More positive approach needed to UK decommissioning, report claims

Offshore staff

LONDON – The combination of economics, deteriorating infrastructure, technical limits on further recovery, and regulatory pressure mean the pace of North Sea decommissioning activity is likely to accelerate, according to a new report by KPMG.

Decommissioning Strategy: A New Imperative for E&P Firms points out that the UK industry has traditionally approached decommissioning as a technical and cost challenge, with discussion focused on supplier capacity, tax relief, safety and environmental issues.

However, decommissioning decisions should focus more on account asset portfolios, value realization, business models, and relationships with partners and suppliers, the authors suggest.

KPMG energy partner Fergus Woodward said: “The Wood Review and the [UK’s] new Oil & Gas Authority recognize the real threat that a poorly coordinated and badly executed approach to decommissioning poses to maximizing economic recovery in the UKCS if companies operating mutually dependent infrastructure decommission earlier than they might. Operating costs in the basin and low commodity price bring this threat closer…

“By becoming much more innovative about their approaches to selling assets, separating the question of decommissioning liability from the question of asset ownership, companies could help break through the current log jam in mature-asset sales, getting late-life assets into the hands of specialist owners who could operate them more effectively for longer, supporting the goal of maximizing economic recovery.”

“As assets enter decommissioning,” he continued, “we also see enormous potential for the creation of new, decommissioning service models. Developing these models will accelerate learning and efficiency and allow a much more integrated approach across multiple assets.

“There is enormous scope for increased collaboration among operators, going beyond information sharing, to develop new models for example in standards related  to plugging and abandonment of wells and other related questions, arrangements for joint campaigns on related assets, and potentially even the creation of new entities to allow common buying of services and execution of end-to-end programs.”

08/11/2015

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