SPE 128599

A hybrid approach to assess decommissioning options

for offshore installations

Jesse A Andrawus; John A Steel and John F Watson, the Robert Gordon University,
a Scottish charity, registration number SCO 13781, Schoolhill Aberdeen, AB10 1FR, UK

Copyright 2009, Society of Petroleum Engineers Inc.

selected Oil and Gas platform. An appropriate
This paper was prepared for presentation at the 33
rd
Annual SPE International decommissioning option with minimum combined
Technical Conference and Exhibition in Abuja, Nigeria, August 3-5, 2009.
financial, environmental, health and safety impact
This paper was selected for presentation by an SPE Program Committee following
review of information contained in an abstract submitted by the author(s). Contents
is determined.
of the paper, as presented, have not been reviewed by the Society of Petroleum
Engineers and are subject to correction by the author(s). The material, as
presented, does not necessarily reflect any position of the Society of Petroleum
Engineers, its officers, or members. Papers presented at SPE meetings are subject
Introduction
to publication review by Editorial Committees of the Society of Petroleum Engineers.
Electronic reproduction, distribution, or storage of any part of this paper for Globally, there are over 7,270 offshore Oil and
commercial purposes without the written consent of the Society of Petroleum
Engineers is prohibited. Permission to reproduce in print is restricted to an abstract
Gas (O&G) installations [1], a significant
of not more than 300 words; illustrations may not be copied. The abstract must percentage of these installations are approaching
contain conspicuous acknowledgement of where and by whom the paper was
presented. Write Librarian, SPE, P.O. Box 833836, Richardson, TX 75083-3836, the end of their economic life [2-3]. The law
U.S.A., fax 01-972-952-9435. requires that any offshore installation that has
reached the end of its economic life or no longer in
Abstract use should be decommissioned appropriately.
Decommissioning of offshore installations is Thus, decommissioning of offshore installations is
increasingly becoming a crucial issue to the Oil increasingly becoming a crucial issue to the Oil
and Gas industry as most assets within the sector and Gas industry. The cost of decommissioning
are approaching the end of their economic life. offshore O&G platforms has been estimated to be
Common decommissioning options include about US$20 - US$40 billion [4]. The high costs as
complete removal, partial removal and re-use. well as regulatory requirements necessitate the
Inappropriate selection of a decommissioning selection of an optimal decommissioning option.
option can have severe financial, environmental, To determine an optimum option, it is crucial that
health and safety consequences. The best all available alternatives are identified, assessed
available option is usually determined by taking and compared by taking into account technical
into account technical feasibility, economic feasibility, economic viability, consumption of
viability, consumption of natural resources and, natural resources and, health, safety and
health, safety and environmental impact. environmental impact.

Net Present Value (NPV) analysis is often used to Fundamentally, there are three common
assess the economics of decommissioning decommissioning options; complete removal,
options. However, an economic analysis based on partial removal and re-use for other purposes. The
purely financial criteria is not in itself adequate for complete removal denotes entire removal of all
valid decision making. Non-financial factors which elements of the installation and making good the
are not reducible to monetary values should be disturbed site. The partial removal denotes leaving
identified and incorporated into the overall some elements of the installation in-situ. Re-use
economic analysis. Weighted Evaluation (WE) is a denotes using the installation for other purposes
technique used to assess the feasibility of non- such as artificial reef, marine laboratory, wind
financial factors. In this paper, a hybrid of NPV energy generation, etc. However, inappropriate
analysis and WE technique has been developed selection of a decommissioning option can have
to assess the economic and technical viability of severe financial, environmental, health and safety
decommissioning options. The hybrid technique is consequences. This paper assesses and
used in a case study to assess and compare the compares the economic and technical feasibility of
impact of different decommissioning options on a
 2 J.A. Andrawus, J.A. Steel, and J.F. Watson SPE 128599

four decommissioning options using a hybrid stakeholders’ requirements need to be

