Optimising oil and gas operations - when to decommission or modernise

To make accurate, timely decisions to maximise the value of their assets today and in the future, refiners and other oil and gas companies need quality of data.

Stuart Querns
Delaware United Kingdom

Article Summary

There are a large number of ageing oil and gas facilities around the world, which pose the problem of whether they should be decommissioned or modernised. Here in the UK there are still around 10-20 billion barrels of oil equivalent (BOE) that could be extracted offshore, according to industry regulator Oil & Gas Authority (OGA).

We are seeing oil refineries under ever greater threat. Before the advent of COVID, industry observers were already projecting a significant downturn in the oil refinery sector across Europe, with businesses increasingly needing to rationalise their presence across the continent, particularly given that many of these refineries today are ageing fast.

In August 2021, consultants WoodMac predicted a 9% drop in capacity across Europe in the period between 2022-2023. At the same time, Goldman Sachs predicted refinery rates in 2021-2024 to be 3% lower relative to 2019, which they felt would lead to both permanent closure and greater levels of competition.

While some oilfields are now close to being depleted and refineries are getting ever older, a new industrial challenge is emerging – decommissioning the infrastructure. But many facilities can be modernised to extend their useful lives.

Making information visible
So, how can oil and gas companies best decide whether a facility is to be maintained, modernised, or decommissioned? At the outset, it is important to highlight that upstream and downstream facilities should not, and typically cannot, be divorced from each other. The two are core elements of a single, integrated oil and gas system. If one is impacted, so too is the other.

However, whether we are talking about exploration and production or refining, one of the biggest issues oil companies face is the visibility of information. Having that visibility is especially important in making big decisions around whether to replace, decommission, or overhaul a major facility.

Engineering operations teams need to have quality information at their fingertips to decide whether to spend money on replacing, or overhauling an ageing asset. That information could potentially come from multiple sources. It could come from the asset itself or be based on maintenance activities. Whatever the individual sources, they need to be aggregated in a cohesive way to ensure the combined data can fully support a decision on the future strategy or tactics to be employed.

Therefore, what sort of information are we talking about here? Cost-related information is certainly one key type. Operating expenditure (OPEX) is always a key metric when oil and gas companies are looking at what they should be doing, especially where it relates to capital assets, which can be hugely expensive to manage and maintain but even more expensive to purchase new. For the oil and gas company concerned, looking at how much it costs to operate and maintain the asset is clearly a key decision point. Other aspects of this that are critically important are how often the asset is failing. For example, is it reliable, or do you have to intervene frequently?

Another key aspect here is the efficiency of the workforce. If the organisation is not effective at planning and scheduling activities, for instance, it could potentially miss maintenance schedules or not perform work in the right timeframe, which will also impact reliability.

All of these different points of reference are sources of information that support any decision. If they are disjointed or don’t reflect in the same way across the asset, then the oil and gas business concerned is unable to make a decent decision or might make the wrong decision, or even fail to decide at all. That will, in turn, reflect on the performance of the asset itself.

There are differences here in the approach employed by downstream and upstream companies. Downstream businesses, including refineries, are especially margin conscious. They are only too aware of the negative financial impact of a production line being down for any length of time, and they know all too well that just bringing it back up again is likely to have a significant cost impact. In other words, refiners tend to be very sensitive to lost opportunity and margin.

For oil and gas companies, including downstream refiners, it remains difficult today to get this kind of overview from the data they have at their disposal. They need to have all the information there, but they also need to have it available in a timely way to make fast decisions.

The speed and accuracy at which information is relayed is critically important, but there are several other factors to consider. If, for example, an asset holds its own information in the form of telemetry and the structure of that data is not in line with the structure of the maintenance information collected, then it may be a challenge for the business concerned to reconcile those disparate pieces of data to make one decision.

They also need to ask themselves whether all the information they require is in the same or disparate systems, and reconciliation between each of these is therefore needed.

Furthermore, a large refinery that operates on a global scale often finds it very difficult to clearly structure all the information it has at its disposal. Often, various sites will have different processes in place, disparate data structures, siloed information sources, and different ways of performing maintenance and operating their assets.

Reconciling across the organisation to better understand supplier efficiency or contract management, for example, is likely to be difficult. It is going to be challenging indeed to aggregate all this information to ensure the refinery has a clear view of the performance of any asset across cost, reliability, efficiency, and operations to then decide whether to spend more money on it or decommission it, for example.

Multiple factors playing into the choice
Many large organisations have reached the stage where they are aware of the problem they face, but they are struggling to put in place a solution. It is difficult, not least because of the sheer range of factors playing into the choice. It is a very turbulent time within the energy sector now. Prices are volatile, and there is regular merger and acquisition activity. If you divest an organisation and then bring another in, it is difficult to do that quickly. The business is dealing with a lot of dynamic activity while at the same time trying to turn large transformation programmes around.

The current geopolitics we are seeing around the world also play into this situation. Less than a year ago, for example, many oil and gas companies were decommissioning assets in the North Sea. Now they are reconsidering this and looking at options to extend. The single phrase resonating more than any other in the industry now is energy security: the ability to keep operations up and running and secure the supply of energy.


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