OE 2015: 140 fields to cease production over the next five years

ABERDEEN – A high oil price has enabled operators to extend field life and delay decommissioning time and time again on the UK continental shelf (UKCS), however the current low oil price has brought into stark relief that this cannot continue indefinitely, concludes a new analysis by Wood Mackenzie.

The report, prepared for Offshore Europe 2015, forecasts that while a small number of decommissioning projects have been completed to date, decommissioning activity and spend are forecast to ramp up over the next five years as mature fields are no longer economically viable in a low oil price environment. It is expected that more than 140 fields could cease over the next five years.

Fiona Legate, UK upstream research analyst for Wood Mackenzie elaborates: “In 2015, operators have reacted to the low oil price environment by deferring spend and delaying sanction of new developments. We have analyzed the impact of the low oil price on decommissioning activity looking at the timing of cessation, retained decommissioning liabilities from previous deals and batch decommissioning.”

Wood Mackenzie forecasts that around 140 UKCS fields will cease over the next five years even if oil prices to return to $85 bbl. However, we may see around 50 fields ceasing even earlier than expected if the oil price returns to a level around $70/bbl. This is compared with 38 new fields that are expected to be brought on stream in the same time.

“Seventeen fields are expected to be sanctioned over the next five years. In the current price environment, there is a risk projects may be cancelled or delayed. We could start to see a shift away from work in new developments to decommissioning projects,” Legate explains.

And with a shift in activity, so too would be a corresponding shift in spend: “We expect around several billion will be spent on decommissioning on the UKCS and anticipate it to be completed in the early 2060s. Decommissioning spend is expected to increase by over 50% by 2019 and will overtake development spend in the same year.”

“There have been announcements of five fields to be retired early this year, none of which have come as a surprise. The fields most likely to be decommissioned are uneconomic without high oil prices to justify escalating maintenance costs and declining production which are unable to support the high operating costs. Thirty fields have been abandoned in the UKCS to date and companies have gone through a steep learning curvy. The costs assumptions for decommissioning projects are higher than estimates from 10 years ago as there is no more knowledge of what is involved, through regular decommissioning reviews; benchmarking against previous projects and more accurate estimates as the industry seeks costs savings across the board. Stricter plugging and abandonment rules have also driven up well abandonment costs,” she said.

In fact, with decommissioning costs top of mind for mature assets, it’s become more common for sellers to retain decommissioning liabilities as is the case with fields such as Beatrice, Heather and Kittiwake.

“Buyers want to protect themselves from the burden of decommissioning liabilities, especially on mature assets,” she added.

Wood Mackenzie concludes its analysis by offering one possible solution to managing costs: “Batch decommissioning involves a group of fields being abandoned together. These are selected by geographical proximity, operator or play. Our analysis takes a group of geographically close fields in three sectors (the central North Sea, northern North Sea and southern gas basin) and applies reductions to get an indicative view of the benefits of batch decommissioning. By our estimations, this could yield an average cost reduction of around 20% for small batches in the three sectors,” Legate stated.

Share your news with us at news@offshore-mag.com

Did You Like this Article? Get All the Energy Industry News Delivered to Your Inbox

Subscribe to an email newsletter today at no cost and receive the latest news and information.

 Subscribe Now


The Time is Right for Optimum Reliability: Capital-Intensive Industries and Asset Performance Management

Imagine a plant that is no longer at risk of a random shutdown. Imagine not worrying about losing...

Going Digital: The New Normal in Oil & Gas

In this whitepaper you will learn how Keystone Engineering, ONGC, and Saipem are using software t...

Maximizing Operational Excellence

In a recent survey conducted by PennEnergy Research, 70% of surveyed energy industry professional...

Leveraging the Power of Information in the Energy Industry

Information Governance is about more than compliance. It’s about using your information to drive ...