Steep rise in UK decommissioning appears inevitable, report suggests

Offshore staff

FAVERSHAM, UK – Consistently lower oil prices will likely accelerate decommissioning activity on the UK continental shelf (UKCS), according to analyst Douglas-Westwood (DW).

During much of the period since 2000, UK operators were able to focus on extending the lives of their offshore facilities through improved recovery, enhanced maintenance, and, critically, successful divestment, thanks to high and rising oil prices and concerns over the long-term global oil supply.

At the same time, DW adds, smaller operators managed to extract production from fields that had ceased to be profitable under original ownership, and with all indicators pointing toward continued high prices, many agreed to the transfer of decommissioning liabilities.

However, this model no longer works at $45/bbl, particularly for buyers that cannot absorb the liabilities associated with big oil fields and deliver value to their shareholders.

International operators are coming under increasing pressure to reduce their exposure to high-cost regions and remove decommissioning liabilities from their balance sheets. This is likely to advance asset decommissioning on the UKCS, DW claims.

Early movers will look to avoid looming constraints in the supply chain for this growing market and take advantage of lower rig rates for P&A activity, the analyst adds.

The Wood Report estimated costs of up to $50 billion for UKCS decommissioning, although the actual figure may be far higher. Companies offering solutions in products and services that improve safety and efficiency of these operations should thrive, as will those involved in P&A.

Opportunities for new field developments remain in the UK North Sea, with extensive infrastructure in place to develop the most promising fields, and the best existing assets. However, the region is mature, DW stresses, and producing in the North Sea remains expensive in a world overflowing with oil.

09/21/2015

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