At least 140 fields will cease production over the next 5 years, with a total of £55 billion (real terms) to be spent on decommissioning the UK Continental Shelf. With as many as 50 fields forecast to cease in 2016 alone, will new investment materialise or will the North Sea enter a new decommissioning phase?
Decommissioning in the North Sea has been an impending reality for some time. The low oil price environment compounded by the maturity of the basin means that continuing production at a lot of mature fields is no longer viable. A number of uncertainties remain:
- The timing of Cessation of Production (COP) and abandonment spend are uncertain
- The decision to operate at a loss versus deferring abandonment expenditure in the current environment
- The number of installations and wells in the sector to be removed requires a step change in mind-set
- Limited decommissioning activity has been completed to date and there are still lessons to be learned
- The impact of new technologies has the potential to reduce decommissioning costs
But what have we learned thus far?
UK Budget 2016 won't provide assurances. Budget 2016 did little to improve company cash flows with so few currently in a tax paying position, but it does improve asset valuations. This may encourage new investment or at the very least, the continuation of loss-making operations over the short-term, rather than early cessation of fields.
Investment is key. Investment in ageing facilities will prevent a domino effect of fields ceasing in this mature sector. If no further investment materialises, the future of the North Sea could hang in the balance.
No two fields are alike. Fields in the North Sea range vastly from small and simple fixed platforms in shallow water to massive topsides with huge modules located in deep water. Our latest analysis looks at the range of extremes and the supply chain market opportunities of decommissioning each platform.
The conversation is far from over, with expectations for others to follow in the same footsteps. What will happen with the Netherlands, Norway, Denmark, Southeast Asia and Gulf of Mexico? How can decommissioning in the North Sea be a lesson to all?
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Full analysis on the key issues of decommissioned fields in the Central North Sea, Northern North Sea and Southern Gas Basin.
Read our media release: UK Oil and Gas industry at forefront of decommissioning globally
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