UKCS Decommissioning Costs to Rise in Coming Decades

Expenditures related to the decommissioning of oil and gas platforms on the UK Continental Shelf (UKCS) are expected to rise, with an estimated £30 billion (US $44.4 billion) of decommissioning work facing the North Sea over the next few decades.

Total decommissioning expenditures across the UKCS have risen by 18 percent over the past year, while most areas of cost associated with oil and gas are under control and have not moved significantly in the past 12 months, according to the 2010 Oil & Gas UK Activity Survey.

"In recent years, technical innovations and increased recovery techniques have meant decommissioning dates have receded as the life of existing infrastructure is extended through the exploitation of surrounding reserves," the survey report said. "However, this is the first time for many years that we see little, if any, movement in decommissioning dates.

"Indeed when looking at the next decade, some field decommissioning dates appear to be earlier than previously anticipated."

According to trade association Oil & Gas UK, fiscal uncertainty on access to decommissioning relief, combined with cost inflation, the imposition of EU Emissions Trading Scheme Phase III and high tax rates on new investment, are threatening to result in premature cessation of production for many assets.

"We sit in the middle of a window of opportunity which will determine the future of the UKCS. If we will fail to capitalize on this opportunity we will permanently damage our ability to maximize investment and reserves recovery from the UKCS," Oil & Gas UK said.

The central and northern North Sea have considerably higher costs per installation due to the number of large platforms with substantial sub-structures that require more work to remove them than subsea and floating equipment. Installations in the central and northern North Sea comprise 44 percent or £11.7 billion (US $17.2 billion) and 34 percent or £8.8 billion (US $12.9 billion) of total UKCS spending respectively, compared to the southern North Sea at 15 percent, or £3.9 billion (US $5.7 billion), due to this area's shallow water and milder conditions.

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New Decommissioning Group Attracts Interest

A number of new companies have recently joined a new decommissioning body established to ensure UK businesses are ready to secure opportunities from decommissioning work over the coming years.

Brian Nixon, chief executive of Decom North Sea (DNS), said there was growing awareness in the industry of the need to secure and maximize economic benefit from the estimated workload of decommissioning over the next few decades.

New members of Decom North Sea include operators, major contractors, service specialists and technology developers. Individual companies to have joined recently include Marathon Oil, BP, Hess, Wood Group, Rotech Subsea, Peterson SBS and Port Services Group.

The group has also signed reciprocal agreements with regional energy bodies across Europe to help it reach as many potential members as possible in the UK and further afield. These include NOF Energy, East of England Energy Group, North Scotland Industries Group, IRO (the Association of Dutch Suppliers to the Oil & Gas Industry), Offshore Denmark and the Carbon Energy Club in Belgium.

"Our target is to have 70 members by the end of the year and I am confident we will achieve and even surpass this," said Nixon. "We have been extremely encouraged by the results of our membership drive and the welcome we have received from companies who believe we can make a significant difference to their growth ambitions both in the UK and overseas.

According to Nixon, the latest market projections agree that the first major lump of decommissioning activity in the North Sea is forecast to ramp up quickly within the next year or two. This emphasizes that now is absolutely the right time for DNS to begin its work with the supply chain, and to stimulate the preparation, collaboration and innovation needed to secure this vital market opportunity.

"While we will be aiming to help the supply chain to develop cost reduction techniques in the North Sea initially, our role will include progressively supporting companies in future to export the skills and technologies that result to locations around the world."

DNS will hold seminars and share fairs in collaboration with other energy development organizations and government agencies to attract members. The activity will cover the northeast, Highlands and Central Belt in Scotland and the northeast and south east in England where most of the potential supply chain for the decommissioning market is based. DNS will also explore further collaborative possibilities and knowledge transfer with potential Norwegian, Dutch and Danish partners.