Decom efforts undermined by operators who increased their costs

Efforts to reduce the UK’S offshore decommissioning bill last year were “largely negated” by 5% of operators who increased their costs by £1 billion, according to the Oil and Gas Authority (OGA).

The OGA has published its latest decommissioning cost estimate for the industry, down 2% overall from 2019’s £49.4bn forecast to £48.2bn, based on 2017 prices.

However, “encouraging efforts” to reduce the bill were “partly compromised” as a small group increased costs by £1bn, offsetting what might have otherwise been a greater reduction.

Seven fields, “the large majority of which lie in the portfolios of just 5% of operators”, accounted for the increase.

The regulator praised improved project execution and planning, however “the projected performance of some already high-cost operators has deteriorated even further”, it said.

It is part of the “tricky business” of figuring out future decommissioning costs, according to petroleum economist Alex Kemp of Aberdeen University.

Nearly a third of all decom estimates remain “highly uncertain”, according to the OGA.

Professor Kemp said: “You may have some ideas of what can be in the reservoir, the wells, the equipment generally.

“But when you actually do the work then unpleasant surprises can emerge of things that have to be done.

“You may find some nasties there which you hadn’t been anticipating, and that will inevitably increase the costs.”

However, the economist said the OGA’S goal to reduce offshore decommissioning costs by 35% from 2017 levels “looks possible”, having so far achieved a 19% reduction from that £59bn baseline estimate.

The overall aim is to improve costs for North Sea operators and the UK Government, who provide relief against decom bills.

Professor Alex Kemp of Aberdeen University.