Positive trend in UK decommissioning costs continues

July 8, 2021
UK offshore decommissioning costs keep falling, according to the Oil and Gas Authority’s 2021 Decommissioning Cost Estimate report.

Offshore staff

LONDONUK offshore decommissioning costs keep falling, according to the Oil and Gas Authority’s (OGA) 2021 Decommissioning Cost Estimate report.

This shows a decline of more than £13 billion ($17.91 billion) in projected spending across the sector to £46 billion ($63.4 billion), showing the industry is on track to meet the OGA’s target of £39 billion ($54 billion) by end-2022, called for in its 2017 report.

This year’s £2-billion ($2.76-billion) reduction means that costs are coming down by on average almost 6%/year, with a general 20% cut in the costs of completed decommissioning projects.

Decommissioning expenditure in 2020 was £420 million ($579 million) lower than estimated in 2019, although this was largely due to deferral of activity because of the pandemic and the low commodity price. 

But the decommissioning industry is demonstrating continuous improvement, allied to knowledge-sharing and learning from experience, the Authority noted. The improvements need to continue over the next 20 years, however, as this is when most decommissioning will take place.

In its recently-published Decommissioning Strategy the OGA called on the industry to adapt its commercial practices in order to prevent higher costs, with a focus on planning for decommissioning; encouraging the supply chain to be more proactive in soliciting work; supporting the energy transition from late life through decommissioning; and technology, processes, and guidance.

Since 2017 the UK industry has managed cost cuts of 25-35% in well decommissioning, removals, and subsea infrastructure. Well decommissioning alone accounts for 45% of the total cost estimate and removals a further 25%, and combined these categories represent more than £10 billion ($13.78 billion) of the overall savings accomplished to date.

But there are recent signs that reductions have started to slow, hence the need for further collaboration and aligned, incentivized contracting.

Stuart Payne, OGA director of Supply Chain, Decommissioning and HR, said: “The industry is responding to the challenge to cut costs well, but it must maintain focus and increase the pace to hit the 35% target…We will continue to help; benchmarking costs and promoting best practice; robustly holding operators to their regulatory commitments; and providing tools like the improved Energy Pathfinder site which has multiple opportunities for collaboration and innovation.

“We will also work to bring companies together – because collaboration and knowledge-sharing is key, companies must continue to step up and collaborate in this area.”