Decommissioning might be a rather dry phase of the asset lifecycle, but it is essential. And, at the same time, it is becoming increasingly costly and risk-laden – in 2014, total decommissioning spending came to between $1.6 and $1.8 billion (1). For decades, it has been relegated to afterthought status in many industries, including the oil and gas (O&G) sector. Businesses instead have focused the bulk of their attention on bringing new projects online as rapidly and cost-effectively as possible to optimize production volumes and maximize revenue.
Times are changing, however. According to Decomworld’s Offshore Decommissioning Report, the drop in crude oil prices has shifted perceptions on decommissioning activity, and with this, the number of decommissioning projects is expected to rise as high as 250 in 2015 and 2016, from 210 in 2014. Federal regulations and declining shelf production have caused decommissioning projects, specifically in the Gulf of Mexico, to see record levels of activity, generating roughly $9 billion in spending and, as of January 2015, the market is valued at $26 billion.
As a result, O&G companies, as well as their counterparts in other asset-intensive industries, are rapidly realizing the need to better plan for and manage the final mile of their assets as carefully as they do their initial construction.
Roadblocks on the Path to Success
Aberdeen Group reported that less than 25 percent of asset-intensive organizations have a plan in place for decommissioning assets. Several factors are driving this surprising statistic:
Increased Focus on New Assets. New assets and infrastructure are vital to ensuring the scale and reliability needed to achieve agility in the volatile O&G industry. As such, enterprises are very focused on completing these new projects on time and on budget.
Asset Lifecycle Is Stretched Thin. O&G companies, for example, are looking to squeeze every last drop of productivity out of their assets, especially as markets tighten and prices decline. This often involves extending lifecycles well beyond the original targets.
Resources are Limited. Enterprises today must frequently choose between applying skilled resources on new projects as opposed to using them to plan for or proceed with decommissioning. And, as decommissioning activity is expected to surge in the next year, there will be more pressure on offshore equipment resources causing industry experts to take a more collaborative approach to maximize resources with minimal costs. (1)
Focusing solely on these shorter-term considerations can create formidable challenges in the future—essentially, enterprises are overlooking the considerable opportunity costs, potential operational risks, and financial repercussions associated with a mismanaged decommissioning project.
Last, but Certainly Not Least
Although it’s the last step in the asset lifecycle, decommissioning should be approached with the same deliberation as the design, build, and operate phases as it carries significant risk. And, as the drop in crude oil prices causes the number of structure removals to rise, it is now even more important for O&G organizations to ensure they have an effective approach in place to carry out the decommissioning process.1
So what can O&G companies and other asset-intensive enterprises do? Here are six strategies that our customers have used to ensure successful decommissioning initiatives:
Collaborate Early and Often. Involve all key stakeholders throughout the lifecycle planning process to define and validate project scope and approach. This includes facility managers, line-of-business leaders, risk officers, as well as executive management—and encompasses multiple external stakeholders—contractors, partners, as well as local, state, and Federal regulators who have jurisdiction over the project. It is also important to seek early input from individuals who manage and decommission the asset, as they can provide important insight into design features that can reduce the cost and risk of decommissioning decades later.
Create a Centralized Plan Repository With the Ability to Embed Risk Assessment Into the Plan. These repositories are often the core of enterprise project portfolio management (EPPM) solutions. Organizations can embed risk information into these repositories and the resulting plans, enabling them to prepare and react to unforeseen issues, perform “what if” scenarios, and monitor the status of a project to approve, continue, and optimize decommissioning projects. Having this information repository in place is vital so that organizations have the institutional knowledge to effectively decommission an asset when it has reached end of life.
Optimize Resources. As resources become increasingly scarce and expensive, stakeholders need complete and real-time visibility into the skill sets at their disposal, as well as where and how resources are deployed throughout the organization. It is also critical to standardize procedures for selecting resources and predefine exception processes. Working within this framework, leaders can accurately identify required skills and resources and effectively map them to project requirements, enabling them to avoid delays, mistakes, and cost overruns.
Ensure Real-time Visibility Into Projects and Performance. Leaders require real-time visibility into project performance, including progress and budget adherence, and must be able to share this information with internal and external stakeholders. Clear insight into milestones achieved and missed, status updates, budget versus actual spend, and work breakdown structure updates are essential. With this approach, businesses can better determine and plan effectively for end of life to optimize return on investment.
Equip Managers With Tools Needed to Plan and Execute. Automating the asset lifecycle management process is increasingly essential—the days of spreadsheets and paper-based processes are long gone. Leaders should look for tools like EPPM that can automate processes such as scheduling, costing, project management, reporting, and collaboration. At a strategic level, these changes could open doors to improved strategy execution, operational excellence, and financial performance across the entire enterprise, to ultimately ensure that projects are not only completed within budget and on time, but also to drive long-term value that aligns with business objectives.
Focus on Continuous Improvement. Always take time to assess progress and capture knowledge for future initiatives. Leading enterprises bake continuous improvement into their standard operating procedures for project management and benefit greatly from continued evolution of best practices.
O&G companies, along with other types of asset-intensive enterprises, can set a solid foundation to support current and future customer demands by embracing a holistic approach to asset lifecycle management. With project management best practices, careful planning, and proven methodologies and technology solutions, these organizations can finally put an end to decommissioning distress.
(1) Upstream Intelligence, “Spike in GoM Decommissioning Quickens Need for Deepwater Expertise,” October 5, 2015.