technique. recognised, harnessed and balanced for
sustainable decommissioning of offshore
Overview of some Decommissioning installations.
Regulations
The Geneva Convention on the Continental Shelf Assessment of decommissioning options
(GCCS) 1958 requires the entire removal of any – a hybrid approach
O&G installation which are abandoned or disused The first step in selecting a suitable and optimal
[5]. The London Convention (LC) 1972 prohibits decommissioning option is to establish screening
the disposal of waste or material at sea except if it criteria to define the minimum standard
can be certified that the materials are not harmful requirements. A screening model for
to the marine environment either through decommissioning options is shown in Figure 1. An
characterisation or decomposition [6]. The United optimal option should fulfil all regulatory, safety
Nation Convention of the Law of the Sea and public requirements. These non-financial
(UNCLOS) 1982 permitted partial removal of factors are fundamental and can not be
offshore structures [Article 60(3)] but subject to compromised in the selection of decommissioning
compliance with any general accepted options. The second step is to assess the financial
international standard [7]. The International aspect of the potential decommissioning options
Maritime Organisation (IMO) guidelines and by evaluating the Net Present Value (NPV) of
standards 1989 require complete removal of all each option. The best option will have the least
abandoned or disused O&G installation except in NPV (subsection 3.1, 3.2 and 3.3). The last step is
deep waters (>100m) and substructures weighing to identify and assess non-financial factors. This
greater than 4000 tonnes [8]. In this case, the IMO enables the evaluation of benefit-to-cost (BTC)
stipulate that 55m of clear water column must be ratio (subsection 3.4).
provided for navigation and safety purposes [8].
Identify
The Oslo and Paris (OSPAR) commission 1992 A decommissioning
option
Establish screening
criteria
that was ratified and entered into force in 1998
prohibits the dumping and leaving wholly or partly Regulatory Public Safety
Criteria Criteria Criteria
in-place of disused offshore installations within
Establish standard
maritime environment [8]. The Petroleum Act 1998 requirements
requires the topside of all installations to be Collate
returned to shore for reuse or recycling or final data

disposal on land. Furthermore, pipeline

Minimum
decommissioning should be contained within a Discard Option
No requirement Yes Compile other
assessment criteria
satisfied?
separate program from that of installations [9]
Apparently, the utilisation of any of the common Collate financial Yes
Criteria
reduced
Financial criteria to monetary
decommissioning options; complete removal, data
scale?
partial removal or re-use for other purposes is No
Evaluate Non-financial
perfectly within the ambit of territorial, continental Life-cycle Analysis applicability criteria
and international law on decommissioning. Collate non-financial
Net Present Value Weighted Evaluation
However, the contemporary business climate is data

evolving constantly with stringent stakeholders’

requirements. The law is no longer the only BTC ratios
deciding factor of acceptable way of doing things.
This is evident in the Brent Spar case [10]. The Overall ranking

government creates and regulates business-

Terminate
enabling environments by using appropriate laws
and regulatory bodies. Non-compliance with these Figure 1: A screening model for decommissioning
laws and regulations may result in severe options
penalties or withdrawal of operating licenses. On
the other hand, investors in the O&G sector desire Assessment of financial criteria for
a long-term business survival, increased potential options
profitability as well as enlarged market share in the Table 1 shows the Net Present Value of three
global energy market. The end users expect lower decommissioning options; complete removal,
prices of O&G products, while the public expect partial removal and re-use for remote reefing of
absolute protection of the environment. These the Hidalgo deep water platform adopted from
varying, and to some degree conflicting
3 A hybrid approach to assess the impact of decommissioning options for offshore installations SPE 128599

[11]. The rates for the ten major cost items Cost Items
Semi Submersible Crane Vessel (£) 2,832,230
contained in the table were converted from US CB, Crew and Equipment Mob/Demob (£) 529,789
Dollars to GB Pounds sterling and, adjusted for Well Plugging and Abandonment (£) NA
inflation from 2000 to 2009. The adjustment for Topside Decommissioning/Platform Removal Preparation (£) 1,424,177
Pipeline Decommissioning (£) 726,620
inflation was necessary to obtain the current NPV Conductor Removal (£) 304,747
of the three options to ensure effective comparison Platform Removal (£) 1,332,561
with option 4. The adjusted NPV for the complete Onshore Disposal (£) 2,097,506
Site Clearance (£) 682,193
removal, partial removal and remote reefing of the
Project Management and Engineering (£) 525,424
platform are £42,421,432; £14,308,727 and Sub Total (£) 10,455,247
£17,035,833 respectively. The reader is directed Inflation (%) 4

