Cost of UK oil and gas decommissioning
The Oil and Gas Authority (OGA) has published a report which provides a new cost estimate for offshore oil and gas decommissioning in the UK Continental Shelf (UKCS).
With a shared objective of both industry and government to reduce decommissioning costs, the OGA has set industry a target to reduce costs by at least 35%. This report has been produced to provide greater certainty of the cost of decommissioning all of the UK’s current and future offshore facilities, pipelines, development wells, suspended open water exploration wells and appraisal wells and onshore terminals.
The OGA’s approach has been to develop a probabilistic cost estimate, which takes into account the broad range of uncertainties and uses data submitted by oil and gas operators as part of its 2016 UKCS Stewardship Survey. Using this approach, the OGA has produced a decommissioning cost estimate (P50) value of £59.7 billion in 2016 prices. Taking into account the shared goal of a minimum of 35% cost reduction, this results in a target of less than £39 billion.
The OGA will monitor industry’s performance towards the target and support their efforts through:
- Publishing an annual progress update report
- Benchmarking, using actual decommissioning costs to assess operators’ estimates
- Working with operators and the wider industry to share lessons learned, develop innovative approaches to contracting strategy and enhance capability of the supply chain
- Promoting innovative collaboration, for example the multi-operator well plugging and abandonment (P&A) campaign
Gunther Newcombe, the OGA’s Operations Director, said: "In our Decommissioning Strategy we said we needed to better understand the true cost of decommissioning and then work to reduce these costs by at least 35%. This report provides us with a starting point cost estimate of £59.7 billion to decommission UK oil and gas infrastructure. The challenge now is to save industry and the tax payer money and achieve safe decommissioning for £39 billion or less.
"To achieve this target there will be a need for significant change in the way decommissioning is approached and behavioural change will be a critical component. The OGA will continue to work closely with operators and the supply chain to ensure key information and lessons are shared and new approaches to contracting are developed. There is a clear and sizeable opportunity for the supply chain to develop an efficient, low cost and exportable industry capability."
Terri King, President, ConocoPhillips UK and Chair of the MER UK Decommissioning Task Force added: "Having rigorous cost estimates provides the industry with a clear target against which to reduce decommissioning costs and deliver improved value. Our 35% reduction and a £39 billion targeted outcome point us in the right direction. At ConocoPhillips, as we work through our programme to plug and abandon over 130 wells in the Southern North Sea, we’ve reduced the time it takes to P&A a well by around 50 percent. Our focus now includes transformational technology that will help us materially change the way we work."
Colette Cohen, CEO of the Oil & Gas Technology Centre (OGTC) commented: "Technology will be a key contributor to improving decommissioning costs in areas such as well plugging and abandonment, which represents around 50% of decommissioning costs, and the ideas generated by our recent wells technology competition will help realise this goal."
The cost estimate has undergone external assurance by Rider Hunt International and has been reviewed by the MER UK Decommissioning Task Force’s cost team. This includes representatives from industry, HM Treasury, the Offshore Petroleum Regulator for Environment & Decommissioning (OPRED) and Oil & Gas UK.
- The Decommissioning Cost Estimate Report can be found here.
- The report derived a full cost distribution of £44.5bn (P10) to £82.7bn (P90) with a P50 cost estimate of £59.7bn.
- The OGA’s Decommissioning Strategy, published in June 2016, can be found here.
- The OGA’s Decommissioning Delivery Programme, published in September 2016, can be found here.