By Richard Vann, managing director, and Mark Taylor, engineering consultancy director, of decommissioning specialist RVA Group.
It would perhaps be deemed by some as one of the least ‘hands on’ elements of a decommissioning project, but the execution of a costings study is in fact one of the most crucial and sophisticated uses of engineering acumen there is, when it comes to securing a safe, commercially- and environmentally-sound project outcome.
Tank farms, oil and gas terminals vary in terms of size, complexity, historic maintenance and level of contamination, to name just a few criteria – in truth the list of site-specific variables goes on. Some sites are fully operational at the time of a decommissioning project being considered, it is safe and easy to gain access, rigorous procedures are being followed by all, and current and historic operational data is readily available. Other sites have long been redundant, there is little in the way of drawings and information, and it is consequently far harder to determine the condition of the assets concerned.
A ‘one size fits all’ approach to decommissioning would therefore not only be naïve, but potentially extremely dangerous, particularly when the condition of the asset is unknown. This is why it is important to gather and interpret as much data as possible, surrounding the type and level of hazardous material contaminations, cleanliness, and structural integrity of the tanks and terminals involved. Armed with this insight – and more – the project team can make informed decisions about the next-step route path of works. Best-fit methodologies can be strategised, assets can be safely dealt with by competent contractors, personnel will be protected by appropriate PPE and risks have a far greater likelihood of being minimised.
The role of the costings study
The costings study is a crucial management tool that helps uncover and outline crucial information to bring a site to a known state, remove as many uncertainties as possible and highlight areas that potentially will impact on cost and/or programme later down the line.
Costings studies themselves can be categorised into one of four key types – the use of each depends very much on the project scenario and the owner’s objectives. Sometimes the client will stipulate specifically which type of study they require for their site, whereas others will not be aware that these different tools exist. In such instances – while it naturally relies on the operator to initially seek external expertise – the onus to identify, investigate and interrogate the data should almost always lie with specialist engineers experienced in the decommissioning discipline.
As straightforward as the definition implies, this is a relatively simple exercise usually undertaken when the operator is familiar with the world of decommissioning, the scope of works is already clearly defined (or certainly an active work in progress), and the programme merely requires a summary of projected financial outlay.
The result of an estimation exercise is a short report which typically includes an executive summary, introduction, confirmed scope of works, terms of reference, costs and basis, duration/schedule, and site plan.
Feasibility and options study
This deliverable is ordinarily used for more complex scopes, such as dismantling in a live operational area, phased dismantling of a particularly high hazard site, or works in an area where there is a restriction on the methodologies that can be deployed.
That said – given this study provides more of a detailed background into the recommended methods and management of a project – it can also be used on comparatively simple schemes where the client is new to demolition, and therefore may not have a defined regime as to what needs to happen next.
Again, the contents of the resulting report will depend very much on the status of the tank farm / terminal, and/or any extraneous factors likely to be imposed on the decommissioning team. Generally, however, it will consist of the same detail as the estimate, plus a wealth of additional detail including:
- divestment options such as the sale of assets in-situ or upon relocation, site demolition or mothballing;
- the development of expressions of interest – useful should the divestment options be further explored;
- demolition options including phasing and methodologies;
- details on hazardous insulation materials, waste management planning and resources required;
- necessary remediation works;
- project management;
- EHS (environment, health and safety) priorities and constraints;
- notifications, permits, licenses and EPR surrender;
- a defined description of the processes involved;
- detail on major plant items.
In summary, there are far more project variables at play regarding what may happen next. It would therefore be impossible to conduct any accurate, meaningful costings until such criteria has been explored.
The client will then typically use the ‘scenario planning’ findings to make informed decisions as to the future route map for their site.
Long term liability study
Much the same as a feasibility and options study, this management tool adds particular value to projects when the oil and gas operator is less familiar with the potential scope of works that could ensue – and may not have even considered demolition as an option. Such studies therefore usually take longer to execute, as more time is required to understand the client’s business drivers.
In addition, the information generated in this type of study is often required so that the asset owner complies with international financial provisioning standards such as FAS143 in the US and IAS 37 in Europe. These standards are to ensure that when the time to decommission the site arrives, there are adequate funds set aside for this process. UK sites such as Easington, Dimilington, Bacton and many others throughout the EU have all had this information produced, so that it is clear what liabilities will have to be met, possibly in many years’ time.
