This month I was sent a fantastic blog from Laura Petrie* at Ledingham Chalmers. The blog largely focuses on decommissioning in the Oil and Gas industry, but I feel that it has relevance to how we deal with day to day business life, regardless of your sector. This blog is such an enjoyable read, so please have a look through and let us know your thoughts.
Thank you Laura for such a fantastic piece of business writing!
Dawn of the decom
Surviving a horror film and thriving in the fast-evolving and — most likely — frenetically-paced decommissioning industry have more in common than meets the eye.
You can see them on the horizon. Moving slowly.
First one, then several more appear.
As the numbers grow it becomes easier to see how to deal with them: we become more practised at choosing the right approach; at managing them. There are still many more to come.
Once we truly know how to deal with them, they’ll be finished.
This is not the opener of the newest zombie novel or movie. It’s a slightly irreverent outline of the current status of decommissioning projects in the UKCS.
At the moment, working in this slow-moving area of the oil and gas industry feels like being in a typical horror movie: the early stages are slow, scene-setting pieces where all the players are defining their roles but all too soon the action will ramp up, and then it’ll be over before we know it.
Notwithstanding significant projects underway in this region, the Oil & Gas UK Decommissioning Insight report 2017 says the estimated spend for decommissioning in the UKCS as a whole still only represents around ten percent of the total business spend in the same region for the entire oil and gas industry.
While this indicates a slow start, it’s likely a large proportion of decommissioning projects will come ‘live’ at the same time, meaning that the decommissioning industry is likely to have a short but frenetic lifespan.
Those who want be the (services and supply chain) heroes still have time to prepare and work out their strategy to tackle the decommissioning market and walk away victorious, but laying out those foundations needs to start now in order to make the most of the opportunities that’ll come up.
In keeping with the title, here are a few lessons that are as useful for surviving a horror story as they are for negotiating the growing decommissioning industry —
- Be prepared to investigate (and assess)
The best horror movie heroes know that they will have to investigate something at some point — to assess the unidentified scratching noise, bump, or scream; or just to find out more about the impending apocalypse.
Contractors should be similarly readying themselves by assessing their products and services; considering how these can be used or adapted for decommissioning; and ready themselves to price sensibly.
Being proactive in demonstrating how specific items or services can be of use shows an awareness of the market and the need to move and adapt with the operators’ requirements.
Early engagement with operators and specifically asking for direction on likely timescales for decommissioning, or offering to assist in planning, can help to position an organisation at the forefront of the operators’ minds: demonstrating an agility in dealing with a changing market.
This is particularly true as OGA stewardship requirements are pushing operators to budget as early as possible for decommissioning expenditures.
- Safety in numbers
True heroes know there is strength in numbers; although, they aren’t scared to go it alone if needs be.
There has been much discussion on collaboration in the UKCS in recent months with the primary focus being using this approach to achieve ‘maximum economic recovery.’
But working together to develop or build on ideas for decommissioning is just as important.
The fact that the Oil and Gas Technology Centre (OGTC) has a dedicated Decommissioning Solutions Unit that focuses on collaborating with other OGTC divisions and industry bodies shows contractors there’s an overwhelming need to work together.
As more and more contractors turn to investigating and assessing decommissioning products, there’s increased opportunity to build relationships with like-minded businesses, and identify the gaps in both the market and a contractor’s own product portfolio, which could give rise to a profitable collaboration.
It’s always worth noting that the one of the keys to successful collaboration is in being astute enough to recognise when these partnerships are working, but also when they’re not.
As we’ve said, the window for decommissioning is likely to be relatively narrow, and this makes ongoing assessment of potential or current collaborations all the more imperative. To be well placed to win decommissioning work, contractors need to be ready to also cut those projects which are not truly beneficial, and ensure they’re lean enough to survive.
- Look behind you!
We all know the formula – the scary killer, the monster, or the clown with the red balloon, is always right behind the hero when he or she is looking everywhere else.
The condensed timeframe for the decommissioning industry means that there will be a similarly compressed market for competitors.
Early preparation and marketing, as well as engaging with operators promptly, will help contractors position themselves ahead of competitors.
Equally, contractors should be seeking to leverage historic relationships for development or operational work when entering the decommissioning sphere. Reverting to previous relationships and looking back to past projects where relationships worked well will provide a competitive edge.
- Make sure everything is in working order
The car doesn’t start; the gun misfires; the lock is broken – all these things make the hero’s life harder and hamper a successful getaway.
This is especially true in the contract or terms and conditions for decommissioning work.
The nature and scope mean there will likely be many areas which require terms of a bespoke nature or at least a clear link to a defined scope of work. Many contractors try to apply a single catch-all set of terms and, in the majority of cases for decommissioning work, standard terms and conditions are not an ideal fit.
It is important to make sure terms or contracts fully assess the potential risks and allocate liability accordingly. In particular, pollution risks will need to be managed clearly and carefully, and bespoke provisions may be required depending on the scope of work.
By addressing this now and reviewing standard contracts and terms and conditions, contractors will be well placed to show they have considered the vagaries of decommissioning and have a clear understanding of the requirements.
The new LOGIC standard contract for decommissioning work, due to be launched later in 2018, will be a strong starting point for contractors reviewing their own practices.
- When all else fails – ask for help
Finally, the hero realises he really should listen to the sage older character after all and call in reinforcements.
The growth of decommissioning in the UKCS has similarly led to an increase in industry bodies designed to support contractors here.
As I’ve said, OGTC has divisions specifically established to focus on decommissioning, and networks such as Decom North Sea are designed to engage contractors with potential collaborators or signpost potential opportunities.
Contractors will find they are best placed to respond to requests for decommissioning work if they fully arm themselves with the best information, guidance and connections.
Be prepared — to pitch and perform
Decommissioning is increasingly a focus for the UKCS industry, which means there’s no shortage of discussions, points of information and (in true self-aware horror movie style) articles claiming to provide guidance on how to best engage in these projects.
The reality is that contractors need to be ready to pitch and perform quickly.
By assessing their own capabilities, fine-tuning their contracting structure and gathering the right people and information around them, they should be well placed to survive and thrive in the market.
*Aberdeen-based partner of Ledingham Chalmers, Laura Petrie is a corporate and commercial lawyer with significant experience in upstream oil and gas, frequently advising operators on a range of exploration and production matters including joint operations, transportation, farm-in/out arrangements, general contracting and asset restructuring.
She also undertakes transactional work, both on an asset and corporate basis, advising on due diligence preparation or review, SPAs, allocation of decommissioning liability on acquisition/divestment.