Oil and Gas regulator orders industry to slash N. Sea decommissioning costs by 35% to reduce burden on taxpayers

The Oil and Gas Authority today publishes a new report which provides a new cost estimate for decommissioning N. Sea oil and gas platforms.

With a shared objective of both industry and government to reduce decommissioning costs, the OGA has set industry a target to reduce costs by at least 35%.

This report new has been produced to provide greater certainty of the cost of decommissioning all current and future offshore facilities, pipelines, development wells, suspended open water exploration wells and appraisal wells and onshore terminals.

The OGA’s approach has been to develop a probabilistic cost estimate, which takes into account the broad range of uncertainties and uses data submitted by oil and gas operators as part of its 2016 Stewardship Survey.

Using this approach, the OGA has produced a decommissioning cost estimate (P50) value of £59.7 billion in 2016 prices. Taking into account the shared goal of a minimum of 35% cost reduction, this results in a target of less than £39 billion.

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 the British offshore oil and gas operators’ trade association.

Gunther Newcombe
Gunther Newcombe

Gunther Newcombe, OGA Operations Director, explained: “In our Decommissioning Strategy we said we needed to better understand the true cost of decommissioning and then work to reduce these costs by at least 35%.

“This report provides us with a starting point cost estimate of £59.7 billion to decommission UK oil and gas infrastructure.

“The challenge now is to save industry and the tax payer money and achieve safe decommissioning for £39 billion or less.

“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.

Terri King, UK President of Conoco Phillips and Chairman of the MER Decommissioning Task Force, added: “Having rigorous cost estimates provides the industry with a clear target against which to reduce decommissioning costs and deliver improved value. 

“At ConocoPhillips, as we work through our programme to plug and abandon more than 130 N. Sea wells, we’ve cut in half the time it takes to plug each well.”

The >35% decommissioning cost reduction target was set in the OGA Corporate Plan 2016-2021 and updated in the OGA’s Activity Plan 2017 and 2018.

Pixie Energy

Pixie logo Pixie Energy is an incubator and a facilitator of strategic research and project work, focusing on energy regulation, policy and markets at the local and national level. Find out more about Pixie Energy here.

Local Energy Matters: Scotland

Local Energy Matters: Scotland is a free-to-download brochure with a focus on energy tariffs in the two Scottish electricity distribution regions, as well news on local energy and low-carbon schemes.

Previous editions can be download here.

Scottish energy market overview

You can read an overview of the Scottish energy market here.

Scottish Government energy feed