Energy: In at the deep ends

The expected decommissioning of projects in the North Sea will give UK Continental shelf industry a chance to gain experience it can market to the rest of the world. By Richard Cockburn

Over the next decade operators in the North Sea are expected to spend billions of pounds removing hardware that has reached the end of its working life. The Department of Trade & Industry (DTI) anticipates that during this time more than 80 structures in the North Sea will be decommissioned, with costs for individual projects such as Brent reaching the £3bn mark.

Innovative solutions to help reduce those costs are in high demand. These projects will offer a huge opportunity for the oil service and subsea sectors in the UK Continental Shelf (UKCS) to steal a march on the rest of the industry worldwide. Further down the road, the UKCS industry will have the chance to transfer its newly acquired decommissioning experience to contracts around the globe, in places such as the Middle East, West Africa, the Gulf of Mexico and even the Caspian region, in the same way they have marketed their oil and gas-gathering technology.

This emerging sector represents an opportunity for law firms to partner with major oil and gas clients to develop new technical expertise and understanding and apply this to new international work.

However, the oil and gas sector is an environment where only those at the top of their game succeed. Many major operators and contractors have their own in-house legal teams that are equipped with a detailed understanding of their activities. Only well-positioned law firms with deeper specialist knowledge will be able to turn that experience into real opportunities.

Experience is crucial
It is easy to trip up in the decommissioning sector, most commonly through lack of knowledge, specialism and international reach. Evidence from a recent industry seminar has shown that the expectations to deliver in such a challenging environment are high indeed and that a thorough understanding of the legal framework with regards to decommissioning is high on the agenda of operators and contractors looking for specialist advice and counsel.

Legal compliance is paramount in decommissioning operations and any firm involved in this specialist marketplace should be well conversant with the current regulations, including the legal, technical and financial requirements.

Lawyers with in-house experience are a key commodity, as are those with broad backgrounds in the energy industry. It is evidential from work already completed or currently underway that decommissioning demands that level of expertise. An understanding of issues such as environmental matters, securities, planning, construction, oil and gas regulations and banking are on the shopping list of a demanding oil and gas client. Thus, in some cases, it may be necessary to work with a variety of technical specialist entities and slot into a diverse team to service the needs of an operator.

Global reach
The oil and gas industry is a global operation, with no one region operating in isolation from another. Decommissioning will present a significant challenge for those firms without a global reach.

Underpinning the legal regime that governs decommissioning is an elaborate web of international law and conventions – only an understanding of that background tapestry can provide a full appreciation of the intricacies of the nationally applicable rules.

Additionally, in today’s international oil industry, many operators and contractors will not be limiting their activities to the UKCS. They will be investing to build their capabilities to also provide decommissioning services overseas, in places such as the Gulf of Mexico and West Africa.

If a law firm wants to market its services at an international level, it needs to talk the talk and walk the walk. As with any high-level partnership where trust is paramount, a sophisticated client is unlikely to invest time in building a relationship with a firm only to find that its services are limited by national borders. The law firm with an effective international reach can save time if it can coordinate local legal advice in a consistent and timely manner according to the high standards of the firm.

That does not mean only global law firms can compete for the business. It is perfectly acceptable to form strategic alliances with likeminded firms in the key market places – in fact this is often a solid, sensible and acceptable approach.

The opportunities
So, what does the future hold for the legal firm that can provide all the prerequisites?For those law firms that are clear on the opportunities available in the decommissioning sphere and are confident in their skills, knowledge and ability to deliver, the next 10-15 years could be very lucrative. This new specialism may well see an expansion in law firms focusing in particular on the decommissioning sector at home and abroad.

Current decommissioning in the UKCS includes the following:

•Amoco/BP, North West Hutton: removal of large steel topsides and jacket to top of footings to shore.

•Total, MCP 01: removal of topsides to shore with concrete substructure remaining in place.

•Shell, Indefatigable field including installations Juliet, Kio, Lima, Mike and November: topside jackets and two hose bundles removed to shore and five pipelines decommissioned in situ.

There are certainly interesting and challenging times ahead for the oil and gas industry and those associated with it. Only a handful of decommissioning schemes have taken place so far, and those firms with the right combination of skills, knowledge and contacts have almost endless opportunities before them. Companies should enter into this sector with their eyes open, well aware of the possible dangers it poses. Making mistakes could prove costly in terms of reputation.

Richard Cockburn is a partner at Shepherd and Wedderburn