to [11] for a detailed cost breakdown of each of the Analysis period (Years) 8
Adjusted Total (£) 14,308,727
items presented in the Table 1. Capital Expenditure of a Wind Turbine
Investment cost (IC)/ MW (£) 1,000,000
Table 1 NPV of options 1, 2 & 3 (i.e. complete Cost of a 5MW Wind Turbine (51% of IC) (£) 2,550,000
Installation cost/ Electrical / insurance/surveying (24% of IC)(£) 1,200,000
removal, partial removal & re-use for artificial Foundation cost NA
reef) of the Hidalgo platform adopted from [11] Sub Total (£) 3,750,000
Value Added Tax(15%) 562,500
Cost Items Complete Partial Artificial Reef Sub Total (£) 4,312,500
Semi Submersible Crane Vessel (£) 5,268,286 2,832,230 2,832,230 Total ( adjusted total+ Wind turbine CAPEX £) 18,621,227
CB, Crew and Equipment Mob/Demob (£) 1,798,301 529,789 544,204
Well Plugging and Abandonment (£) NA NA NA
Topside Decommissioning/Platform Removal Prep (£) 1,424,177 1,424,177 1,424,177 In addition to the CAPEX, operation and
Pipeline Decommissioning (£) 726,620 726,620 726,620
Conductor Removal (£) 704,072 304,747 704,072
maintenance (O&M) costs of the wind turbine is
Platform Removal (£) 12,561,994 1,332,561 2,716,203 about £388,125/annum (i.e. 9% of the
Onshore Disposal (£) 5,624,285 2,097,506 2,146,257
Site Clearance (£) 1,116,573 682,193 682,193 CAPEX/year). The life-cycle (T) of an offshore
Project Management and Engineering (£)
Sub Total (£)
1,772,617
30,996,925
525,424
10,455,247
671,960
12,447,916
wind turbine is about 25 years [14]. A discounting
Inflation% 4 4 4 factor (d) of 9.8% is used for the analysis. The
Analysis period (year)
Adjusted Total (£)
8
42,421,432
8
14,308,727
8
17,035,833
Present Worth per Annum (PWA) which is used
for discounting annual recurring costs was
determined by using Equation 1.
Option 4: Re-use for wind energy
(1 + d )T − 1
generation PWA =
d (1 + d )
T
This option involves partial removal of the platform
(1)
and installation of a 5MW wind turbine for power
generation. Table 2 shows the NPV of re-using the
Thus, the NPV of the O&M over the life-cycle of
platform for wind energy generation. The topside
the wind turbine is about £3,577,910 as shown in
structures are removed in the same manner as the
Table 3.
partial removal, and hence the same adjusted cost
of £14,308,727. The estimated cost of investment Table 3 Operation and Maintenance of a 5MW
in offshore wind energy generation is about £1 Wind Turbine
million/MW [12]. The cost of a wind turbine is
about 51% of the investment cost/MW [13]. Thus Annual O&M cost (9% of Capex) (£) 388,125.00
the cost of a 5 MW offshore wind turbine is about Analysis factors
Analysis period (years) 25
£2.55 million. Installation costs, electrical systems, Interest rate (%) 9.8
insurance, surveying & construction management Discounting factors
are 9%, 9%, 2% and 4% respectively of the PWA 9.22
NPV of O&M cost (£) 3,577,910
investment cost [13]. Hence, the capital
expenditure (CAPEX) of re-using the platform for
The potential revenue generation from a 5MW
wind energy generation is about £18,621,227.
offshore wind turbine is estimated in Table 4. The
turbine is assumed to operate at an average
Table 2 NPV of re-using the platform for wind capacity factor of 40%, that is, the ratio of actual
energy generation energy generated and the wind turbine power
rating over a period of time. The 40% capacity
factor denotes that the turbine will be operating at
a full capacity for about 9 hours/day or 146
days/year. Figure 2 shows the effect of capacity
factor on revenue generation/annum. The
revenue/annum at 40% and 45% capacity factors
 4 J.A. Andrawus, J.A. Steel, and J.F. Watson SPE 128599

are about £1.2 and £1.4 million respectively. Note NPV of Wind Energy Generation

that potentially offshore wind turbines can operate 14,000,000

above 50% capacity factor.
12,000,000

10,000,000
Total Revenue/Year
8,000,000

Pounds
1600000
6,000,000 NPV of Wind Energy
1400000
Generation
1200000 4,000,000

1000000 2,000,000
Pounds

800000 Total Revenue/Year -

600000 0.35 0.36 0.37 0.38 0.39 0.4 0.41 0.42 0.43 0.44 0.45
Capacity Fac tor
400000

200000

0 Figure 3: NPV of option 4 at different capacity

35

factor

45
41

42

43

44
36

37

38

39

40
0.

0.

0.

0.

0.

0.
0.

0.

0.

0.

0.

