UK Decommissioning Spend Down

UK offshore oil and gas field decommissioning costs are estimated at around £15bn ($19.1bn) over the next decade, according to a report by industry group Oil & Gas UK (OGUK) published November 27.

Its report found that rapid improvements in productivity and efficiency have been achieved as decommissioning costs per well, which is about half the total spend, have fallen by an average of 26% over the last year. And extensions to field life have pushed some decommissioning jobs further into the future while the remaining oil and gas reserves are produced.

OGUK expects expenditure to be down by about a fifth over the next decade, while at the same time investment upstream is rising, with a dozen new projects approved this year, attracting almost £3.3bn of investment to produce 400mn barrels of oil equivalent. Decommissioning expenditure is stabilising and is projected to be between 8% and 10% of total upstream expenditure going forward, competing for funding alongside exploration and production activities.

In numbers it sees 1,465 wells being decommissioned over that period – a fifth of the UK's total wells – accounting for 49% of the total spend, and 605,000 metric tons of topsides will be removed.

Last year the decommissioning spend over the 15 years from 2012 to 2027 would have run to £25.3bn, but this is now forecast at £21bn, a fall of 17%. A lot of this is due to work being moved to the future: analysis by OGUK has shown that, on average, fields which have changed ownership have seen their productive life extended by five years, stretching to more than a decade in some cases. But evidence is also building that the industry is delivering on its ability to take 35% of the costs out of decommissioning over time, it says.

Globally, the decommissioning market is estimated to be worth over $80bn and companies which show mastery of decommissioning in the UK will be well positioned to secure a share of the rapidly growing international market, it says, projecting a global role for UK exports.

The 'call for evidence' to create a global decommissioning hub announced in the this year's budget will be widely welcomed, OGUK said. "We are already seeing decommissioning hubs opening in Shetland, around the east coast of Scotland, in the north east of England and in East Anglia, as the supply chain pursues opportunities at home and abroad."

The full report may be read here.