UK oil and gas decommissioning spend nears $3 billion/year as transition pressures grow: report

The UK oil and gas industry is hitting new highs of spending on decommissioning, with spending set to average GBP2.4 billion ($3 billion)/year in the next few years, while the amount of work actually carried out is falling, industry group Offshore Energies UK said Nov. 19, underlining the difficulties associated with winding down the decades-old sector.

In a new report, OEUK said spending on decommissioning wells, pipelines and offshore facilities had risen to GBP1.7 billion in 2023, up from GBP1.6 billion in 2022, and would likely reach GBP2.



3 billion in 2024 as costs rise. By 2030, spending on decommissioning the late-life UK industry is likely to exceed capital investment, the report said. Despite increased spending in the area, the UK industry decommissioned 10% fewer wells in 2023, at 126 for the year, significantly below forecast and reflecting sizable cost increases, OEUK said.

The number of wells to be decommissioned is expected to exceed 200 wells/year over the next decade in order to meet agreed targets, “so a step change in well activity is needed now,” OEUK said. The UK’s growing oil and gas decommissioning burden has at times been a sore point in the fraught relations between the industry and the authorities. The tax regime is criticized by the sector as deterring investment needed to prolong and support production, while the upstream regulator has warned the sector is falling short on meeting decommissioning schedules.

The industry has sought to cut decommissioning costs mainly through efficiency improvements, and for exceptional circumstances has won consent to leave certain types of kit in place on the seabed once emptied and cleaned of hydrocarbons. The risks attached to any companies defaulting on decommissioning obligations have long been a topic of discussion. North Sea production is on a downward path, with oil output down 11% on the year in the first half of 2024 at some 650,000 b/d, and gas output expected to fall significantly, according to OEUK.

But despite government plans to transition away from oil and gas, spending on decommissioning requires that companies “have a clear outlook” on oil and gas production, OEUK Decommissioning Manager Richard Thomson said. “You need to have an energy mix in terms of oil and gas — make sure there is some production so that companies can maintain their [financial] baselines,” he said. The UK is increasingly competing with other regions such as the US Gulf of Mexico for decommissioning vessels and equipment such as rigs and heavy lift vessels, Thomson told journalists in a briefing.

Developing a home-grown decommissioning sector that can also help with wind farm decommissioning could also help cut costs, he noted. “Gulf of Mexico are doing a lot of work in the decommissioning space — they’re experiencing huge amounts, and they’ve got multiple assets there, working on significant projects,” he said. “We’re also seeing a lot in Australia, upping the decommissioning game, as well as Southeast Asia.

” While the UK’s upstream tax rate recently rose to 78%, some companies are paying an effective rate over 100% due to decommissioning spending, which is only partly eligible for tax deductions, according to one senior industry figure recently. Speaking at an industry event Sept. 17, the CEO of regulator the North Sea Transition Authority, Stuart Payne, forecast the industry would likely have to spend GBP20 billion on decommissioning over the coming decade and warned it was slipping behind schedule.

“When we grant licences, they include a commitment to decommission wells properly and in a timely manner,” Payne said “...

Many companies are fulfilling their duties,” with 120 wells/year decommissioned over the last five years. However, “there are more than 1,500 wells that will need to be decommissioned by 2030, including 500 that have already missed their original deadline,” he added. “Whether these obligations are met is a test of industry’s credibility.

” A number of UK crudes are constituents in the oil price benchmarks of S&P Global Commodity Insights. However, Commodity Insights has progressively added more crude streams to its North Sea crude benchmarks over the years to help underpin liquidity, most recently adding the first non-North Sea grade, WTI Midland, in 2023. Source:.