07/11/2023
Originally published in the Spring Issue of Offshore Energies Magazine.
The extraction of oil and gas from the UK continental shelf cannot be phased out overnight, and hydrocarbons will continue to play a prominent role in the UK’s energy mix for decades. The energy industry’s focus on greener, more sustainable methods of fuelling the nation has led to closer scrutiny of existing assets in the context of a net-zero future. Meanwhile work continues on finding cheaper, more efficient forms of energy production that are less environmentally invasive.
Nevertheless, the coming decades will still see a growing need for safely and cleanly decommissioning assets as they reach the end of their life. Presently, this part of a field’s lifecycle tends to be viewed as no more than a major cost burden to operators and contractors. Indeed, OEUK recently predicted that £20 billion will need to be spent on decommissioning North Sea oil and gas installations before the end of 2031, at the cost of £7.8m per well.
This number reflects the intricate complexity of decommissioning a diverse array of infrastructure in challenging and varied environments. It also reflects the cost of competing against the other energy industries in key supply chain areas. For example, the heavy lift vessel (1) market will be in demand, and placed under increased strain, as it is pulled between decommissioning programmes and offshore wind installations.
The concept of repurposing existing sites for greener initiatives has been cited as an important component on the road to net zero. For example, depleted oil fields have been proposed as a means for storing large amounts of hydrogen as a future greener energy source. Another proposed solution is to repurpose wells with carbon capture technology. However, widespread commercial implementation of both proposals is currently being inhibited by additional technical challenges and practical complexities which need addressing.
It should be noted that the issue of decommissioning is not unique to the UK. Reuters (2) estimates the number of abandoned wells around the world to be more than 29 million, with a combined emissions of 2.5 million tonnes of methane per year. This global number will only grow in the coming decades as other territories approach the maturity level of the North Sea basin.
But can such growing cost burdens be turned into potential profit opportunities, particularly in view of future global decommissioning needs? It would certainly seem possible if the right type of innovation is matched with savvy intellectual property protection.
First and foremost, overcoming the large upfront costs that stand in the way of meeting industry emissions targets will require innovation in terms of finding cheaper, more sustainable methods for plugging or finding new uses for oil and gas wells that have reached end-of-life. This is very much the argument of the UK Oil & Gas Authority (3), that in 2021 set a target to reduce decommissioning cost estimates by 35%.
Some may consider this a challenge to the industry, perhaps even a call to arms. Either way, the UK is in a prime position to respond. The maturity of the North Sea basin compared to other offshore locations around the world is a playground for innovators and presents a great opportunity to pioneer new methods of decommissioning.
The UK can become world leaders in the technology that is so desperately needed worldwide. With innovation, commercial success is likely to follow, and it is vital to safeguard that commercial success and secure revenue for the future with a well thought out IP strategy.
The oil and gas industry is not unfamiliar with IP protection. At the 2019 Oil & Gas IP Summit, 82% of responding attendees said that the board of their company sees the value in intellectual property as an asset (4). A highly mobile workforce makes keeping trade secrets a difficulty. Combined with a set of challenges to overcome that will generally be consistent across all R&D departments in every company, it is likely that competitors will arrive at the same solutions. Patent protection is there to ensure that if you get there first, you can have a say on who can make use of your methods and legally shield yourself against rivals’ attempts to reverse engineer your solutions.
Furthermore, patents are a form of property and so are an asset which can be sold or licenced to other companies. This means companies can monetize their IP even if they are not implementing it themselves. It also enables IP sharing between companies, important for collaboration, while providing clarity about IP ownership. For example, companies can assign or licence patented technology to a joint venture. Careful management of a patent portfolio during the lifetime of a joint venture means that the participating companies can benefit from each other’s IP (and so profit from projects they would otherwise not be able to complete) without worrying about loss of ownership of their own IP.
As such, if UK companies can develop key decommissioning technologies now and secure strong IP protection for such innovation, then they can ensure they will be front of the queue for future decommissioning tenders in overseas territories. Or, at the very least, they can ensure that they are able to license or sell their IP to overseas operators to generate future sources of revenue.
Our research suggests that some companies have already realised this and have started to heavily increase their patent protection in the field of decommissioning. Indeed, as evidenced by the chart (Fig.1) , the past 10 years has seen a significant increase in patent activity in decommissioning technology, primarily led by the UK, the US and Norway.
(Fig.1, showing the volume of decommissioning related patent applications filed covering the UK has increased over time, and more than doubled between 2010-2014 and 2015-2019)
The pie charts also show that a disproportionately high share of such decommissioning patents is being filed by UK companies (Fig.2) compared with Oil and Gas patents more generally (Fig.3). This is clear evidence of the important role the UK is starting to play in pioneering this technology.
(Fig.2, showing decommissioning related patent applications by nationality of applicant)
(Fig.3, showing all Oil and Gas related patent applications by nationality of applicant. When compared to Fig.2, it shows that the United Kingdom has a disproportionately high share of patent applications relating to decommissioning)
Although such recent patent activities of some UK companies does appear promising, it must still be viewed in the wider context of the oil and gas patenting landscape as a whole. When done so, we can see that patent applications mentioning decommissioning still only accounted for a minute fraction (less than 1%) of all oil and gas related patent applications filed in the last ten years. There would therefore seem to be much more R&D resource, which could be allocated to decommissioning related innovations. There also clearly remains an abundance of technical challenges to be overcome and thus plenty of room to innovate in before leaders in this emerging field are established.
It is therefore crucial, now more than ever, that industry players re-evaluate their IP and innovation strategies if they want to take advantage of the opportunities before them.
References:
- OEUK Decommissioning Insights 2022; https://oilandgasuk.cld.bz/Decommissioning-Insight-2022
- Reuters, “Special Report: Millions of abandoned oil wells are leaking methane, a climate menace”, Nichola Groom, 16/06/2020; https://www.reuters.com/article/us-usa-drilling-abandoned-specialreport-idUSKBN23N1NL
- Decommissioning Strategy, Oil & Gas Authority, UK Government, 01/05/2021; https://www.nstauthority.co.uk/media/7538/decommissioning-strategy-may-2021.pdf
- Reddie & Grose, “IP Protection in the Oil and Gas Industry”, Insights, 18/02/2019; https://www.reddie.co.uk/2019/02/18/ip-protection-in-the-oil-and-gas-industry/
This article is for general information only. Its content is not a statement of the law on any subject and does not constitute advice. Please contact Reddie & Grose LLP for advice before taking any action in reliance on it.
