New Decommissioning Company Targets £200m Investment to Exploit Massive Market Opportunity
A major new entrant to North Sea decommissioning has been unveiled today.
Well-Safe Solutions, set up by a group of oil industry stalwarts – including Alasdair Locke, Mark Patterson, and Paul Warwick – will provide a ground-breaking approach to the safe and cost-efficient decommissioning of subsea wells.
The new start company, which aims to attract £200million in investment and create 400 new jobs, will offer a specialist well abandonment service that allows operators to meet the challenges and regulatory imperatives around decommissioning, while significantly reducing costs.
Well-Safe has secured funding from Scottish Enterprise, including investment from the Scottish Investment Bank and a regional selective assistance grant, in addition to the initial private funding provided by the major shareholders, which will enable the company to invest in assets and create jobs.
Bringing together a wealth of subsea oil and gas expertise and experience with dedicated marine assets and equipment, Well-Safe will be the first-of-its-kind tier one company with a complete P&A (plug and abandonment) capability from front-end engineering and design to project execution.
Executive Director, Mark Patterson, explained: “The liability for late life, non-producing assets remains with the operator. This liability can be reduced via well P&A operations, but the timing on the decision to make these wells safe is heavily influenced by cost and the need for a new approach, working hand-in-hand with major operators.
“The market dynamics in oil and gas have changed significantly. Before the collapse in oil price, operators were focused on maximising production, costs were very high and assets scarce and, with no real regulatory imperative, decommissioning was pushed back. Cost and safety are still paramount but operators are now having to face up to the well abandonment challenge. They need to prioritise decommissioning activity and, with an increasing stock of “shut-in” wells, more incentives, low asset utilisation and therefore lower rates, the economics for P&A have become more compelling.”
Well-Safe aims to capitalise on this opportunity by offering an innovative funding model through a campaign-based approach that will enable sharing of knowledge across operating companies. Through a differentiated contracting strategy that will leverage economies of scale and challenge the “norm”, Well-Safe will manage projects efficiently and safely, while delivering clear savings.
Within a highly fragmented market, the new-start company will take away the need for contracts with multiple service providers and instead offer a “one-stop-shop” for operators’ P&A requirements.
“As the focal point of contact for the operator, we will take care of the planning, logistics and execution through our experienced personnel and our dedicated rigs or vessels via one, single contract,” explained Mr Patterson. “By combining competitive asset day rates with long-term service and support contracts at a fixed day rate, we will be able to offer higher efficiency and utilisation at lower cost.”
Well-Safe is looking to acquire high quality assets to carry out well abandonment work, including a semi-submersible rig, jack-up rig and light-weight intervention vessel.
“As owners of these assets, we can guarantee they will not be diverted to other drilling operations but used and mobilised exclusively for P&A activity. With this certainty over availability, we can secure long-term commitments from operators and have full control over scheduling of long-term well P&A campaigns,” added Mr Patterson
Alasdair Locke, who co-founded Abbot Group in 1992 and served as its chief executive officer is a major investor and will take up the role of non-executive chairman of Well-Safe.
He said: “The industry has been desperately seeking much more cost-efficient ways to tackle late-life activity and I strongly believe Well-Safe’s business model provides the solution. It will however require collaboration from operators and government, but if we think smarter and work hand-in-hand with stakeholders we can revolutionise how we deliver subsea well decommissioning.
“Well-Safe Solutions is committed to providing a world-class offering and has the skills, tools and experience to become the market leaders in this exciting, yet challenging phase of our industry. I am honoured to be given the opportunity to re-engage with the sector at this pivotal time and support Well-Safe achieve what it has set out to do, alongside my fellow shareholders.”
Expenditure on well abandonment in the UK Continental Shelf is forecast to double to £1.1billion in 2017. Around 5,000 wells, of which 1,000 are subsea, require to be decommissioned in the North Sea. Well P&A activity accounts for around 60% of the overall costs associated with decommissioning.
Well-Safe will work closely with operators and industry bodies while navigating the complex regulatory process, driving change, transparency and ensuring tax efficiency.
Mr Patterson added: “We’ve already attracted some of the most experienced people in the industry with the relevant knowledge of subsea wells to create a centre of excellence in P&A. The next step will be to acquire some of the best-in-class drilling rigs, vessels and equipment that will be able to take on any P&A operation.
“This is absolutely the right time for a new entrant to invest in key assets and people to build a market-leading decommissioning company for the future.”
Mr Patterson and Alasdair Lock are the major shareholders. Among the other industry heavy-hitters is Paul Warwick, formerly executive director for Repsol SA, executive vice president for Talisman Energy Inc. and regional president of ConocoPhillips Inc.
Mr Warwick added: “From an operator’s perspective, Well-Safe’s offering will be highly compelling. There is no better time for a new entrant to invest in key assets and people to build a market-leading decommissioning company for the future. Well-Safe is responding to the industry’s needs by delivering a service which is long overdue. With a strong management team and solid investor backing, I am pleased to be supporting a company that has what it takes to solve one of the UK’s biggest industrial challenges.”
Kerry Sharp, Director of the Scottish Investment Bank from Scottish Enterprise, said: “To remain at the forefront of the global oil and gas sector, Scotland has to adopt new approaches and innovation and also be ready to make the most of the new opportunities when they appear. Well Safe is a good example of a company taking advantage of the current decommissioning market opportunity, by adopting new approaches, and it will support another area of growth within the oil and gas sector, with the potential to generate a material number of new jobs and benefit from new international opportunities.”