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UK Technology Leadership Board – Small Pools Theme Business Case v2.5 24 May 2016

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Technology Leadership Board Small Pools Theme

Business Case

25th May 2016

Prepared on behalf of the Technology Leadership Board Small Pools Theme by the Small

Pools Team


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Table of Contents Acronyms ......................................................................................................................................................... 3

Executive Summary ........................................................................................................................................ 4

1. Background and Context ....................................................................................................................... 6

1.1 Opportunity – Small Pools Distribution ........................................................................................ 6

1.2 Small Pools Ownership .................................................................................................................. 6

1.3 Interdependencies – Small Pools Complexities ......................................................................... 7

1.4 Drivers for Intervention ................................................................................................................... 8

2. Strategic Case ......................................................................................................................................... 9

2.1 Economic Case ............................................................................................................................... 9

2.2 Opportunity from Cost Reductions ............................................................................................. 10

2.3 Existing Infrastructure Challenges ............................................................................................. 11

2.4 Technical Barriers to Overcome ................................................................................................. 12

2.5 Strategic Rationale ....................................................................................................................... 14

3. Small Pools Theme Proposal .............................................................................................................. 15

3.1 Scope .............................................................................................................................................. 15

3.2 Implementation Plan .......................................................................................................................... 16

3.3 Quick-Wins (Adopt & Collaborate) ............................................................................................. 17

3.4 Funding Request ........................................................................................................................... 18

3.5 Benefits ........................................................................................................................................... 19

Appendix A ..................................................................................................................................................... 22

Hackathon Opportunities by Sub-Theme .............................................................................................. 22

Appendix B ..................................................................................................................................................... 30

Efficiency Task Force Subsea Standardisation Preliminary Findings .............................................. 30

Appendix C .................................................................................................................................................... 36

Funding Estimate Assumptions .............................................................................................................. 36


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Acronyms

Acronym Meaning

bn Billion

boe Barrels of oil equivalent

CAPEX Capital Expenditure

CNS Central North Sea

CoP Cessation of Production

CT Corporation Tax

EIS East Irish Sea

FPSO Floating Production Storage and Offloading

HP High Pressure

LP Low Pressure

MEFS Minimum Economic Field Size

MER UK Maximising Economic Recovery of Offshore UK Petroleum

MF Moray Firth

mm Million

mmboe Million Barrels of Oil Equivalents

NNS Northern North Sea

OGA Oil & Gas Authority

OGUK Oil & Gas UK

OPEX Operating Expenditure

OPPS Oil Patch Preparation System

OSPAR Oslo & Paris Conventions Commission

OTH Other regions

SCT Special Corporation Tax

SNS Southern North Sea

TAN Total Acid Number

TLB Technology Leadership Board

TRL Technology Reference Level (ref NASA scale)

UKCS UK Continental Shelf

WoS West of Shetland

References

1. MAXIMISING ECONOMIC RECOVERY FROM SMALL POOL DEVELOPMENTS : FINANCIAL PROFILE, SYED MUSTAFA AMJED MSc Thesis, University of Aberdeen/ NSRI, 2015

2. Maximising Economic Recovery from Small Pools, Hackathon Output Report, NSRI, Jan 2016


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Executive Summary

A significant contribution to achieving MER UK is the exploitation of circa 225 small pools of

hydrocarbons, defined as discoveries of oil or gas accumulations between 3 and 50mmboe. These

small pools have total estimated recoverable reserves (P50) of 2.4 bnboe.

There are a number of reasons why many small pools remain undeveloped, and these can be

broadly split into subsurface, facilities and economic groupings.

Subsurface: small or complex reservoirs with a high degree of production uncertainty.

Facilities: distance of pools from infrastructure, which in turn have insufficient capacity or,

insufficient remaining life.

Economic: internal competition for capital, commercial misalignment between stakeholders,

high development and operating costs, leading to expected returns below hurdle rates for

investment approval.

As a result of the low returns available for operators developing these small pools, and the

fragmented pool ownership, no single operator can invest sufficient resources to develop the new

technology required to unlock the potential. Consequently, a co-ordinated industry-wide response

is required to unlock these resources.

A number of bodies exist under the MER UK forum to resolve these issues; the Technology

Leadership Board (TLB) led Small Pools Theme is focused on facilities and infrastructure technical

issues downstream of the wellhead, with a key interface being the Wells 50% Cost Reduction

Theme. A significant contribution to the Small Pools cost reduction target is expected to come from

the Wells Cost Reduction Theme.

It has been calculated that a reduction of 50% in the cost to develop and operate these small pools

could reduce the current minimum economic field size from 12mmboe to 6mmboe. The potential

from unlocking all small pools is an additional $19bn of capital expenditure and $25bn of operating

expenditure over 10 years [Ref 1]. This would bring enhanced employment and exporting

opportunities for the UK, with a corresponding return to the UK Treasury of circa $11bn.

Improving the economics of small pool developments in many cases will also require solutions to

common technical barriers such as fluid commingling, differential pressure, gas disposal and low

energy reservoirs or difficult fluids.

Small Pools Hackathon workshop events [Ref 2] held in late 2015 identified over 100 technical

opportunities, concepts and potential solutions that could be pursued to address the known


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challenges. The identified solutions were categorised as requiring an Adapt, Adopt, Develop or

Collaboration approach by industry.

An initial plan to assess, develop and implement the technology ideas across the category areas

has been produced (Figure 1), to address the identified challenges and their solutions.

Figure 1: Categorisation of Cost reduction ideas from Hackathon

The cost estimate to execute this development program is circa £82m, as summarised in table 1.

Key quick-wins are possible by addressing the adoption categories of (a) simplification &

standardisation and (b) industry governance.

