

ABANDONMENT

FACILITIES/PIPELIN

E MAKING SAFE

TOPSIDES

PREPARATION

TOPSIDES

REMOVAL

SUBSTRUCTURE

REMOVAL

TOPSIDE AND

SUBSTRUCTURE

ONSHORE

RECYCLING

SUBSEA

INFRASTRUCTURE

SITE REMEDIATION

MONITORING

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Supply Chain and Decommissioning (short term)

• Macro environment makes decommissioning

challenging and costly

• Drawn from the bottom line

• Most projects are in early or late planning stages

and only a small number are currently in

execute mode

• For many services decommissioning will mean

Business As Usual until asset ready for removal:

– E.g. Duty Holder services that require

logistics, catering, helicopters,

– Even early decommissioning activity will call

upon existing skill sets, e.g. FM, scaffolding,

and (de)construction

• Service offering must be within a different culture

and different mind-set

• Bring service to a Project, not an Operation

– Multi-discipline approach

– Fit-For-Purpose

• This will also require innovation in T&Cs

and agility in deployment

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Decommissioning drivers are different

All parties need to recognise that the

drivers are different for Decommissioning

ECONOMICS DRIVEN BY ACHIEVING FIRST OIL OR GAS

PROJECTS MAY NOT PROCEED IF INVESTMENT CRITERIA ARE NOT MET

FUTURE MARKET SCALE UNCERTAIN, MATURE MARKET WHICH HAS EVOLVED SINCE 1960S

PROJECT SCOPE CAN VARY BASED ON TECHNICAL

OR COMMERCIAL DRIVERS

DRIVEN BY SAFETY AND ASSET INTEGRITY TO ENSURE PRODUCTION IS SUSTAINED UNINTERRUPTED

STAGE GATE QUESTION IS – “DO WE WISH TO CONTINUE WITH THIS INVESTMENT?”

ECONOMICS DRIVEN BY COST REDUCTION AND DEFERMENT OF EXPENDITURE

PROJECTS ARE LEGALLY OBLIGED TO PROCEED

FUTURE MARKET SCALE MUCH MORE CERTAIN, ALTHOUGH CLIENT AND SUPPLY CHAIN EXPERIENCE IS LIMITED

PROJECT SCOPE LARGELY FIXED (UNLESS QUALIFYING FOR DEROGATION)

DRIVEN BY HSE AND REPUTATION MANAGEMENT. INTEGRITY IS IMPORTANT DURING REMOVAL

STAGE GATE QUESTION IS – “ARE WE READY TO PROCEED WITH THIS EXPENDITURE?”

EXPLORATION AND PRODUCTION DECOMMISSIONING

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Supply Chain and Decommissioning (long term)

• Given the immaturity in decommissioning it is

hard to predict future needs

• Bespoke, over engineered solutions and resulting

excessive cost will delay activity in general and

should be avoided

– Think “Good is good enough”,

“Fit-For-Purpose…”

• Focus should be on cost effective,

repeat services

• Some technology may need to be bespoke and

specialist niches will emerge/develop

– e.g. jacket cutting, subsea mattress retrieval

– In particular innovation will always be welcomed

for P&A and lifting solutions

• Incremental efficiency gains are essential now

and in the future

• Solutions should be cost effective and relevant

to needs

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Supply and demand immaturity

• A substantial amount of activity beckons in the UKCS,

NCS and beyond

• Annual Insight report (OGUK) is the best marker of

anticipated activity and illustrates both volume and

complexity in upcoming workload

• There is much uncertainty as to when this activity will

materialise, however it is foreseeable that the current

immaturity will be replaced by a very different

market place in 5-10 years

EXAMPLES:

Consortia – be prepared

to collaborate or to work

for/with different partners

Aggregation of work

Emerging competition

and alternative services

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Closing Remarks

• Decommissioning will be a substantial market in coming

years and is an opportunity to build for the future

• Petrofac is committed to decommissioning, especially

within the NS

• However successful, sustainable and profitable

decommissioning will require a different culture

and a different mind-set

• Supply chain must enable cost effective decommissioning

in order to realise this opportunity

RECOMMENDATIONS

Decom North Sea

Decom Technology

Innovation Platform

15 September

Oil & Gas

Innovation Centre

DECC Pathfinder

https://itportal.decc.gov.uk

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QUESTIONS?

Sam long

Business Acquisition Manager, Decommissioning

sam.long@petrofac.com

+44 1224 247112