Analysts predict major rise in North Sea decom work

ENERGY: Study suggests spending to increase 60% this year

Oil and gas industry spending on North Sea decommissioning is to rise by 60% to £1.8 billion this year, according to energy industry consultancy Wood Mackenzie.

Their study also predicts a 30% drop in other capital expenditure to reach £5.7bn.

The consultants forecast a continued low level of exploration, but a rise in production from existing fields for a third consecutive year.

Wood Mackenzie made the predictions in its report “UK Upstream: 5 Things to Look for in 2017.”

On decommissioning, it predicted spending will increase 60% on last year – a figure that will be viewed with interest by the ports of Montrose, Dundee and Rosyth, which are are bidding for decommissioning work.

Wood Mackenzie said mega-projects such as Brent will continue to ramp up the expenditure.

Oil major Shell is decommissioning its Brent field facilities, but is to apply for a derogation order to leave foundations in place 85 metres from the top of the sea.

The consultants believe 15 exploration wells will be drilled this year, with the oil majors returning to the area.

The 14 fields expected onstream would put total production up to 1.9 million barrels of oil, but new final investment decisions will be scarce.

This year’s development spend of £5.7bn will be about half the 2014 peak.

Mergers and acquisitions in the industry will grow to about $3.5bn (£2.84bn) as majors divest in large packages and some utilities are expected to exit, but private equity is expected to continue to buy in 2017.

Fiona Legate, senior analyst at Wood Mackenzie, said: “Exploration and appraisal drilling hit a 50-year low in 2016, but volumes discovered were the highest since 2008.

“In 2017 we believe there’s still appetite for companies to drill in the UK sector. We’re forecasting 15 exploration wells this year.”

The consultancy predicted a 30% decline in development this year as the UK was already a very mature sector.

She added: “We’re forecasting about £1.8bn in decommissioning spend this year and it does provide other business opportunities, for service companies.”

The estimates for decommissioning disused equipment follow years of high expectations being met with lower results, with scrappage decisions deferred until the tax situation was clarified.

Meanwhile, new research highlights billions of pounds of diversification opportunities for Scotland’s oil and gas sector

A new guide for Scotland’s oil and gas supply chain to maximise opportunities in additional markets has been published by Scottish Enterprise.

The economic development agency’s Oil and Gas Diversification Opportunities guide says the UK has more offshore wind than any other country, having attracted £10bn of investment between 2010 and 2015.

A further £18bn will be invested in new projects between 2016 and 2020.

An estimated £17.6bn is due to be spent on oil and gas decommissioning across the UK Continental Shelf up to 2025. By 2055 it is due to reach £50bn.

An impression of the scale of the Brent field structures to be decommissioned.