Table 1: Small Pool Technology Development cost estimate by category over 10 years

Funding of circa £48m over 6 years for the Small Pools Theme is required to make significant

progression towards unlocking resources from small pools and corresponding CAPEX, OPEX and

tax yield.

Standardisation Simplification 4

Improve operations 10

Centralising infrastructure &

resources 14

Industry Governance 10

Design philosophy 19

Field design 20

Fabrication, Construction &

Installation 3

Stand alone facilities 11

Hardware 34

Collaborate n/a 12

Efficiencies

New Ways of Working

Embrace Technology

General Maturity of Applicability

DevelopAdaptAdopt

Theme Sub-Theme No Ideas

2016 2017 2018 2019 2020 2021 2022-25

Technology Description Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7-10

Collaboration £100,000 £100,000 £100,000 £100,000 £100,000 £100,000 £400,000 £1,000,000

Adopt Technologies (post TRL) £490,000 £6,910,000 £7,410,000 £4,600,000 £0 £0 £0 £19,410,000

Adapt Technologies (TRL 8,9) £40,000 £1,260,000 £3,110,000 £4,200,000 £5,750,000 £8,000,000 £0 £22,360,000

Develop Technologies (TRL 4-7) £0 £150,000 £270,000 £390,000 £1,890,000 £2,890,000 £34,000,000 £39,590,000

Totals £630,000 £8,420,000 £10,890,000 £9,290,000 £7,740,000 £10,990,000 £34,400,000 £82,360,000

Totals


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1. Background and Context

1.1 Opportunity – Small Pools Distribution

Small pools, defined as discovered hydrocarbon resources estimated to contain between 3 -

50mmboe of reserves, are effectively stranded at the current low commodity price and high cost

environment. The Oil & Gas Authority (OGA) have determined that there are 225 of these

discoveries in the UKCS containing 2.4 bnboe P50 reserves (Figure 2).

Figure 2: Discovered and undeveloped hydrocarbon accumulations on UKCS by size and

sector

Small pools can be found across the UKCS basin, but are dominated by the Central North Sea

(CNS) oil pools and Southern North Sea (SNS) gas pools (some of which are in “tight” reservoirs,

also requiring reservoir stimulation). Broadly these sectors are characterised as having a high

density of existing infrastructure.

1.2 Small Pools Ownership

Small pool discoveries are considered challenging to develop; with a low volume of hydrocarbons,

the return on investment by the Operator is comparatively high risk, given the range of potential

subsurface outcomes and volatility in oil price. High lifecycle costs arising from high drilling, well


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construction and subsea installation costs, coupled with high operating costs associated with

ageing infrastructure, are contributing factors preventing the development of small pools.

Furthermore, there are commonly additional risks to cost and schedule associated with the

commercial negotiation with owners of host platforms and infrastructure.

A key factor limiting the development of technologies to exploit these small pools is their

fragmented ownership, (figure 3). Of the 225 pools between 3 and 50 mmboe, 29% are currently

unlicensed. The remaining 158 pools are licensed by 50 different operators, with no single

operator owning the licence to more than 10 pools.

Figure 3: Ownership of small pools between 3 and 50 mmboe. Letter denote individual

operators; open reflects discoveries in unlicensed acreage

1.3 Interdependencies – Small Pools Complexities

The exploitation of small pools is complex; there are significant technical, commercial and fiscal

barriers. Presently some of these barriers are being addressed under different initiatives by various

bodies. The Small Pools Theme will not replicate these endeavours, but rather complement them,

and will focus on generating specific technical solutions that will make a significant contribution to

improving the economics of Small Pool exploitation.

There are eight initiatives currently in place in support of MER UK, with the following three most

relevant to Small Pools:

Regional Development & Infrastructure Board

Asset Stewardship Board of OGA

OGUK Efficiency Task Force


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In particular, the success of the Small Pools Theme relies on a significant contribution to cost

reduction from the Technology Leadership Board (TLB) Low Cost Wells Theme.

Given the activities within the other initiatives, the Small Pools Theme will focus on facilities and

issues downstream of the well i.e. subsea & topsides facilities / infrastructure. In any case, the

Small Pools Theme must maintain a strong interface with all of the above bodies and build on the

strong inter-linkages.

1.4 Drivers for Intervention

Small pools are currently uneconomic to develop for many operators and high development and

operational costs are a major contributing factor. By reducing these costs it is expected that the

economic size of the pool will be reduced. Without technology or efficiency measures being

implemented most small pools are likely to remain economically unattractive and therefore

undeveloped.

Adopting a suite of technical and efficiency measures should enable development of these small

pools, and therefore open up of a new wave of oil and gas production in the UKCS. The objective

is to re-energise the UK oil and gas industry to restart field development activities and thus

contribute to safeguarding the oil and gas supply sector in the coming years. This will be achieved

through:

Implementing Efficiency

Building on the efficiency improvements being developed through the Efficiency Task

Force (see appendix B)

Embracing Technology

Aligning precisely the appropriate technical solutions with the commercial opportunities.

This includes adopting technology solutions currently available but under-utilised as well

as new technologies that represent a step change.

De-risking emerging technologies to enable adoption.

Developing novel stand-alone facilities. This would be an emerging solution in an era of

decommissioning where the arterial network for product export is cut off, potentially

stranding these resources.

New Ways of Working:

Take a fresh look at commercial & contracting models and behaviours.

Revisiting innovative contracting methodologies.

Focussing on clusters that exploit the economies of scale that would not be enabled in

their own right.


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2. Strategic Case

There are three main ‘dimensions’ related to the small pools development challenge; pool size,

distance to infrastructure and complexity (both technical and commercial)

Size – reservoir size and recoverable volumes of

hydrocarbons directly impacts potential revenues

Distance –Impacts on cost and ability to partner with

existing compatible infrastructure

Complexity – technical complexities related to the

reservoir: the fluid properties, processing

requirements, etc, and commercial: relating to the

partnerships required to develop small pools

These factors are addressed in more detail in the following sections.

