OGA details North Sea decommissioning cost goals

June 29, 2017
Britain’s Oil & Gas Authority has issued a new report on offshore oil and gas decommissioning on the UK continental shelf.

Offshore staff

LONDONBritain’s Oil & Gas Authority (OGA) has issued a new report on offshore oil and gas decommissioning on the UK continental shelf (UKCS).

This is said to provide greater certainty of the cost ofdecommissioning all of the UK’s current and future offshore facilities, pipelines, development wells, suspended open water exploration wells and appraisal wells, and onshore terminals.

OGA has developed a probabilistic cost estimate, taking into account a broad range of uncertainties and using data submitted by oil and gas operators as part of the authority’s2016 UKCS Stewardship Survey.

It estimates an overall decommissioning price tag (P50) value of £59.7 billion ($77.5 billion) in 2016 prices, but if a minimum 35% cost reduction can be applied, the total could come down to less than £39 billion ($50.6 billion).

In the future OGA plans to:

• Publish an annual progress update report

• Apply benchmarking, using actual decommissioning costs to assess operators’ estimates

• Work with operators and the wider industry to share lessons learned, develop innovative approaches to contracting strategy, and enhance the capability of the supply chain

• Promote innovative collaboration such as the multi-operator well plugging and abandonment (P&A) campaign.

Gunther Newcombe, the OGA’s Operations Director, said: “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 behavioral change will be a critical component.

“The OGA will continue to work closely with operators and the supply chain to ensure key information and lessons are shared and new approaches to contracting are developed. There is a clear and sizeable opportunity for the supply chain to develop an efficient, low cost, and exportable industry capability.”

Terri King, president, ConocoPhillips UK and Chair of the MER UK Decommissioning Task Force, added: “At ConocoPhillips, as we work through our program to plug and abandon over 130 wells in the southern North Sea, we’ve reduced the time it takes to P&A a well by around 50%.

“Our focus now includes transformational technology that will help us materially change the way we work.”

Colette Cohen, CEO of theOil & Gas Technology Centre commented: “Technology will be a key contributor to improving decommissioning costs in areas such as well plugging and abandonment, which represents around 50% of decommissioning costs, and the ideas generated by our recent wells technology competition will help realize this goal.”

The cost estimate has been reviewed by the MER UK Decommissioning Task Force’s cost team, which includes representatives from industry, HM Treasury, the Offshore Petroleum Regulator for Environment & Decommissioning, and Oil & Gas UK.

Fiona Legate, Wood Mackenzie’s Senior Research Analyst, UK Upstream, commented: “The current Wood Mackenzie estimate for UKCS decommissioning costs is £54.9 billion [$71.14 billion in 2016 terms], which is within 10% of the OGA estimate. This is our view of decommissioning costs based on our knowledge and understanding of the sector today, but this picture is constantly evolving.

“We estimate £5.8 billion [$7.51 billion in 2016 terms] of decommissioning has been carried out in the UKCS to date. There is the potential to reduce decommissioning costs, although a 35% reduction on the total bill will be challenging to achieve.

“Advances in technology will help to reduce costs, but will only offer a partial reduction. We assume all gravity-based structures will receive derogation* but there is the potential for other platforms to receive it as well.”

The potential derogation* of other platform jackets as per the OSPAR convention could significantly reduce the total decommissioning bill in the UKCS, she added: “Batch decommissioning programs will also be a key focus area to help reduce well plugging and abandonment costs, with this category making up 40-50% of an average decommissioning program cost.”

* Derogation allows companies to apply for temporary permission to leave platform jackets in place based on certain criteria – (a) steel installations weighing more than 10,000 metric tons (b) gravity-based concrete installations (c) floating concrete installations and (d) any concrete anchor-base which results, or is likely to result, in the interference with other legitimate uses of the sea.