UK decommissioning expenditure to overtake development spend
Unlike parts of Asia-Pacific, the rules for decommissioning in the UK North Sea are well established. And through tax rebates the government is liable for nearly half of the US$66 billion decommissioning cost, meaning there is a big shared interest between operators and government in bringing the cost down.
Since the oil price crash, the sector has made remarkable strides in driving down operating costs. And discretionary development spend has been dialled right back through cost reduction and delaying new projects. But in many ways the outlook for decommissioning is unchanged with mature fields, ageing platforms and old wells still requiring abandonment. Irrespective of the oil price, we expect decommissioning activity to steadily build up as more fields cease production, and abandonment expenditure should overtake development spend in the coming decade.
Already, several key players including Shell, Repsol-Sinopec, ExxonMobil and Perenco are de facto becoming decommissioning specialists as their looming decommissioning expenditure outlook exceeds their development opportunities.