2.1 Economic Case

An economic study was commissioned in 2015 [Ref 1] to explore the economics of small pools and

determine the current minimum economic field size assuming a 2015 cost base for both capital and

operating expenditure. This study assumed a long term oil price of $60/bbl. Figure 4a illustrates

the deterministic cash-flows and net present value for a typical small pool of 7 mmboe situated

17km from a suitable host.

Figure 4a: Pre-tax undiscounted cashflows for a typical small pool, based on 2015 costs.


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The study determined that the minimum economic field size (MEFS) for a typical small pool was

11.9 mmboe situated within 13.5km of a suitable host. For pools of a higher complexity, such as

tight gas, HPHT or heavy oil this minimum field size is likely to be significantly greater.

Figure 4b: Oil price sensitivity of pre-tax undiscounted cashflows

Changes in oil price assumptions will change the MEFS, with lower prices increasing the MEFS.

Figure 4b shows the sensitivity of pre-tax cash flow to a change in the long term oil price assumed.

2.2 Opportunity from Cost Reductions

A 25% to 50% reduction in capital and operating costs has a marked impact on small pool

economics. The economic study undertaken in 2015 [Ref 1] suggested that a 25% reduction in

capital and operating expenditure would reduce the MEFS from 11.8 mmboe to 9.1 mmboe. A 50%

reduction in capital and operating expenditure would reduce the MEFS to 5.8 mmboe. The impact

of cost reductions on pre-tax cash flow is shown in Figure 5.

Figure 5: Impact of 50% cost reduction on pre-tax undiscounted cashflows

Overall, 50% cost reduction could enable over 150 pools to be developed, generating the following

potential benefits for the UK as a whole [Ref 1]


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Capital Expenditure $19bn (equating to $18/boe development cost)

Operational Expenditure $26bn (equating to $14/boe operating cost)

Tax Revenue $11bn (combination of CT & SCT)

In the context of the 2015/H1-2016 oil price environment and operator capital constraints, it is likely

that these pools would be developed over a number of years. The focus must therefore be on

technological developments for pools which require current infrastructure that may otherwise be

decommissioned in the near future. Ensuring that these small pools are brought into production

will in turn extend the life of certain infrastructure hubs; further increasing production and reserve

recovery and deferring abandonment spend for both operators and government.

Another key benefit associated with unlocking small pools is the boost it would provide to

exploration on the UKCS. If the MEFS is halved then a number of currently overlooked prospects

would become more economically viable and hence have an increased chance of being drilled,

and if successful, developed.

2.3 Existing Infrastructure Challenges

In the UKCS there are a large number of facilities currently operating. These existing facilities

represent a potential development route for small pools; they allow the pool to share their existing

facilities infrastructure and in turn their onward marketing distribution network, thus achieving

economies of scale to help improve the economic viability of the pool as a field development.

Unfortunately the existing facilities have a finite life; the oil fields they support dwindle as oil is

recovered, integrity and maintenance costs tend to increase over time, leading to existing facilities

ceasing to be economically viable in the long term. This dilemma creates both an enabler and a

blocker to small pools.

Existing facilities as an enabler to Small Pools

The development of Small Pools can delay the cessation of production (CoP) which is an attractive

proposition to the asset owner and government.

Many small pools are located within existing tieback distances to existing facilities. Figure 6 shows

the proliferation of small pools within a reasonable tieback distance (<15km) from an installation.


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Figure 6: Small Pools within 15km from existing installations

In addition to distance, a further important consideration is the capacity of the host facility to

receive and process the small pools fluids (gas, oil, produced water, etc.).

Existing facilities as a blocker to Small Pools

With the current infrastructure configuration and commercial working practices, host facility

tendencies are to gain the upside of delayed decommissioning but avoid taking any risk to native

production, in other words the small pool has to bear all costs/risks to enable its production over

the existing facility. By their nature, no two facilities are alike; bespoke development solutions tend

to occur as the small pool owner who pays costs tries to minimise their exposure and the facility

owner tries to minimise risk exposure to their commercial position. The issue is not simply about

commercial practices. In a number of cases, the host’s facilities within the locale may not be

suitable because they are not a good technical fit. For example:-

a) there may be no ullage (spare capacity) to accommodate the small pool

b) the facilities modifications required to allow the new field have a significant capital and

operating expenditure burden that make them uneconomic to progress

In conclusion, small pools are reliant on existing infrastructure accommodating them, but it is a

complex issue to maintain stakeholder parity.

2.4 Technical Barriers to Overcome

In addition to the cost barriers linked to pool size and distance to infrastructure, many pools have

additional problems and costs associated with technical complexities that need to be overcome as

part of their development.


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Whilst there are a wide variety of small pools in UKCS of different hydrocarbon types (oil, gas,

condensate), in different regional settings (e.g. NNS, CNS, SNS) with different attendant existing

infrastructure (e.g. platforms, FPSOs, trunk pipelines), a number of recurring barriers have been

identified by Operators [Ref 2] outlining common technical challenges that their (or some of their)

pools / assets exhibit.

Fluid Commingling

• Fluid compatibility & ‘flow-ability’

• Back-out or preferential production

• Metering & allocation requirements

• Existing architecture and infrastructure complexity

Differential Pressure

• HP/LP interfaces & complex OPPS; wells, subsea topsides

• Bespoke designs

• Access to infrastructure / tie-in points

• Production back-out & prioritisation

Gas Disposal

• Gas Capacity constrains Oil Capacity

• Remoteness from Gas Export network -> pipeline uneconomic

• Flare emission restrictions, anti-MER

• Complex upgrades: real estate; cost; safety -> uneconomic

Low Energy Reservoirs / Difficult Fluids

• Low pressure reservoirs or long distance tie-back - needs energy, power or flow

assurance problematic

• Heavy & viscous fluids – need energy, separation issues, significant water production

• Very sour fluids & aggressive fluids

• Sand Production and consequent erosion

• Specification Issues – TAN, H2S, wax, de-values host crude

The Small Pools Theme proposal Section 3 is based on exploring the ideas, opportunities and

concepts proposed by industry via the Hackathon process [Ref 2] to address these common

challenges.


