WoodMac: North Sea decom to cost $65bn

‘UK must reduce decommissioning costs or risk £24 billion ($29 billion) tax bill’: analysis

The UK government will bear a large part of the £53 billion ($64.53 billion) cost of decommissioning ageing North Sea projects as, under current regulations, oil and gas companies are set to gain multi-billion pounds in tax relief, according to energy research group Wood Mackenzie.

Research from WoodMac suggests that winding down projects off the UK will cost £11 billion over the next five years alone, weighing on operators, oilfield services companies, and prospective asset buyers and sellers.

However, as it stands, the government will have to meet almost half of the total decommissioning cost, meaning approximately £24 billion will go back to oil and gas players.

According to current UK regulations, which aim to encourage investments in the North Sea, decommissioning costs will be subsidised by the government using tax money.

“A considerable amount of well plugging and abandonment has been completed in the UK but there have been few large-scale decommissioning projects completed,” WoodMac said.

According to research, around £6 billion has been spent in the sector to date on decommissioning but cost estimates have increased substantially over the past decade.

As a results, companies will try to delay their decommissioning spend as long as possible, despite the maturity of the basin working against them, the report forecast.

“The large, fixed platforms in the Central and Northern North Sea will be costly and challenging to remove. Some decommissioning projects will be very lengthy,” WoodMac said.

“For example, the Ninian field has three platforms weighing a combined 706,000 tonnes and is expected to cost £3.5 billion to decommission. We currently assume it will take around 20 years to decommission the Ninian field facilities,” it said. 

Looking forward at the next 20 years and the large annual bill the UK is facing, Wood Mac said “it is in the interests of both industry and government to reduce decommissioning costs as much as possible”.

However, the consultancy warned that “based on the uncertainty around future decommissioning costs and the huge amount of tax relief for which the government is liable, there is an industry concern that the government may cap tax relief”.

 “As the UK continental shelf becomes established as a significant annual expenditure for government, rather than a provider of income, the government's share of the decommissioning bill will inevitably be the subject of much political debate,” WoodMac said.