With the tendency currently for assets to change ownership perhaps more often than in the past, variations of this type of study can also be used by prospective purchasers and vendors, as a due diligence tool. The information gathered gives clarity on the legacies that will remain with the site and costs that will crystallise in the future.
At the heart of this type of costings exercise is a fluid and reconfigurable spreadsheet which allows for the adjustment of resource, waste and scrap rates, as well as annual inflation figures. This adaptability is required if the study is to maintain relevance over a possibly extended period of time. In fact, it is recommended that the detailed information is rigorously reviewed every five years so that any changes to the assets or tightening of regulations can be accommodated and the true liability of a site is fully understood.
Asset management plan
Tanks and terminals operators would request these to either encompass multiple plants on a single site, or several assets remote to each other. Again, the resulting report is similar in content to a feasibility and options study. However, as the study considers several plants at once, the purpose of the detail is to centre upon business requirements as opposed to demolition specifics.
Generally, the plan will elaborate on a long-term phased programme of demolition works, and this needs to be adaptable due to the external factors that could influence project success over an extended period of time.
Depending on the size of the scope, this study may also contain several detailed spreadsheets as well as a headline summary that can be used to estimate annual decommissioning costs.
Of course the studies do not end there – as was stressed at the outset, the documentation required to support the safe, commercially and environmentally sound execution of a project depends on the specifics of the oil and gas site concerned.
Some clients seek external guidance when compiling a decommissioning plan, for instance – a legal report associated with the permitting of activities on an industrial site. Typical content will vary from country to country but could be expected to include soil and groundwater sampling data, details of a monitoring programme, ground remediation methodologies, environmental risk assessment and a site waste management plan. As the latter comprises valuable data surrounding the projected extent of waste arisings, material stream categories and obligated disposal routes, this detail is sometimes requested in a standalone report.
Degree of accuracy
In approximately 90% of cases, an operator that is due to begin works immediately, will require the decommissioning programme to be executed in the most cost-effective manner possible – without there being any detrimental impact on EHS, of course.
A greater degree of accuracy is therefore required surrounding the financial metrics contained within the aforementioned studies, as any next-step decision making is imminent. Longer visits will consequently be required in order to conduct more defined surveys and assessments, and produce sanction-grade costings.
With financial provisioning on the other hand, there is typically a greater degree of tolerance surrounding the numbers and sometimes historic knowledge of the industry as well as current market awareness may be enough to formulate longer-term plans.
Again, much depends on the specifics of the client’s scenario. That said, regardless of the project driver, timescale and tolerance level, fundamental ‘goal posts’ have to be established from the outset so that everyone has some clarity at least, as to how the situation may evolve with time.
The impact of COMAH regulations
‘Goal posts’ are particularly prevalent on tank storage sites when the potential for residual hazardous substances is vast and operations will almost always fall under the highest level of COMAH regulations. The priority in such circumstances should be to try to take the site to the lowest possible COMAH rating before any dismantling works begin.
However, this is virtually impossible if any elements of the farm are still operational. Here, all chosen methodologies and controls will have to comply, which is likely to limit project flexibility and will therefore need to be taken into account when any costings are produced.
The role of external engineers
While a topic all of its own, it is important to note that the involvement of experienced decommissioning engineers – external to the operator’s business – is usually a value-adding move. They will almost always call upon the knowledge of the client’s own resource to aid the formation of detailed studies, but they will view the exercise with a degree of impartiality and insight that is imperative if the data is to be used as the basis of any next step decisions.
Sometimes, the operator will choose to retain the insight of this engineering team. At Milford Haven (UK), for instance, Murco had the skill required to plan and execute complex construction projects but the team recognised early on in the process that their understanding of the consequences of embarking on a demolition project was limited. They therefore engaged RVA to provide the detailed knowledge and experience of high hazard demolition projects required for the development of the EHS, technical and commercial documentation that when combined, formed the demolition tender package.
On this particular job, RVA remained engaged to manage the client’s entire interaction with the contractor supply chain and the tender process. On some projects, the involvement extends to that of the project management and CDM coordinator role, but of course this is not obligatory – especially because the studies empower operators to arrive at decisions they are unlikely to have been able to make otherwise.