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2.5 Strategic Rationale

There is a compelling economics case for both industry and government to address the small pools

development challenge. Industry has demonstrated its ability to implement cost reduction

measures and embrace technology development to unlock this national resource. The result is

significant benefits for:

The UK supply chain with the net benefit of securing both high-value jobs and ultimately

improving competitiveness in an international market-place.

The operator community to extend life of producing assets, maximising return on reserves,

leading to further exploration potential.

UK treasury in production taxes and balance of payment contribution.

It is apparent that whilst there are significant technical and commercial blockers to MER UK,

sufficient enablers exist which outweigh these challenges if a unified approach is taken to address

them.


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3. Small Pools Theme Proposal

3.1 Scope

Managing change and in particular embracing new technology or ways of working is complex. To

provide a degree of priority, the general classification of Adopt, Adapt, and Develop has been used

to build a road map for the development and implementation of technology solutions identified in

the Small Pools Hackathons. In addition, a fourth criterion of Collaboration has been added to

recognise the behavioural changes required by the industry. Clarification of these terms is provided

below:

o Adopt (post TRL) – take existing technology already utilised in the oil and gas

industry but not used widely in the UKCS and implement if it achieves a cost

reduction e.g. spooled line pipe, mechanical connection systems that negate

welding, collaborative supply chain approaches etc.

o Adapt (TRL 8,9)– identify technologies already utilised in other industrial sectors

and modify for oil and gas adoption e.g. 3D printing, Big data

o Develop (TRL 4-7)– progress research and developmental activities that could, in

the longer term enable currently out of reach accumulations such as tight gas, high

pressure, high temperature fields to be brought into play e.g. composite materials,

subsea separation and processing of appropriate scale, low cost, autonomous

stand-alone facilities etc.

o Collaborate – promote behavioural change that will ensure longevity of the UKCS

e.g. adoption of simplification measures [Appendix B], ensuring preservation of

architecture prior to Cessation of Production (CoP) to permit new entrants, support

for new business models such as infrastructure ownership.

The Hackathon process identified a broad and varied set of opportunities numbering in excess of

120 that address the technical challenges posed. Figure 7 captures the probable maturity of the

topic against the “Adopt, Adapt, Develop, Collaborate” classification. Figure 8 captures the same

ideas by their timeline to progress.


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Figure 7 Hackathon Opportunities by Maturity

Figure 8 Hackathon Opportunities by Timescale

Unsurprisingly the maturity and timescale results are not dissimilar. However, in practical terms it

must be recognised that the technology maturation process will have an element of attrition as the

ideas/opportunities fail to make it through ‘each stage gate

The technology opportunities are listed in more detail in Appendix A.

3.2 Implementation Plan

Based on the former classifications, Figure 9 illustrates broad timelines within which benefit could

be achieved for each technology category. Figure 10 indicates the split of ideas per category.


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Figure 9: Categorisation of Hackathon Technology ideas by theme and maturity.

Figure 10 Hackathon Opportunities by Sub-Theme

In order to achieve the overall goal of 50% reduction in Small Pools development and operating

costs, all theme categories need to be progressed to deliver solutions in parallel.

3.3 Quick-Wins (Adopt & Collaborate)

The initial focus is to increase efficiencies within current and proven practices and technologies.

The Efficiency Task Force has identified that gains can be achieved by simplifying process and

reviewing the application of Codes, Standards and Specifications, as outlined in Appendix B. A

number of specific work programmes aimed at individual disciplines can be instigated to improve

efficiencies and work practices. Cost savings of 15-30% are considered achievable through

streamlining, standardisation and supply chain efficiencies of existing technologies.

Standardisation Simplification 4

Improve operations 10

Centralising infrastructure &

resources 14

Industry Governance 10

Design philosophy 19

Field design 20

Fabrication, Construction &

Installation 3

Stand alone facilities 11

Hardware 34

Collaborate n/a 12

Efficiencies

New Ways of Working

Embrace Technology

General Maturity of Applicability

DevelopAdaptAdopt

Theme Sub-Theme No Ideas


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In addition to efficiencies, some technologies are proven but lack wider adoption. Examples include

alternative pipeline jointing, installation methodologies or materials.

3.4 Funding Request

An assessment of the Hackathon findings has been made to forecast the cost of progressing the

Small Pools agenda. The 2016-2025 costs are summarised in Table 2, and shown in greater detail

in Table 3. The assumptions and notes are shown in Appendix C. This represents the investment

needed to unlock the development potential and consequent rewards for all stakeholders.

