UK Oil Regulator Opens Investigations into Missed Decom Deadlines

The North Sea Transition Authority (NSTA) announced in a statement posted on its website that it has opened investigations into missed deadlines for well decommissioning.

“Members of the NSTA’s Directorate of Regulation have now commenced investigations relating to alleged failures to complete timely plugging and abandonment in line with approved plans,” the NSTA said in the statement.

“Operators must leave the marine environment clean and safe once they stop producing, and are legally required to decommission their platforms, pipelines and wells, a complex and expensive process which requires thorough preparation and planning,” it added.

“Taking too long, or deferring work, adds to the cost and can mean that platforms continue to use power and release emissions even though they are no longer producing oil and gas,” it continued.

North Sea operators must take action on well decommissioning to support the UK’s supply chain, clean up their oil and gas legacy, and stop costs spiraling, the NSTA said in the statement, which highlighted the release of the NSTA’s latest decommissioning cost and performance update.

The NSTA outlined in the statement that it is “getting tough on operators who do not meet their regulatory obligations on well decommissioning”.

Repeated delays to well plugging and abandonment (P&A) work, competition for rigs from overseas, and cost pressures are pushing up the estimated bill for decommissioning on the UK Continental Shelf, the NSTA warned in the statement.

In a statement posted on its site on November 6, 2023, the NSTA revealed that, on November 1, 2023, Pauline Innes, the NSTA’s Director of Supply Chain and Decommissioning, wrote to licensees “reminding them of their obligation to decommission wells in a timely manner”.

“Currently compliance with guidance is patchy and the NSTA is concerned at the number of deferrals for well decommissioning activities that are being sought,” the NSTA warned in that statement.

“While exceptional circumstances may arise to justify a deferment application, we do not normally expect to receive such requests,” it added.

“Failure to meet a license requirement in relation to well decommissioning may result in the matter being passed to the NSTA’s Disputes and Sanctions team,” it went on to warn.

Decommissioning Costs

In its latest statement, the NSTA said industry’s ability to share knowledge, learn lessons and produce robust plans helped lower the decommissioning cost estimate by GBP 15 billion ($19.49 billion) between 2017 and 2022.

It added, however, that “further improvements have been difficult to achieve as much of the low-hanging fruit has been picked”.

Operators expect to spend about GBP 24 billion ($31.19 billion) on decommissioning between 2023 and 2032, the NSTA said in its statement, highlighting that this was up GBP 3 billion ($3.89 billion) on the forecast for the same period in last year’s decommissioning cost and performance report.

“More than half of the overall estimate of GBP 40 billion ($51.99 billion), in constant 2021 prices, is to be spent during this 10-year period, which shows near-term actions will set the direction for the sector,” the NSTA said in the statement.

“Embedding good practice now and striking a balance between supply chain capacity and demand for its services is crucial,” it added.

In the statement, the NSTA said pockets of operators continue to collaborate, perform admirably and deliver savings, but warned that the majority “need to improve by doubling down on their planning”.

“Operators spent around GBP 2 billion ($2.59 billion) on decommissioning last year, which was in line with forecasts, but they completed much less work than originally planned,” the NSTA added in the statement.

“They also need to deliver an uptick in well P&A, the most expensive aspect of decommissioning,” it went on to note.

The NSTA said in the statement that operators can keep their costs under control and meet their regulatory obligations by “engaging early with the UK’s world-leading supply chain, providing details of their inactive wells and, most importantly, placing contracts to get the work done”.

The organization warned in the statement that hundreds of wells will need to be decommissioned every year as more oil and gas fields shut down. It highlighted that operators achieved 70 percent of planned well decommissioning activities last year.

Some operators are deferring in hope that prices will go down in the coming years, the NSTA noted in its statement. It added, however, that failing to award contracts reduces the supply chain’s revenues and ability to invest in capacity and resources.

“Rig contractors are actively seeking opportunities in other regions where operators offer longer, more secure contracts,” it said.

“If this trend continues, prices will increase, as reflected in market forecasts,” it added.

“In addition to exploring the use of sanctions, the NSTA is spearheading a project to identify which UKCS wells will be ready for decommissioning between 2026 to 2030 and assess the supply chain capacity required to undertake the work in a timely and cost-effective manner,” it continued.

“These insights will guide our efforts to promote and facilitate well decommissioning campaigns involving multiple operators and fields, an approach which can save time and money,” it went on to state.

Huge Opportunity

In the statement, Innes said, “with spending forecast to peak at GBP 2.5 billion ($3.24 billion) per year in the current decade, decommissioning can ensure that the UK’s world-leading supply chain is equipped to help operators clean up their oil and gas infrastructure over the next 50 years and support the carbon storage sector, which will rely on many of the same resources”.

“I am concerned that this huge opportunity to safeguard highly skilled jobs and support the transition will be wasted if operators fail to tackle their well decommissioning backlogs,” Innes added.

“The supply chain wants to do this work, but it is not physically tied to the UK. Its skills and resources are in demand in other regions, and we are starting to see companies marketing their rigs elsewhere. Operators need to use the supply chain, now, or risk losing it,” Innes continued.

Rigzone has contacted industry body Offshore Energies UK (OEUK) for comment on the NSTA’s statement. At the time of writing, OEUK has not yet responded to Rigzone’s request with a comment.

In a release posted on its website in November last year, OEUK outlined that, according to its calculations, “shutting down obsolete North Sea energy installations is a business opportunity worth more than GBP 20 billion ($25.99 billion) over the next decade”.

OEUK highlighted the publication of its Decommissioning Insight report in that release, which it pointed out gives a “detailed overview of requirements for decommissioning and recycling hundreds of oil and gas platforms in UK, Norwegian, Danish and Dutch waters”.

“There are currently 283 active oil and gas fields in the North Sea. By 2030, 180 will have ceased production,” OEUK said in the release.

“Decommissioning accounted for 12 percent of total oil and gas expenditure in the UK continental shelf in 2022, but in the right fiscal environment this could increase to 25 percent in 2032 and overtake capital expenditure by 2040, the report claims,” it added.

“Specialist UK organizations are well positioned to provide a global center of expertise in this sector as demand for decommissioning services grows around the world, but innovation and resilience will be vital,” it continued.

“The insight report also points out that more than 1,000 North Sea wells will be sealed between now and 2027 – with 100,000 tons of surface and seabed structures removed in 2026 alone. At the same time, around 200 new large scale wind turbines are scheduled to be installed, representing a considerable infrastructure and workforce challenge,” OEUK warned at the time.

In the release, OEUK Decommissioning Manager Ricky Thomson said, “this is a GBP 20 billion business opportunity for our world-class decommissioning industry, and it is vital it is handled properly so we do not lose the work to overseas competitors”.

“There are dramatic opportunities for growth, but we need proper planning, and not just of hugely complex individual projects, but also of the specialized equipment and the efficient deployment of our highly skilled workforce,” he added.

“For the UK supply chain to work with maximum efficiency, it needs to be able to accurately forecast demand for its services, in both oil and gas and across low carbon technologies, such as offshore wind and carbon capture,” he went on to state.

“Government support will be needed to maintain the UK’s involvement in the sector. Thousands of jobs and contracts for billions of pounds’ worth of highly skilled work are at stake,” Thomson said.

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