Estimated costs for UKCS decommissioning continue to fall

Source: press release, 19 August 2020

illustration: OGA
illustration: OGA

The total cost of UK offshore oil and gas decommissioning has fallen by a further 2% on a like-for-like basis in 2019 to GBP 48 billion, according to the Oil & Gas Authority (OGA).

With a shared objective of industry and government to reduce decommissioning costs by at least 35%, the latest annual “UKCS Decommissioning Cost Estimate 2020” shows estimated decommissioning costs have, to date, reduced by 19% since the OGA began benchmarking in 2017.

This is compared with the OGA’s 2017 baseline estimate of GBP 59.7 billion. The report identifies:

2020 “Like-for-like” Decommissioning Cost Estimate (2017 inventory and prices). The cost reduction target is based on this number.

  • Comparing the same inventory as 2017, estimated costs have reduced slightly by 2% to GBP 48 billion.
  • The 2% cost reduction is driven by improvements in planning and execution practices. This has led to reductions in the estimated cost of platform and subsea infrastructure removals in the Northern North Sea (NNS) and Central North Sea (CNS).
  • There remain considerable opportunities for future cost reductions which are necessary to meet the UKCS cost reduction target of greater than 35% (to levels below £39bn)

2020 Decommissioning Cost Estimate (2020 inventory, 2019 prices). Estimated (P50) decommissioning costs remain at GBP 51 billion in 2020:

  • Several operators have made significant improvements in subsea well plugging and abandonment (P&A) costs, but those savings have been offset by cost increases reported by other operators.

The analysis also finds that cost reductions are evident in actual decommissioning expenditure, and in 2019 expenditure was GBP 170 million lower than estimated the previous year. Although this is partly due to activity deferral, 70% was from actual cost reductions in live projects.

The OGA is supporting the UK government’s commitment to reach net zero emissions by 2050 and is actively engaging with operators on more extensive repurposing of offshore infrastructure to meet that aim.

Pauline Innes, Head of Decommissioning at the OGA says, “Encouraging reductions in projected decommissioning costs continued into 2019, though these have been partly compromised by increases forecast by some operators. As to be expected, the decreased estimates of future cost are mirrored in reduced costs being incurred right now. The last few months have been extraordinarily tough for those working in the sector, including those in decommissioning, and in some cases project deferrals and uncertainties may have shifted focus.”

“However, looking ahead, there’s more to be done to drive costs down safely and sustainably. We’ve seen how performance can be improved when learning and good practice are shared. Notwithstanding this success, the next 16% of cost reductions will need behaviours and approaches beyond those to-date, with aligned/incentivised commercial models routinely adopted, and cost-effective outcomes achieved regardless of which operator is contracting the work. Furthermore, some assets in the basin now have the chance of a function beyond their current hydrocarbon-related use, contributing to the energy transition demands of society. The potential reuse or re-purposing opportunities of UKCS legacy infrastructure are far ranging, and an opportunity to be capitalised on,” Innes adds.