Category Total Investment Cost (£)

Collaborate 1,000,000

Adopt 19,410,000

Adapt 22,360,000

Develop 39,590,000

TOTAL 82,360,000

Table 2 Small Pools technology development and implementation costs (2016-2025) -

summary

2016 2017 2018 2019 2020 2021 2022-25 Totals

Qty Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 6-10

Collaboration

Collaboration Opportunities 1 £100,000 £100,000 £100,000 £100,000 £100,000 £100,000 £400,000 £1,000,000Total Collaborate £1,000,000

Adopt Technologies

Pre Screening Study (Note 1) 1 £30,000 £30,000

High Level Screening Studies (Note 2) 44 £300,000 £510,000 £510,000 £1,320,000

Feasibility Studies (Note 3) 22 £160,000 £800,000 £800,000 £1,760,000

Industry JIP (Note 4) 17 £850,000 £850,000 £850,000 £2,550,000

Qualification Programme (Note 5) 13 £1,250,000 £1,250,000 £750,000 £3,250,000

Pilot and Land Trial (Note 6) 10 £500,000 £1,000,000 £1,000,000 £2,500,000

Field Trial - subsea (Note 7) 8 £3,000,000 £3,000,000 £2,000,000 £8,000,000

Total Adopt £19,410,000

Adapt Technologies


Initial Screening Studies (Note 2) 28 £360,000 £360,000 £400,000 £1,120,000



Qualification Programme (Note 5) 9 £1,400,000 £1,750,000 £3,150,000

Pilot and Land Trial (Note 6) 7 £700,000 £1,750,000 £2,450,000

Field Trial - subsea (Note 7) 6 £4,000,000 £8,000,000 £12,000,000Total Adapt £22,360,000

Develop Technologies


Initial Screening Studies (Note 2) 14 £100,000 £150,000 £150,000 £150,000 £150,000 £700,000

Feasibility Studies (Note 3) 7 £120,000 £240,000 £240,000 £240,000 £840,000

Industry JIP (Note 4) 6 £1,500,000 £1,500,000 £3,000,000


Pilot and Land Trial (Note 8) 4 £6,000,000 £6,000,000

Field Trial subsea (Note 10) 4 £24,000,000 £24,000,000Total Develop £39,590,000

Total Technology Costs £630,000 £8,420,000 £10,890,000 £9,290,000 £7,740,000 £10,990,000 £34,400,000 £82,360,000


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Table 3: Small Pools technology development and implementation costs (2016-2025) -

Detailed

Notes

In preparing the forecast, it is recognised that technology development is high risk, and the early

stage of assessment is designed to identify those ideas with the highest chance of success and of

a significant impact on the economics of small pools development. An appropriate Technology

Development Management Process will need to be put in place to ensure the best return on

investment is achieved.

The costs outlined in Table 3 are an estimate of the investment required, with a tolerance of +/-

30%. No assumptions have been made regarding the means by which this program will be project

managed and the costs associated with this activity.

3.5 Benefits

The development of small pools will have a positive impact on both the industry and government.

Through adopting efficiency and technology opportunities it should be possible to reduce the

minimum economic pool size thereby unlocking more reserves. The key beneficiaries would be:

Pool owners - will benefit from reduced risk, reduced costs, increased growth, portfolio

expansion and increased exploration activity.

Existing owners – will benefit from late life production, deferred CoP and

Decommissioning costs.

Supply Chain - each development will provide opportunities for the supply chain from

maintained or increased revenue, employment and potential export opportunities.

Government - increased tax take for the Treasury, maintained or increased number of

people in employment, increased return on investment, deferred CoP, deferred

decommissioning costs.

2016 2017 2018 2019 2020 2021 2022-25

Technology Description Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7-10

Collaboration £100,000 £100,000 £100,000 £100,000 £100,000 £100,000 £400,000 £1,000,000

Adopt Technologies (post TRL) £490,000 £6,910,000 £7,410,000 £4,600,000 £0 £0 £0 £19,410,000

Adapt Technologies (TRL 8,9) £40,000 £1,260,000 £3,110,000 £4,200,000 £5,750,000 £8,000,000 £0 £22,360,000

Develop Technologies (TRL 4-7) £0 £150,000 £270,000 £390,000 £1,890,000 £2,890,000 £34,000,000 £39,590,000

Totals £630,000 £8,420,000 £10,890,000 £9,290,000 £7,740,000 £10,990,000 £34,400,000 £82,360,000

Totals


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4. Concluding Remarks

This document has set out a clear business case for investment in activities designed to unlock the

potential related to Small Pools in the UKCS for the benefit of all stakeholders, including operators,

supply chain and UK government. The following points summarise the case set out:

1. There is a significant identified and characterised hydrocarbon resource in the UKCS that

falls within the definition of Small Pools.

2. Under current circumstances, and without intervention, this resource will remain

undeveloped, to the detriment to all stakeholders.

3. A number of factors, including the high fragmentation of Small Pool ownership, are leading

to economic failure. It is likely that few, if any, single Small Pool owners can independently

justify development of their resource.

4. The identified economic failure currently preventing exploitation of the available resource

can be overcome. This will require intervention, in the form of investment, to solve the

economic and technical challenges related to Small Pool development.

5. The main economic and technical challenges have been identified and a large number of

potential solutions proposed by major stakeholders including operators and supply chain.

6. Unlocking the Small Pool potential will require action on many fronts, some of which are

being pursued by already existing groups, including the Efficiency Task Force and Wells

Cost Reduction Theme. The Small Pools Theme has focused on technology developments

that can make a significant impact on the economics of small pool developments, partly by

overcoming specific known technology challenges.

7. Executing the activities required to change the economics of developing Small Pools, and

hence unlocking the potential, requires funding. The activities, timescales and funding

requirement are clearly set out in this document.

8. Failure to take the actions required to overcome economic failure will leave valuable

resource unexploited and consequent lost value add to individual companies, the UKCS

and UK Plc.

9. Small Pool exploitation will not only lead to direct additive resource exploitation in the

UKCS, but will also make a significant contribution to extending the life of current fields and

supporting infrastructure. This will provide the additional benefit of additional resource

extraction and value add from much of the other remaining and yet to be developed

resource in the UKCS.

10. Technology developments achieved utilising the requested funding will allow development

of a UK supply chain capability that can support future exports.

11. While no assumptions have been made regarding the management of the Small Pools

Program, a collaborative cross-industry approach is clearly needed.


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12. The overall case for investment to unlock a substantial resource and corresponding

economic value add is compelling, and is supported by the case put forward in this

document.


