North Sea Oil, Gas Asset Sales Held Up By Decommissioning Logjam

The pace of deals for oil and gas assets in the U.K. North Sea could slow as companies become increasingly concerned about the costs of retiring old fields, oil industry participants said in London Wednesday.

"Decommissioning is something of a logjam," said Malcolm Webb, chief executive of Oil & Gas UK, a lobbying group for the U.K.'s offshore industry during an industry briefing.

"At today's oil prices, trades are still going to occur," but may be hampered by high costs, complex commercial arrangements and tax burdens, said George McClung, acquisition and divestment project manager for Royal Dutch Shell PLC (RDSA).

It will cost between GBP15-20 billion to retire all the oil and gas fields in the U.K. North Sea, according to Oil & Gas UK estimates.

Some major oil companies like Shell are have divested stakes in older North Sea assets which they consider "marginal," or not providing adequate return relative to the company's production portfolio.

"When we're looking at divesting or selling an asset on, it's not just the price we're looking at...from Shell's perspective, when we divest an asset we want that clean cut," McClung said.

But buyers, including many small and mid-sized companies seeking to exploit older North Sea fields, might be sidelined by uncertainty over who should shoulder the cost of abandoning the fields once production ceases.

Smaller buyers could also run into stumbling blocks if they aren't able guarantee funding or secure letters of credit to finance the purchases.

"There is definitely a shift down in the number of trades" because parties are uncertain of the liabilities involved, said Paul Dymond, operations director of Oil & Gas UK.

The oil industry speakers called on the U.K. government to enact legislation providing a clearer legal framework for the transfer of assets.

Copyright (c) 2008 Dow Jones & Company, Inc.


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