Report highlights growing decommissioning market in the UK, Norway

Offshore staff

LONDON Offshore oil and gas decommissioning in the UK and Norway is expected to increase steadily over the next 10 years, according to Oil & Gas UK’s Decommissioning Insight 2016.

The report found that total decommissioning expenditure in the UK and Norway last year was £2.1 billion ($2.6 billion), compared with just under £1.6 billion ($2 billion) in 2014, and represented 5% of total industry expenditure, compared with 2% in 2010.

The total amount forecast to be spent on decommissioning on the UK continental shelf (UKCS) between now and 2025 is £17.6 billion ($22 billion) up from £16.9 billion ($21.1 billion) for 2015-2024.

Mike Tholen, Oil & Gas UK’s upstream policy director, said: “With low oil prices continuing, you might expect decommissioning to be a key focus for the sector in the years ahead; however, we are not witnessing a rush to decommission.

“Different factors are at play and the picture is much more complex. Some companies are deferring cessation of production as field life has been extended by sustained efficiency improvements; others are delaying activity due to cash-flow constraints; while elsewhere, companies may be expediting decommissioning to take advantage of falling costs in the current downturn.”

While 52 new projects appear for the first time in this year’s report, most of these have been a long time in the planning. Over the next decade, there are more than 100 platforms forecast for complete or partial removal from both the UK and Norwegian continental shelves. More than 1,800 wells are scheduled to be P&A’d and about 7,500 km (4,660 mi) of pipeline is forecast to be decommissioned.

Tholen continued: “Of the estimated £17.6 billion of decommissioning expenditure on the UKCS over the next 10 years, more than 50% of this market will be found in the central North Sea.

“The UK’s supply chain will need to focus on developing a high-quality, cost-efficient and competitive decommissioning capacity to make the most of the opportunity and provide a range of goods and services that can not only be deployed in the UK but also exported overseas.”

Since the 2015 survey, unit costs of decommissioning appear to be decreasing, particularly for well plugging, abandonment and making safe. This is partly due to a market-driven response to the downturn as associated costs (such as rig rates) have decreased. The industry is also increasingly applying past experience to new decommissioning projects to positive effect.

Oil & Gas UK is working on the MER UK Decommissioning Board with the Oil and Gas Authority (OGA) and the Department for Business Energy and Industrial Strategy to develop new fit-for-purpose technical, commercial and operational solutions to lower the cost of decommissioning while maintaining high safety and environmental standards.

Tholen added: “There could still be up to 20 Bbbl of oil and gas to recover from the UKCS. If the UK is to continue to gain the full economic benefit from its oil and gas resource, it is important that the industry continues to work with the OGA as well as with HM Treasury to attract fresh investment, avoid premature decommissioning, retain the critical infrastructure needed to access future reserves and ensure decommissioning is carried out in a timely and most cost-effective way.

“We are now working with HM Treasury to explore further avenues in its ‘Driving Investment’ fiscal strategy for the sector, including the possibility of transferring tax relief on decommissioning costs with the sale of assets.”

11/15/2016

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