UKCS Decommissioning Cost Cut Target 'Ambitious'

UKCS Decommissioning Cost Cut Target 'Ambitious'
The target set in 2016 to reduce UKCS decommissioning costs by at least 35% has been labelled 'ambitious' by sector experts.

The target set in 2016 by the Oil and Gas Authority (OGA) and industry to reduce UK Continental Shelf (UKCS) decommissioning costs by at least 35 percent has been labelled ‘ambitious’ by sector experts.

“Sounds to me to be a very ambitious target,” Paul Griffin, White & Case LLP special adviser for oil and gas, said in a panel discussion at Oil & Gas UK’s decommissioning conference held in London at the end of June.

Fellow panel member Richard Heard, Oil & Gas UK’s decommissioning policy manager, agreed that it was an ambitious target, but said the industry was moving in the right direction.

“From what I see, there’s scope … I think it’s an ambitious target, a moving target as well, but I think we’re going in the right direction,” Heard said, addressing industry delegates.

When speaking on the panel about the likelihood of the goal being met, Nils Cohrs, the head of decommissioning at the OGA, said ambition ‘had to be there’.

“I think if you don’t have ambition you never get anywhere, so ambition has to be there,” he said.

“Whether it’s [going to be reduced by] 35 percent, or 34 percent, or 33 percent, or 40 percent, who knows. The ambition is there and we’re on the right direction,” he added.

The estimated cost of decommissioning oil and gas infrastructure on the UKCS has reduced from last year’s baseline, according to the Decommissioning Cost Estimate Report published by the OGA on June 27.

Comparing the same portfolio as last year on a like for like scope and inflation adjusted basis, estimated costs from 2017 onwards have declined to $73.3 billion (GBP 55.7 billion) in 2016 prices, the OGA revealed. A year ago, the OGA estimated that total UKCS decommissioning costs from 2017 onwards would be $78.5 billion (GBP 59.7 billion) in 2016 prices.

In a release accompanying the report, the OGA said a key contributor to this reduction was companies gaining “valuable, real, practical experience in what is still a relatively immature activity”.

“This report demonstrates a clear downward trend in expenditure and gives us greater certainty of our actual UK decommissioning costs,” Terri King, president of ConocoPhillips UK and chair of the MER UK Decommissioning Task Force, stated in the release.

Under the 35 percent reduction goal, the industry is aiming to get UKCS decommissioning costs down to less than $51.3 billion (GBP 39 billion) in 2016 prices.

‘We Now Accept Decom as Integral to North Sea Life Cycle’

“It’s clear that we now accept decommissioning as integral to the life cycle of the North Sea, and North Sea assets,” Oil & Gas UK’s Heard told industry delegates during a presentation at the Oil & Gas UK decommissioning conference, which was held at White & Case’s London office.

“We see senior appointments in almost all of the operators to recognize this issue at board level, which wasn’t the case five years ago,” he added.


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