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UK North Sea decommissioning cost target at £39bn: OGA

29 Jun 2017 11:13 (+01:00 GMT)
UK North Sea decommissioning cost target at £39bn: OGA

London, 29 June (Argus) — Decommissioning the UK North Sea's oil and gas fields and infrastructure could cost less than £39bn ($50bn) if the industry works to reduce costs, according to regulator OGA.

In its first estimate, OGA put the full cost of decommissioning at between £44.5bn and £82.7bn, giving a mean of £59.7bn. It said operators should aim to reduce these costs by at least 35pc.

The OGA said collaboration and innovation are key, and that improvements in efficiency alone will not be sufficient. OGA operations director Gunther Newcombe said: "there will be a need for significant change in the way decommissioning is approached and behavioural change will be a critical component."

The UK North Sea contains over 250 fixed installations, more than 250 sub-sea production systems, 3,650 wells and 3,000 pipelines with total length of around 7,500km, all of which must eventually be decommissioned.

Decommissioning expenditure is a growing portion of the total spend in the greater North Sea region, accounting for just under 5pc in 2015 compared with 2pc in 2010, according to the most recent figures from industry body OGUK.

Lower oil prices have brought forward the shutdown of many sites. This year alone, decommissioning plans have been submitted by Shell for the Brent field, by US-based Marathon Oil for the Brae asset, and by Chinese state-owned CNOOC subsidiary Nexen for its Ettrick and Blackbird fields. Calgary-based Canadian Natural Resources (CNR) will begin decommissioning the Ninian North platform this year.

The UK government is considering changing the North Sea fiscal regime to prevent fields from being decommissioned too early. Current rules permit operators to claim relief on their decommissioning expenses based on the tax that they have paid on past profits. This means that buyers of mature fields can struggle to accumulate enough tax history to claim full relief for decommissioning costs. Smaller companies that would otherwise keep fields producing for longer than legacy operators, such as the majors, are put off from making acquisitions because of the decommissioning costs. The government is consulting on whether to allow tax histories to be transferred between buyers and sellers of late-life assets.

The OGA will report annually on decommissioning progress. The target of £39bn will remain fixed.