Decommissioning roadshow — making the most of this evolving market through collaboration

From collaboration on the development of new decommissioning technologies to working closely internally to ensure end-of-field-life priorities are embedded in existing business models, decommissioning and collaboration are intrinsically linked.

But to find out why that matters, let’s look at how things stand in the market here in the UK Continental Shelf (UKCS).

The UK offshore oil and gas industry is entering a mixed period of new and ongoing development and production, together with significant (and, of course, inevitable) decommissioning of older assets.

Decommissioning is an industry in its own right: an industry where the only truly effective response is one that is both rigorous and strategic: properly balancing cost, risk and liability.

And doing that properly is not as simple as just de-constructing and reversing the construction process.

There are significant regulatory implications and various ongoing monitoring issues to consider; waste and pollution issues different to those in a production phase; and cost implications for a project in its final phases as opposed to the early days of anticipated production.

Accordingly, and because of these differences, applying standard or usual terms and conditions used in the earlier stages of a development is not appropriate.

More importantly, decommissioning is not just something that will be confined to the north east oil and gas market where there is familiarity with ‘standard’ contracting approaches. For example —

  • Lessons have been learned (and are still being learned) from nuclear decommissioning at Dounreay, where many companies have skills that can be transferred to oil and gas sphere
  • Port authorities around Scotland are fast tracking upgrades and improvements to services to allow for greater vessel access and deep water working spaces
  • And waste management and scrappage companies are increasing their footprint and capabilities in various Scottish locations, and transport providers are increasing their fleets and capabilities

Implications

All this has implications on funding requirements, property requirements, contracting arrangements and cross sector engagement with businesses and groups that are unfamiliar with the ‘usual industry approach.’

Many businesses seeking to enter the decommissioning market are located outwith Aberdeen, which allows them to pitch competitively for work as a result of lower overheads, but equally means they need additional support in understanding the market.

Against this backdrop, the Oil and Gas Authority (OGA) has mandated UKCS operators with a requirement to ‘collaborate’ in order to achieve greater efficiency and help to grow the supply chain skill set.

In the decommissioning market this means seeking to do things more quickly, more cheaply and by working to develop technologies to achieve this as well as picking up ‘lessons learned’ across other industries.

What is collaboration?

However, collaboration is not just a case of ‘working together’ to achieve new ideas and nor is it something only operators should be focusing on.

Collaboration as a business concept is something that both improves a company’s daily operations, and also helps grow and develop new business. To be properly effective it needs to be endemic within a company and developed as part of the culture.

Collaboration requires the building of trusted relationships. Trust is developed through engagement, clear responses and suitable risk and reward matrices.

Internally this requires greater engagement between management and employees; increased use of employee forums and action of suggestions arising from such groups and a clear reward and progression structure.

The risk element inherent in internal collaboration is the ability to allow team members sufficient autonomy to progress ideas and concepts — with support — knowing the idea may fail. The risk for the team member is the implications of that failure, but the reward incentive (such as salary and bonuses) for achievement should balance that risk.

However, if a sufficiently trusting and collaborative environment exists, failure does not need to be fatal as the collective approach will allow for others to help adapt, update and resolve the original idea and concept.

In a commercial relationship it is more difficult to build that trusted relationship as each party will always be seeking to protect its own interests and achieve its own goals and accordingly the relationship remains separated.

In developing commercial collaboration, the lessons learned through internal collaboration should be brought into play.

A clear example of this is the use of allocation of risk in offshore oil and gas projects (including decommissioning). The risks are typically shared on a ‘knock-for-knock’ basis meaning that each party accepts liability for their own losses and any third party losses for which they are responsible.

This maintains the separate relationship as each party seeks to minimise its own risk and liability. In decommissioning, there are many new areas of risk which cannot simply be allocated on this basis so a more collaborative approach is required.

This means that new methods of risk allocation need to be considered and the contracting approach in this area has to move away from the usual standards. Both decommissioning and collaboration require bespoke contracting.

Evolving contracts

A move away from standardised arrangements should actually prove to be more efficient in the long run. Extensive legal and commercial resources are spent on trying to rework standard forms or traditional terms and conditions into an appropriate form for such ‘new’ arrangements.

If parties stepped back from their preferred forms and sought to narrate their positions under a new agreement with risk and reward allocation provisions appropriate to the proposed project the time spent on reviewing and reworking drafts could be significantly reduced.

In summary, it’s clear decommissioning and collaboration are becoming intrinsically linked and focus on these areas is vital for businesses continuing to work in the oil and gas industry.

All parties interested or engaged in the decommissioning market need to collaborate both internally and externally in order to unlock the significant benefits that can be found in this emerging market.

In response to this evolving need, Ledingham Chalmers is hosting a decommissioning roadshow in September.

Event details and registration

Aberdeen, Wednesday 5 September — Ledingham Chalmers, Johnstone House 52-54 Rose St, AB10 1HA, 5.30pm for 6pm. Book your place online

Dundee, Wednesday 12 September — Best Western Queen’s Hotel, 160 Nethergate, DD1 4DU, 7.30am for 8am. Book your place online

Inverness, Wednesday 26 September — Ledingham Chalmers, Kintail House, Beechwood Business Park, IV2 3BW, 11.30am for noon. Book your place online

Wick, Thursday 27 September — Mackays Hotel, Union Street, KW1 5ED, 7.30 for 8am. Book your place online

Uisdeen Vass

Uisdean Vass is a partner at Ledingham Chalmers. He is based in our Aberdeen office.

Posted, 15 August 2018 by Uisdean Vass
Categories: Corporate | Oil and gas