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Appendix A

Hackathon Opportunities by Sub-Theme

Industry Governance

Status

Theme Title

New way of

Working

New Business

Opportunity

New

Technology Adopt Adapt Develop

Collaborat

e <2 2-5 >5

Industry Governance Fiscal stimulus e.g. incentive to own

infrastructure separate to the facilities 1 1 1 1

new business models

emerging - CATS

Industry Governance

Gov stimulate early adoption 1 1 1

being addressed by OGA -

Tax

Industry Governance Allocation accuracy (metering) between small

pool and host, the need for metering is killing

small pools economics, can better

mathematical estimations be used to pay tax

and inter-operater revenues to avoid

metering. 1 1 1 1 1

requires change in

legislation

Industry Governance Need willingness from industry “Green house”

and accept risk – greater good 1 1 1

Industry GovernanceDatabase of Host facilities

1 1 1 1 1

under construction with

OGA

Industry Governance

Map the pools 1 1 1 1 1


OGA - subsea team

Industry Governance Mapping Excellence to understand where pools

sit in different blocks 1 1 1 1 1

being worked with OGA -

Asset stewardship

Industry Governance Bash heads together to “marry” companies to

pool resources and enhance global asset

stewardship 1 1 1 1 1

being worked with OGA -

Asset stewardship

Industry Governance open book approach, all field data shared to

identify best practise, stored at an industry

level includes new and legacy information,

ideally used to permit groupings of small pools 1 1 1


OGA - small pools team,

fluids data to be part of

future survey

Industry Governance Re-appraisal of existing pools using more

modern technology 1 1 1

Industry Governance GTL, GTE too expensive/inefficient – micro

conversion. Want to flare to produce but

legislative barriers. 1 1 1 1 1

requires change in

legislation

Any of: Either of : Years to implement: Either of:


23

Centralised Infrastructure & Resources

Status

Theme Title

New way of

Working

New Business

Opportunity

New


Collaborat

e <2 2-5 >5

Centralised infrastructure

& resources Optimise Clusters for new field dev.

1 1 1 1 1

underway with some

suppliers offerings e.g.

bibby.


& resources

Use fluids in small pools gas in the ‘region’ to

solve economies of scale. 1 1 1


& resources

“Jet Pump” Subsea Booster to address DP

across pools 1 1 1 proven concept


& resources

new floating facility connected to existing

platform network for export purposes, but

provides processing functionality to enable

clusters, considered reuseable 1 1 1 1 1

being considered in

economics study by

Aberdeen University


& resources Leasing equipment by operators rather than

buying subsea equipment outright.1 1 1 1 1

commercial models

starting to emerge e.g CATS


& resources Production system without storage, perhaps

shuttle tankers for export1 1 1 1 1

concepts developed, yet to

be prototyped or first in

class built


& resources Simple standalone production facility with

multiple operators investing to enable

technology. 1 1 1



class built


& resources

Centralised collection and storage hub for

product, amalagmating small pools production

eg independence hub GOM 1 1 1 1


& resources

Centralised Support Vehicle(s) / Vessel(s),

shared amongst operators to collect product

and replenish consumables 1 1 1


& resources

Use a depleted well as a potential gas dump

for uneconomical gas production 1 1 1 1


& resources

Operations are largely the same –

interventions / training / helicopters adopt a

common, centaralised approach, etc 1 1 1 1

being addressed by OGUK -

XXX group


& resources

Centralised disposal of solids, hydrates, sand

and the service of deoiling through biological

cleaning 1 1 1 1 1


& resources

Share available equipment across industry on

an online platform 1 1 1 1 1

being addressed by OGUK -

XXX group


& resources Shared subsea tool pool

1 1 1 1

being addressed by SSUK

Asset stewardship group



24

Standardisation, Modularisation, Simplification

Status

Theme Title

New way of

Working

New Business

Opportunity

New


Collaborat

e <2 2-5 >5

Standardisation.

Modularisation.

Simplification

Standardisation of subsea infrastructure that

is fit for purpose1 1 1

being addresed by OGUK

Efficiency Task Force

Standardisation.

Modularisation.

Simplification

“Plug and Play” Technology – reduce cycle

time and enabling reuse1 1 1

being addresed by


Standardisation.

Modularisation.

Simplification

Standardise flowlines

1 1 1

being addresed by


Standardisation.

Modularisation.

Simplification

Build Pipes in Sections (standard lengths /

Dia/ WT)1 1 1



25

Field Design

Status

Theme Title

New way of

Working

New Business

Opportunity

New


Collaborat

e <2 2-5 >5

Field design Use gas to solve viscosity

Field design 2 phase separation/caisson 1 1 1

Field design Lower pressure pipeline and wellhead by

venting 1 1 1 legislative change

Field design Vent to the umbilical 1 1 1

Field design Contain pressure in the tree rather than the

pipe 1 1 1 1

Field design Use rig / other to reduce pressure in early

field life, cost saving in pressure rating of pipe1 1 1

Field design Minimize process, just collect and deliver to

shore as it is 1 1 1 1

Field design Produce straight to tanker, only produce when

tanker is there. 1 1 1 1

Field design Cold flow; allow slurry to form but prevent

adhesion, deal with the slurry at host,

removes the need for insulation and heating -

need to overcome the viscosity 1 1 1 1

technology exists, not field

proven

Field design Subsea GTL

1 1 1 1 1

technology exists needs

downsized

Field design Operate attitude: Natural flow, no power, no

injection, this maybe MER. 1 1 1 1

Field design

Subsea Storage then hoover up (SWOPS).

1 1 1



class built

Field design Use of new EOR technology - downsize it

1 1 1 1

technology needs

downsized

Field design Dual Inj. Producer Wells.

