OGA has published a new report providing its own estimate of the cost of decommissioning oil and gas assets on the UKCS. The “UKCS Decommissioning 2017 Cost Estimate Report” (available here) was produced using data from the 2016 UKCS Stewardship Survey, and attempts to provide a probabilistic cost estimate, taking into account the wide range of uncertainties affecting estimates of this nature, depending on their maturity and the experience of operators.
Decommissioning on the UKCS
There are a large number of UKCS assets approaching the end of their economic and operational lifespan. The report seeks to provide a baseline cost estimate for the decommissioning of all existing and planned offshore facilities, wells, pipelines and terminals, against which the OGA target for cost reduction can be assessed.
OGA calculates the P50 cost of decommissioning at £59.7 billion in 2016 prices, although the full range of probabilistic estimates runs from £44.5 billion to £82.7 billion. Its stated goal is to reduce decommissioning costs based on this P50 estimate by 35% to £39 billion – this will not only reduce overall costs for Operators, and so help to maximise value extraction, but also enable Government to minimise the cost of tax relief. The report explains how the estimate has been arrived at, its scope, the risks and opportunities which may affect the outturn and the assumptions on which it is based. It also describes how performance against the baseline will be assessed and reported.
This baseline estimate is just one component in the overall OGA decommissioning cost minimisation strategy. Additional priorities include:
- The use of innovative collaborative initiatives such as the Multi-Operator Well Plugging and Abandonment Campaign;
- The creation and publication of annual metrics from the UKCS Stewardship Survey to allow focus on high-cost elements and to identify outliers in order to focus discussions with Operators;
- The use of benchmarking solutions utilising data from actuals to proactively assess estimates during engagement with Operators during cessation of production and decommissioning plan discussions;
- Improving the decommissioning component of the UKCS Stewardship survey to maximise the consistency and value of the data collected; and
- Working with Operators and the wider the industry to ensure extensive sharing of "lessons learned", whereby the pooling and sharing of knowledge, suppliers and methods is facilitated, in turn creating a stronger, more capable supply chain.
Comment
The cost estimate has undergone external scrutiny and independent assurance and provides the most rigorous estimate available to the industry of the potential costs of decommissioning. OGA’s £39 billion target brings clarity and focus to the challenge facing the sector. OGA has called on the industry to be “constructively disruptive” and to adopt innovative solutions in terms of technology, business models and pricing structures to achieve this target. Operators who fail to step up to the challenge can expect to be called out during the stewardship process.
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