Capacity Factor

Figure 2: Effect of capacity factor on revenue Uncertainty and risk assessment

generation/annum. The NPV analysis deals with future costs which
invariably contain uncertainties and risks that
The estimated value of energy is about require critical assessments to ensure the
£0.07/kWh. The net revenue from the 5MW wind accuracy of results for valid decision making. A
turbine over the 25 year life-cycle is about probabilistic approach of Crystal Ball Monte Carlo
£26,749,590. Thus, the NPV of option 4 is the net simulation was used to assess the risks and
revenue generated from the sale of electricity less uncertainties of the key variables in the Net
the sum of capital expenditure and O&M cost. This Present Value calculations. After 100,000
results in savings of about £8 million. Note that the simulations, the results show no significant effect
NPV of complete removal, partial removal and of uncertainties on the NPVs of the 4 options. The
remote reefing; £42,421,432, £14,308,727 and overlay and trend charts of the options are
£17,035,833 respectively are expenses to be presented in Figures 4 and 5.
incurred.

Table 4 Revenue generation from a 5MW Wind

Turbine
Number of Turbine 1
Time interval under consideration (T) 365 days
Hours per day (Hpd) 24 hours
Wind turbine power rating (WTPR) 5,000 kw
Number of hours per year 8760 hours
Actual energy out put during time T (EOP) 17,330,000 kw
Capacity factor (CPF) 0.40
Cost of energy per kwh (Ceh) 0.07 pounds
Total Revenue per Year 1,213,100 pounds
Life cycle of wind turbine 25 years
Total Revenue over the life-cycle 30,327,500 pounds
Net Revenue (Revenue generated - O&M cost) 26,749,590 pounds
NPV of re-use for Wind Energy generation 8,128,362 pounds
Figure 4: Overlay chart of the decommissioning
options

Figure 3 shows the Net Present Values of option 4

at different capacity factors. The NPV increases
from £8 million at 40% capacity factor to about
£12.2 million at 45% capacity factor.

Figure 5: Trend chart of the decommissioning

options
5 A hybrid approach to assess the impact of decommissioning options for offshore installations SPE 128599

Uncertainty and risk assessment respectively; this suggests that the re-use for wind
An economic analysis based on purely financial power generation is the best alternative.
criteria is not in itself adequate for valid decision
making [15]. Non-financial factors, which are not Criteria Importance
4- Major preference
reducible to monetary values should be identified Criteria 3- Medium preference
and incorporated into the overall economic 2- Minor preference

C R IT E R IA S C O R IN G M A T R IX
A. Regulatory requirements 1- (letter/letter)- no preference
analysis [16]. A/B Each scores one point
B. Public requirements A-4
In addition to the three fundamental criteria B–4 A-3
C. Safety
(regulatory, public and safety) presented in figure B-4 A-4
C/D B-4 A/F
1, four other criteria were identified. These D. Environmental impact
C- 4 B/F A-4
includes; environmental impact, technical D- 2 F-4 B-4
E. Technical feasibility F- 4 C-3
feasibility, future liability and revenue generation. F- 4 D-2
These were assessed using the Weighted F. Future Liability E-3
F-4
Evaluation (WE) technique [15-16] and the result G. Revenue generation
is presented in Figure 6. It is worth noting
however, that the non-financial factors can be G F E D C B A
subjective and Figure 6 was established through Raw Score
0 18 3 5 8 18 17
discussion with decommissioning specialists. Weight of importance 1* 4 10 9 Total BTC Ratio
10 2 3 NPV
1. Complete Removal 2 5 3 3 3 5 5
(£42, 421,432) (0.0000041)

A N A L Y S IS M A T R IX
The WE approach consists of two processes; first, 2 50 6 9 12 50 45 174