1 1 1 1 1 not sure this actually works

Field design Produce straight to tank (seabed/tanker) 1 1 1 1

Field design Pipeline becomes a separator 1 1 1 1

Field design Cyclonic technology – Think Dyson 1 1 1 1

Field design Disposable liners. 1 1 1 1

Field design Extend the drilling envelope 1 1 1

Field design Balance between cheaper to drill out to these

pools or solve the subsea issues. 1 1 1



26

Standalone Facilities

Status

Theme Title

New way of

Working

New Business

Opportunity

New


Collaborat

e <2 2-5 >5

Stand alone facilities

SWOPS. Honey bee, Amplus concept

1 1 1 1 1



class built

Stand alone facilities

Hybrid production buoy

1 1 1 1 1



class built

Stand alone facilities Product Storage in 1,2 or 3 phases.

Stand alone facilities Offload to tanker/other means if required

Stand alone facilities Separation – how to solve 1 1 1 1

Stand alone facilities Transport – how to solve 1 1 1 1

Stand alone facilities Mini gas to liquids processing 1 1

Stand alone facilities genetically engineered bugs eats methane,

excretes oil 1 1 1 1 1

Stand alone facilities Process fluids in a bundle

Stand alone facilities Local Power Gen – Gas fluid powered turbine 1 1 1 1 1 suspect exists

Stand alone facilities Renewables - power buoy - autonomous

power and control 1 1 1 1 1

already quite well

developed - prototypes



27

Improve Operations

Fabrication, Construction, Installation

Status

Theme Title

New way of

Working

New Business

Opportunity

New


Collaborat

e <2 2-5 >5

Improve operations Adopt real time condition monitoring thus

elimainating pigging, inspection, PVT

monitoring through fibre optics 1 1 1 1

widely utilised in other

industries - already uptake -

needs marinised

Improve operations Combine multiple technologies in a single

solution to inspect/repair/maintain. - self

healing materials 1 1 1

Improve operations Improved sensory knowledge – minimize OPEX1 1 1 1

Improve operations Predictive Failure/Defer Campaigns 1 1 1 1

Improve operations Ultimate goal – monitor from shore. 1 1 1 1

Improve operations Real time data collection and comparison to

cloud database to spot degradation. 1 1 1 1 1 1

used extensively in other

industries

Improve operations Data is currently collected but not analysed. 1 1 1 1 1

Improve operations Flow metering: Poor recalibration practices

technology could improve. 1 1 1

Improve operations Accurate subsea MPFM at wellhead needed.

Measures flow composition over time. 1 1 1

believed to be current

focus by NEL

Improve operations Improve Inspection technology

1 1

new tech available needing

marinised


Status

Theme Title

New way of

Working

New Business

Opportunity

New


Collaborat

e <2 2-5 >5

Fabrication, construction,

installation

Re-certification to environmental standards

etc. 1 1


installation Why weld? Can we make installation quicker

1 1 1 1 plenty solutions available


installation Build locally using 3D printing (lego blocks)

1 1 1 1



28

Hardware

Status

Theme Title

New way of

Working

New Business

Opportunity

New


Collaborat

e <2 2-5 >5

Hardware

Improve Coating technology

1 1 1

coatings are problematic,

small incremental

improvements

Hardware Smart internal coatings to prevent build up. 1 1 1 1

Hardware Disposable liners (corrosion resistant and

chemical impregnation) 1 1 1 1

Hardware

Tree electric

1 1 1

proven for Total and Statoil

improvements needed,

interlinks with no umbilical

Hardware Put ESP at Seabed 1 1 1 proven concept

Hardware GRP / Carbon Comp for smaller lighter,

structures inclusive of protection structures 1 1 1 1 1 already some uptake

Hardware

GRP / Carbon Comp for flowllines, risers

1 1 1 1 1

use of composites for

hydrocarbon conveyance

systems a little further off

Hardware Remove Umbilical by replacing functionality

with new tech 1 1 1 1

all functions have subsea

equivalents

HardwareLocal power generation (wind/wave)

1 1 1 1 1

already quite well


HardwareSubsea HPU or all electric tree

1 1 1 1 1

already quite well


Hardware Local chemical injection skid.

1 1 1 1 1

already quite well


Hardware Seawater Hydraulics (Remove Hydraulic Fluids)1 1 1 1 1 as yet unproven

HardwareHeat pumps (Pipe in Pipe Exchanger)

1 1 1 1 1

concept exists, needs

protyping

Hardware Phase change materials (hand warmers) 1 1 1 1 1 subsea passive heater?

