Decom delays put supply chain at risk, warns industry veteran

To decommission now, or decommission later? As $30 oil causes operators to assess the likely impact of both options on their bottom line, TSB Offshore President Jerry Gilmore is urging them not to ignore the consequences for the supply chain.

Contractors in Houston look to the GoM decom market to keep equipment busy (Image credit: United States Coast Guard)

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Operators will say no to spending money when oil prices are low, but that is when they should be decommissioning because they get more bang for their buck, Gilmore told DecomWorld in a recent interview in Kuala Lumpur, Malaysia.

While acknowledging the difficulty of convincing an oil company to spend money on capital or maintenance when revenues are down, he said operators were shooting themselves in the foot by not giving contractors work.

“The contractor needs to keep his equipment busy. As long as he’s not losing money and maintaining cash flow, he can maintain personnel and equipment so that when prices do come back, he is ready to go. If he goes out of business it doesn’t help anybody,” Gilmore said.

Learning from precedents

Gilmore has seen plenty of booms and busts in a 42-year career that has included senior positions at Pennzoil Exploration and production (now Devon Energy), Natural Gas Pipeline Company of America, and more recently as a regular speaker on the oil and gas conference circuit. As head of TSB he has been involved in the abandonment and reefing of many Gulf of Mexico platforms and facilities.

Whether a market began decommissioning decades ago, as in the case of the Gulf of Mexico - where activity has been taking place since the early 1970s - or it only recently began to explore the issue seriously as in the case of Asia, the principle has always been the same, according to Gilmore.

The Gulf of Mexico's approximately 4000 offshore installations puts it in first place amongst all the world's offshore gas regions, followed by Asia with 950 (Source: TSB Offshore)

With the Asian decommissioning market still in its infancy, Gilmore said owners must anticipate market signals and understand the risks of inaction.

“If you don’t get started you won’t get the contractors in here and you won’t educate the contractors you do have. Therefore the base won’t start growing. If you don’t have much of a base then costs aren’t going to be as competitive,” he said.

Efforts by Asian policymakers to regulate decommissioning are a positive sign, Gilmore added, noting that countries in the region could learn plenty from the precedents set in North America and northwest Europe. The GoM offers a comparable cost structure to Asia. North Sea platforms cost twice or even three times as much to decommission than those in the GoM or Asia, even when the former are at greater depths, according to his figures.

Some decommissioning projects have been completed in the Gulf of Thailand - at similar cost to projects at similar depth in the GoM (Source: TSB Offshore)

“I think we have a good program over there [in the GoM]. I think we’ve got a long track record,” Gilmore said, admitting: “Early on there were some things that were done – not just in decommissioning, but in construction practices as well – that were a little iffy.”

This point was illustrated in the final report of the national commission that investigated the BP Deepwater Horizon oil spill. In 1969, the Gulf region’s lease-management office had only 12 people overseeing more than 1,500 platforms. The number of fires and explosions recorded by the United States Geological Survey rose steadily from 12 in 1970 to more than 30 in 1978, exceeding the growth rate in the number of wells completed – which rose from 5,584 to 9,140 in the same time period.

The GoM has since matured, Gilmore noted, and has found a balance between safety, the environment, and the need to look at things “from a practical standpoint”.

Asian operators can utilize GoM methodologies on decommissioning, he said, explaining: I don’t think there are major challenges here that have not been looked at elsewhere in the world. You don’t have the big platforms [that are] present in the North Sea or the USA. It’s pretty standard stuff; it’s just a matter of getting the program right.”

Visitor’s perspective

When Gilmore’s work first brought him to Asia four years ago, local operators told him: “Yes, we know we are going to have to do [decommissioning] – but not right now.”

Each year brings decommissioning a little closer, he said: “Right now, they are looking at some of the key planning, they’re beginning to do some of the work, mostly well P&A [plugging and abandonment].

“Once someone sticks their foot in the water and starts the work, then everyone else will follow suit. Part of the reluctance is out of fear but once others start moving forward, companies will feel the need to keep up with their competition. There might not be enough people or equipment available and I think operators will begin to move forward. Operators want to do the right thing.”

Which countries are likely to lead the decommissioning charge, based on Gilmore’s experience in the region? Thailand is “as close as anyone”, he said, noting that TSB was working with operators there to help them look at regulations and suggest what sort of approach to take.

“In the last four years, the region has made great strides,” he concluded. “I hope to see them move forward with the same speed, if not accelerate a little bit. And hopefully having these markets all around the region will balance the need for contractors. If one area is slower, then the work can shift elsewhere. I think that’s going to be very important.”

By Lionel Mok