Global Competitiveness

Meeting the Decommissioning Challenge

Over the next two decades the industry will begin to decommission many of the installations that have been producing oil and gas in the North Sea. It is a complex process which will represent a challenge to the industry on many fronts encompassing technological, economic, environmental and health and safety issues. Approximately 470 installations are planned to be decommissioned, which include small and large steel platforms, subsea and floating equipment. Some 10,000 kilometres of pipelines, 15 onshore terminals and around 5,000 wells are also part of the infrastructure planned to be gradually phased-out.

Figure 48: UKCS Decommissioning Profile 2005-30+

An indicative profile of the asset base to be decommissioned is shown in figure 48; however the precise timing of decommissioning is highly uncertain and has in many cases already been pushed back from what is shown. Decommissioning timing will be influenced by a range of factors including:

• Long-term trends in oil and gas prices – which will determine whether it remains economic to keep a field in operation;
• Long-term certainty on both fiscal and regulatory regimes – which will influence the future investment environment;
• Increased recovery – from existing fields, new exploration and tie-back of new fields, which will extend the productive life of these assets and infrastructure;
• Reduction of decommissioning cost – through greater co-ordination with the supply chain and a more systematic approach across the industry;
• Technological innovation - which will increase oil and recovery, extend the life of many existing ageing facilities and ultimately reduce the costs of decommissioning.

The costs involved in decommissioning UKCS infrastructure are estimated at £10 - £20 billion – the wide range reflects the uncertainties regarding those liabilities. UKOOA’s own activity survey places decommissioning costs at just under £12 billion in real terms, some £2 billion higher than expected only three years ago. It should also be noted that over the same period decommissioning has slipped by around two years as a results of the increase in oil prices and improved projections of recovery.

Figure 49: Evolution of UKCS Decommissioning Costs UKOOA Survey, 2002 - 2005

Whilst for most fields decommissioning is not an imminent activity, it already has an impact on the economic life of the UKCS. There are concerns whether current requirements regarding the financial securitisation of decommissioning liabilities and their fiscal treatment are creating an unnecessarily costly and rigid framework in which to operate in the UKCS. It is increasingly recognised that changes may well be required to the regulatory framework and fiscal treatment of decommissioning if the UK is to continue to attract new entrants and extend the economic life of the basin. PILOT is now addressing these issues and hopes to report on its findings in 2006.