Hardware Subsea water injection 1 1 1 1

Hardware Re-usable standard bundles. 1 1 1 1 mature concept - not used

Hardware Composite pipe hot tap 1 1 1 1 1

Hardware Reduce size and weight of desalination +

nanofiltration – SRB, Losal, 1 1 1 1

existing tech needs

downsized

Hardware Small gas e.g. gas to value

1 1 1

existing tech needs

downsized

Hardware Improve joint technology 1 1 1

Hardware Use mechanical connections rather than welds1 1 1 already prototypes

Hardware Hydraulically driven drill bit. 1 1 1 1 1

Hardware Wi-Fi instrumentation controls 1 1 1 1

Hardware Wind/ wave/ tidal power buoys 1 1 1 1 1 technologies all exist

Hardware Offshore gas generators – export power right

from the source 1 1 1 1 1

Hardware Easy connect coupler from subsea hoses to

tankers should be improved 1 1 1 incremental improvement

Hardware Hot tap, mechanical, grouted, welded 1 1 1

Hardware Coiled Tubing (riser, flowline and WI) 1 1 1

Hardware ‘Merlin Connectors in Horizontal Setups’ 1 1 1

Hardware Investigate applicability of Lasers 1 1 1 1

Hardware Investigate applicability of Mono robots 1 1 1 1

Hardware Investigate applicability of Auto sealants 1 1 1 1

Hardware Investigate applicability of Drones 1 1 1 1

Hardware Investigate applicability of Equipment tags 1 1 1 1



29

Design Philosophy

Status

Theme Title

New way of

Working

New Business

Opportunity

New


Collaborat

e <2 2-5 >5

Design philosophy Allow wax/scale to build-up sacrifice the pipe1 1 1

Design philosophyShort life span 6-8 years, present design

aimed at 25 years1 1 1 1

may need new standards,

being addressed by

Efficiency task force

Design philosophy rethink of Protection of subsea equipment wrt

trawl interactions and fishing, much less

fishing going on presenting less risk, use of

guard vessels as opposed to protection ties in

with short life spans 1 1 1


being addressed by


Design philosophy

Rethink of Trenching / burial wrt fishing

1 1 1


being addressed by


Design philosophy Can we revisit design specs to

simplify/standardize/equipment to reduce cost

maintenance per unit? 1 1 1


being addressed by


Design philosophy

Can we revisit stability of pipelines to reduce

cost of installation and maintenance 1 1 1


being addressed by


Design philosophy

consider No Anodes

1 1 1


being addressed by


Design philosophySeabed temperature assumptions are too low

– drives expensive solutions1 1 1


being addressed by


Design philosophy

Design for remanufacture and redeployment

1 1 1


being addressed by


Design philosophy Over design to increase safety/risk/cost

factor to avoid inspection (CAPEX vs OPEX

Life cycle costs debate) 1 1 1


being addressed by


Design philosophy Design, Construct and Monitor with predictive

analysis in mind. Planned will differ from

actual. 1 1 1


being addressed by


Design philosophy Simplify Spec, solution, installation,

fabrication, complexity is too costly1 1 1


being addressed by


Design philosophyProbabilistic design

1 1 1

DNV 101 permits limit state

design

Design philosophy Change the design philosophy: design

standard kit and fit to resevoir as opposed to

the other way round 1 1 1


being addressed by


Design philosophy

specific fit for purpose small pools standards,

existing standards are too stringent 1 1 1


being addressed by


Design philosophy

suite of standards for small pools from which

operators change choose from 1 1 1


being addressed by


Design philosophy

design as a consumable 1 1 1


being addressed by


Design philosophy

Remember we only need the pipe for 5 years

(so do not need to tackle build up issues) 1 1 1


being addressed by


Design philosophy

Design with a tolerance for corrosion (how

much is acceptable?) 1 1 1


being addressed by




30

Appendix B

Efficiency Task Force Subsea Standardisation Preliminary Findings


31


32


33


34


35


36

Appendix C

Funding Estimate Assumptions

2016 2017 2018 2019 2020 2021 2022-25 Totals

Qty Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 6-10

Collaboration

Collaboration Opportunities 1 £100,000 £100,000 £100,000 £100,000 £100,000 £100,000 £400,000 £1,000,000Total Collaborate £1,000,000

Adopt Technologies


High Level Screening Studies (Note 2) 44 £300,000 £510,000 £510,000 £1,320,000



Qualification Programme (Note 5) 13 £1,250,000 £1,250,000 £750,000 £3,250,000

Pilot and Land Trial (Note 6) 10 £500,000 £1,000,000 £1,000,000 £2,500,000

Field Trial - subsea (Note 7) 8 £3,000,000 £3,000,000 £2,000,000 £8,000,000

Total Adopt £19,410,000

Adapt Technologies


Initial Screening Studies (Note 2) 28 £360,000 £360,000 £400,000 £1,120,000




Pilot and Land Trial (Note 6) 7 £700,000 £1,750,000 £2,450,000

Field Trial - subsea (Note 7) 6 £4,000,000 £8,000,000 £12,000,000Total Adapt £22,360,000

Develop Technologies


Initial Screening Studies (Note 2) 14 £100,000 £150,000 £150,000 £150,000 £150,000 £700,000

Feasibility Studies (Note 3) 7 £120,000 £240,000 £240,000 £240,000 £840,000

Industry JIP (Note 4) 6 £1,500,000 £1,500,000 £3,000,000


Pilot and Land Trial (Note 8) 4 £6,000,000 £6,000,000

Field Trial subsea (Note 10) 4 £24,000,000 £24,000,000Total Develop £39,590,000

Total Technology Costs £630,000 £8,420,000 £10,890,000 £9,290,000 £7,740,000 £10,990,000 £34,400,000 £82,360,000


37

Note 1: Assume single study to rank and filter out Hackathon Outputs. It is assumed that some technologies will not be progressed.

Note 2; Assume 25% of Hackathon outputs rejected following Pre-Screening phase Note 3: Assume 50% of outputs rejected following high level screening phase Note 4: Assume 25% of outputs rejected at Feasibility level, so 75% progress to JIP Note 5: Assume 50% of JIP outputs require a qualification programme

Note 6: Assume 50% of qualification programmes successful and lead to land trial Note 7: Assume 50% of land trial requires sea trial

Note 8: Due to potential smaller number of develop technologies and low TRL assume all require a land trial

Note 9: Due to potential smaller number of develop technologies and low TRL assume all require a sea trial

Adopt Cost Basis (61 Hackathon outputs) Costs

Pre Screening Study £30,000

Initial Screening Study £15,000

Feasibility Study £80,000

Industry JIP £150,000

Qualification Programme £200,000

Pilot and land trial £250,000

Sea Trial £1,000,000

Adapt Cost Basis (31 Hackathon Outputs) Costs





Qualification Programme £300,000

Pilot and Land Trial £500,000

Field Trial (subsea) £2,000,000

Develop Cost Basis (17 Hackathon Outputs) Costs





Qualification Programme £1,000,000

Pilot and Land Trial £2,000,000

Field Trial (subsea) £4,000,000

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