Oil & Gas Decommissioning Opportunities

Decommissioning activity in the UK North Sea has been intensifying in recent years as more oil and gas fields are maturing in one of the world’s most explored offshore basins.

Along with increased activity, the expertise of the UK contractors in late life asset management and decommissioning grows, and so do the opportunities of the UK supply chain to export its services and expertise to other markets.

Decommissioning costs have been falling, but industry needs to maintain the cost-cutting pace if it wants to hit the target of the UK Oil & Gas Authority, OGA said in a recent report.

The next two decades will see a lot of decommissioning activity not only in the North Sea but also in other offshore basins, but this decade the UK is expected to continue to be at the forefront of global decommissioning activity, analysts say.

Decommissioning Strategy

The UK Oil & Gas Authority revised earlier this year its Decommissioning Strategy from 2016, to ensure cost-effective and timely decommissioning activities and demonstrate industry’s commitment to responsible management of the UK’s petroleum legacy.

The revised Decommissioning Strategy supports the OGA Strategy to deliver the target to reduce by 2022 decommissioning cost estimates by 35 percent from the 2017 base estimate of £59.7 billion.

The revised strategy has four key priorities: planning for decommissioning, commercial transformation, supporting energy transition from late life into decommissioning, and technology, processes and guidance.

The planning for decommissioning priority aims to drive cost efficiency through effective late-life stewardship, creating a platform for timely delivery. OGA’s priority actions through 2024 will be to promote learning, sharing of knowledge and continuous improvement, capturing and promoting learnings from infrastructure owners and the supply chain, working in collaboration with industry groups including OGUK, East of England Energy Group (EEEGR), and Decom North Sea (DNS) to maximise learning.

The priority of commercial transformation will focus on steps to improve market efficiency to establish a competitive and sustainable market.

“Decommissioning presents an opportunity for the offshore oil and gas industry to coalesce behind a common objective, with collaborative contracting approaches offering the potential to drive out inefficient practices to achieve successful decommissioning to the benefit of all parties,” OGA’s strategy says.

The priority of supporting energy transition from late life into decommissioning will aim to reduce greenhouse gas emissions from decommissioning and capitalise on opportunities to reuse or re-purpose infrastructure.

In the priority focus on technology, processes, and guidance, OGA will work to help develop and deploy technology, appropriate regulatory processes, and clear guidance.

The Decommissioning and Repurposing Taskforce, Supply Chain and Exports Taskforce, and Wells Task Force will provide ongoing strategic direction oversight and support, driving alignment, accountability, action, and delivery on priorities, OGA notes.

Decommissioning Costs

Decommissioning costs in the UK Continental Shelf have declined in recent years. Over the past four years, an average annual cost reduction of 6% has been delivered, OGA said in its latest UKCS Decommissioning Cost Estimate 2021 report published in July. If the average cost reduction is kept, the target for cutting costs by 35 percent by the end of 2022 is achievable, the authority noted.

The total cost of decommissioning UKCS offshore oil and gas infrastructure has reduced to £46 billion, which equates to a projected saving of nearly £14 billion, or 23 percent. The expected cost savings mark steady progress towards the target of £39 billion total cost of decommissioning by end-2022 set in 2017. The substantial saving already achieved is good news for both industry and the Exchequer, OGA said.

The £2 billion, or 4 percent, reduction in the 2021 decommissioning cost estimate is the result of continuous improvement and reductions in well decommissioning costs, driven by reductions in subsea P&A costs across both Central North Sea and West of Shetland.

In 2020, decommissioning expenditure was impacted by Covid-19 and the low commodity price, contributing to a continuation of a plateau in the rate of cost reduction reported last year.

“While short-term forecasts show a recovery from this slowdown, commercial transformation remains key to meeting the cost reduction target,” OGA said.

“There are positive signs that operators are embracing lessons learned from across the industry plus also embedding a culture of continuous improvement and setting ambitious best in class performance targets. This is helping drive the downward cost trajectory and, more will be needed to meet the target,” the authority said.

“At the same time however there remain some real inconsistencies in cost performance, reducing the overall improvement of the basin,” OGA noted.

Cost reduction could be accelerated with decommissioning at scale, sustainable and stable supply chain, and lessons learned by transfer of knowledge plus good practices through improved communication, engagement, and stewardship, according to the authority.

Looking Ahead

Over the next decade industry is expected to spend up to £15.1 billion on decommissioning activity, OGUK said in its latest Decommissioning Insight 2020 report published at the end of last year.

Almost £7.4 billion is to be spent on well decommissioning over the next decade, as well decommissioning still accounts for the vast majority of decommissioning costs, at 49 percent of total decommissioning expenditure, the report found.

“Looking to the future, industry should seek to build on what it has achieved to further pursue cost-effective decommissioning, explore opportunities to better collaborate, continue to focus on technology and seek ways to conduct activity in a safe and environmentally sustainable manner,” OGUK said.

“Success in these areas will not only enable UK decommissioning projects to be conducted effectively, but will also develop expertise which make our decommissioning supply chain a compelling option to help other nations around the world,” the leading offshore industry association noted.

The UK is at the forefront of decommissioning with US$21 billion expected to be spent on decommissioning activities this decade alone, according to a June report by Wood Mackenzie.

By the end of this decade, expenditure on decommissioning activities is set to overtake capital expenditure in the North Sea as more platforms wind down operations due to technical, safety, and cost factors.

Higher decommissioning activity “could provide a lifeline for the supply chain if it is able to scale up,” WoodMac said.

“The UK can help to set the tone for this emergent industry, but there is a lot of uncertainty over the timing and value of the opportunity,” the consultancy noted.

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