Decom Costs up, 35% Cost Reduction Target Set
A new cost estimate for decommissioning all oil and gas infrastructure on the UK Continental Shelf has been put at US$77.45 billion (£59.7 billion), an increase on previous estimates of US$68.79 (£53 billion).
But, the Oil and Gas Authority, which has published a report detailing the latest cost estimate, has also set a target to get the bill reduced by at least 35%, or to less than $50.6 billion (£39 billion).
Gunther Newcombe, the OGA’s Operations Director, said: “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.”
UK Continental Shelf decommissioning costs are due to be part funded through tax rebates by up to 45% of the total cost – tax revenues which would otherwise be spent on government services.
The largest proportion of the spend is expected to be in the central North Sea, at 48% of the total spend, followed by 31% in the northern North Sea, then southern North Sea (12%) and west of Shetland (7%). Half of the central North Sea work is expected before 2025, while the majority of the other areas is expected before this date, except west of Shetland, which is weighted mostly after 2025, thanks to recent new major developments and possible future projects.
About 48% of the total spend would be on well abandonment, with 14% on owners cost, another 14% on subsea structure removal, 13% of topsides removal and 9% on substructure removal.
Decommissioning costs, however, have been hard to predict, partly due to the lack of track record to date, many uncertainties, and also cost inflation on the projects that have happened. The OGA’s estimate also includes onshore terminals and the onshore Wytch Farm oilfield – Wood Mackenzie’s also includes Wytch Farm but only Shetland Gas Plant and no other onshore terminals.
The OGA says it has developed a probabilistic cost estimate, which takes into account the broad range of uncertainties and uses data submitted by 34 oil and gas operators as part of its 2016 UKCS Stewardship Survey.
Newcombe says: “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.”
As well as producing the cost esimate, the OGA says it will monitor the industry’s performance towards its cost reduction by: publishing an annual progress update report; benchmarking, using actual decommissioning costs to assess operators’ estimates; and working with operators and the wider industry to share lessons learned, develop innovative approaches to contracting strategy and enhance capability of the supply chain. It says it will also promote collaboration, for example multi-operator well plugging and abandonment (P&A) campaigns.
Decom North Sea has already developed a platform for sharing lessons learned, called L2P2, but it relies on operator input. The new Oil & Gas Technology Centre also recently put out a call for ideas for plugging and abandonment technologies and received 48 submisisons. Plugging and abandonment accounts for nearly half the cost of decommissioning.
Terri King, President, ConocoPhillips UK and Chair of the MER UK Decommissioning Task Force added: “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%. 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, 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.contracting are developed. There is a clear and sizeable opportunity for the supply chain to develop an efficient, low cost and exportable industry capability.”
Source: www.oedigital.com
