Decommissioning is an emerging sector in UK and Norwegian waters. Accounting for 2% of total expenditure in the industry back in 2010, decommissioning now accounts for over 5% in the latest statistics released by Oil & Gas UK.
Over the next decade, Oil & Gas UK expect more than 100 platforms to be partially or completely removed, over 1,800 wells are forecast to be plugged and abandoned, and close to 7,500 kilometres of pipeline are set to be decommissioned.
With the growing importance of decommissioning projects within these regions and the growing supply chain, it was welcome news when the report, Decommissioning Insight 2016, was unveiled by Oil & Gas UK at the Offshore Decommissioning Conference in Aberdeen in November 2016.
As well as giving insight into the decommissioning activity set to happen on the UK Continental Shelf (UKCS), the report highlighted what the industry will be doing collectively in 2017 to sustain the efficiency improvements and cost reductions made in the last 12 months.
Here is an executive summary of those key findings from the report.
Decommissioning expenditure set to increase
As we mentioned at the start of the article, decommissioning now accounts for 5% of total expenditure by the industry in the UKCS. UK operators spent £1 billion in 2015, and that figure is set to increase year-on-year as more projects come online. The table above shows the activity that has been undertaken on the UKCS in 2015.
Oil & Gas UK expect the percentage of total expenditure to rise above 12% in 2017 as a result of more projects, plus, the reduction of operating costs and falling capital investment by operators in the lower price environment.
This means that the forecast decommissioning expenditure on the UKCS between 2016 and 2025 will be £17.6 billion. This is an increase of £700 million on the previous ten-year forecast in 2015’s report.
Long-term project numbers unveiled
In the next ten years, Oil & Gas UK expect 1,832 wells to be plugged and abandoned across the two regions of the North Sea. 1,470 of these are on the UKCS and 362 wells on the Norwegian Continental Shelf.
As can be seen on the graph above, 2017 will see a significant amount of activity in platform well decommissioning projects, and in fact, will become the peak year for activity over the next ten years.
The region’s commitment to deliver more decommissioning projects in this ten-year period, has been stimulated by the drop in oil price and a need for operators to reduce their operating spend and asset portfolio. This has been proven by the change in production dates for cessation of wells.
In the past 12 months, the number of UKCS production dates that have changed are:
- 33 assets – deferred until a later date
- 135 assets – remain unchanged
- 72 assets – brought forward to an earlier time.
With 39 net assets coming forward for cessation, it means the UKCS will be as busy as Oil & Gas UK forecast, starting with a busy 2017.
Unit cost reductions
The significant costs of decommissioning are still hampering some operators in their attempts to plug and abandon their existing assets. Governmental support, in the form of investment, has been sounded out by the industry as a potential solution to the problem. A message echoed by the GMB Union on the Rigzone website in November 2016.
Despite these calls for financial support, the Decommissioning Insight 2016 report has revealed that overall unit costs for certain activity has reduced.
Compared with last year’s survey, the ten-year outlook for the average unit cost of platform well plug and abandonment has fallen by one-third to £2 million in the southern North Sea and Irish Sea regions. While the North Sea region’s costs remain unchanged at £4.1 million, the signs that costs are beginning to reduce, is both promising and welcoming news for operators. To support this:
- Average subsea exploration and appraisal well P&A unit costs are expected to fall by up to 35%
- Subsea development well plug and abandonment unit costs are forecast to fall by up to 20% over the next decade
Predicting the future
Oil & Gas UK have done a positive job in collating and analysing the 186 decommissioning projects that are set to happen at some point in British and Norwegian waters. To make predictions of this nature in the industry beyond twelve months, let alone ten years is a great feet.
For those projects that are close to cessation and decommissioning activity is in the pipeline, this report acts as a stimulant for operators to decide on its future soon.
The industry, however, have a tough challenge to balance the requirement of decommissioning alongside the potential that the UKCS still holds. With up to 20 billion barrels of oil and gas still to recover from the region, the industry, together with Oil & Gas UK, will hope that the area continues to produce and only decommission if the need resides.