A lte r n a tiv e s
assessment criteria are identified and the weights 2. Partial Removal 2 2 3 3 3 1 5
2 20 6 9 12 10 45 114 (£14, 308,727) (0.0000079)
of their relative importance are established. These 3. Re-use for artificial reef 2 4 3 3 3 1 5
124 (£17,035,833) (0.0000073)
2 40 6 9 12 10 45
are sequentially compared in pairs and the most 4. Re-use for Wind Power 5 5 3 3 3 5 5
vital criterion is scored according to its 177 £8,128,362 0.0000218
generation 5 50 6 9 12 50 45
comparative preference of scale 1 to 4, for Excellent - 5; Very good - 4; Good - 3; Fair - 2; Poor -1
example in Figure 6, criterion ‘A’ (Regulatory
requirements) is compared with criterion ‘E’ Figure 6: Weighted Evaluation of
(Technical Feasibility), A is found to be more Decommissioning options
important than E and it is a major preference,
hence the value ‘A-4’ was recorded. The scores of Benefit-To-Cost ratio evaluation
each criterion are summed up (Raw Score in The Benefit-To-Cost (BTC) ratio evaluation
Figure 4) and the final weights are determined combines the results of the financial and the non-
such that the maximum weight is assigned a value financial calculations to determine and compare
of 10 (Weight of importance in Figure 6). the benefits derived from the competing options.
Secondly, the rating of each option (complete The higher the ratio the better the benefit derived
removal, partial removal, re-use for artificial reef, from the alternative. Equation 3 was used to
and re-use for wind power generation) in terms of determine the BTC ratio of complete removal,
each criterion is determined on a scale of 1 to 5 partial removal, re-use for artificial reef, and re-use
(i.e. poor to excellent), for instance, the for wind power generation to obtain the values of
performance of complete removal in terms of 0.0000041, 0.0000079, 0.0000073 and 0.0000218
criterion ‘A’ (Regulatory requirements) was found respectively (Figure 6).
to be ‘excellent’ (i.e. 5). These values were then Si
multiplied by the corresponding criterion final
weights and the summation gives the total score
A * = Ai BTCi = ∨
i =1, n NPVi
(3)

of the option (Equation 2).

The BTC ratio of re-use for wind power generation
m is very high in comparison to complete removal,
A * = Ai S i = ∨ ∑W
i =1, n j =1
j . S ij (2) partial removal and re-use for artificial reef.

As a general rule, the best alternative A* should Conclusions

have the highest total score [15-16]. In Figure 4, This paper has assessed four decommissioning
the total scores of complete removal, partial options; complete removal, partial removal, re-
removal, re-use for artificial reef, and re-use for uses for artificial reef, and re-use for wind power
wind power generation are 174, 114, 124 and 177 generation using a hybrid of Net Present Value
 6 J.A. Andrawus, J.A. Steel, and J.F. Watson SPE 128599

and Weighted Evaluation techniques. The NPV of presented at the International conference,
decommissioning platform (adopted from 11) by Beijing, China, 2-6 Nov 1998.
using complete removal, partial removal or remote 5. The Geneva Convention on the Continental
reefing options are £42,421,432, £14,308,727 and Shelf (1958)
£17,035,833 respectively. While these are http://untreaty.un.org/ilc/texts/instruments/englis
expenses to be incurred, the NPV for re-using the h/conventions/8_1_1958_continental_shelf.pdf
platform for wind power generation result in a [accessed 10th March 2009].
revenue generation of about £8 million. Seven 6. The London Convention (1972)
non-financial factors; regulatory requirements, http://www.imo.org/Circulars/mainframe.asp?top
safety requirements, public requirements, ic_id=1408 [accessed 13th March 2009]
environmental impact, technical feasibility, future 7. The United Nation Convention of the Law of the
liability and revenue generation were identified Sea (1982)
and assessed using the weighted evaluation http://www.un.org/Depts/los/convention_agreem
technique. The total scores of complete removal, ents/texts/final_act_eng.pdf [accessed 14th
partial removal, re-use for artificial reef, and re-use March 2009]
for wind power generation are 174, 114, 124 and 8. N.R. Anthony et al (2000). Platform
177 respectively; this suggests that the re-use for Decommissioning Trends. Paper SPE 6446
wind power generation is the best alternative. The presented at the Asia Pacific Oil and Gas
results of the NPV and Weighted evaluation were Conference and Exhibition, Brisbane, Australia,
used to calculate the Benefit-To-Cost (BTC) ratio 16-18 October 2000.
for the four options. The BTC ratio of complete 9. Department of Trade and Industry (2000).
removal, partial removal, re-use for artificial reef, Guidance notes for industry: Decommissioning
and re-use for wind power generation are of Offshore Installations and Pipelines under the
0.0000041, 0.0000079, 0.0000073 and 0.0000218 Petroleum Act 1998.
respectively. This showed that the re-use for wind 10. Brent Spar Dossier http://www-
power generation is the best alternative as the static.shell.com/static/gbr/downloads/e_and_p/b
higher the ratio the better the option. Thus re- rent_spar_dossier.pdf [accessed 20th March
using the platform for wind power generation 2009]
appeared to be the best decommissioning option 11. Twachtman Synder & Byrd Inc (2000). State of
for the deepwater platform. the art of removing large platforms located in
deep water – Final report , presented to United
States Minerals Management Service (MMS).
12. Investment cost of offshore wind turbines-
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