THE North Sea oil and gas regulator aims to breathe fresh life into efforts to cut the expected multi-billion cost of decommissioning redundant assets in the area amid signs targets are unlikely to be met.
The Oil and Gas Authority published a new decommissioning strategy in which it warns that bills could spiral if action is not taken to improve commercial practices.
The OGA has set a target to reduce the expected costs of decommissioning by £20.7bn by 2022, from the £59.7bn total expected in 2017.
However, half way through the six-year programme there is still a long way to go if the costs of decommissioning are to be reduced as expected. The bill for decommissioning will ultimately be paid for by taxpayers as a result of the reliefs that are in place.
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The regulator highlighted the problems caused by lack of collaboration in the North Sea, in which many firms have stakes in fields. These have been compounded by the swings in oil and gas prices triggered by the coronavirus crisis, which have made it harder for firms to develop long-term decommissioning strategies.
The OGA noted: “There is instability in the UK decommissioning market due to fragmented ownership and fluctuations in commodity prices. Because of this instability, there is a risk of decommissioning becoming more costly to the operators, and thus to the Exchequer.”
It called for the development of a more collaborative culture between operators and supply chain firms and increased use of campaigns that cover a range of assets.
“The OGA is continuing to encourage companies to get sizable well decommissioning campaigns going which could be hugely impactful in terms of cost savings and also offer stability and much-needed certainty to the supplychain,” said the regulator.
The OGA highlighted the potential to reuse North Sea assets to help the UK meet its emissions reductions targets and reduce decommissioning bills. Depleted reservoirs could be used in carbon capture and storage projects.
“ There are over 320 fixed installation, 250 subsea systems, 20,000km of pipelines and approximately 7,800 wells in the UKCS (United Kingdom Continental Shelf) ... some infrastructure will have a life beyond oil and gas,” said the OGA.
But it added: “Decommissioning remains the likely immediate pathway for most of the UKCS infrastructure.”
The OGA also expressed concern that the opportunity to develop a world-leading decommissioning industry could be missed unless conditions improve.
It said that if the development of a cost-efficient market decommissioning market is inhibited, opportunities for exporting UK expertise could also be missed.
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The strategy report found the expected cost of decommissioning assets included in the 2017 forecast had fallen to £48bn in 2020. When assets developed since 2017 were included the estimated cost increased to £51bn.
Royal Dutch Shell revealed last month that it was repaid $99 million by the UK Government last year. The costs of decommissioning the huge Brent field more than offset the profits the company made on its North Sea output.
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