£1.6 billion spent on North Sea decommissioning in 2022, activity expected to remain high

The North Sea oil & gas industry spent £1.6 billion on decommissioning redundant wells and infrastructure last year, more than in any of the previous five years, the latest report by the North Sea Transition Authority (NSTA) states.

The industry spent a total of around £8 billion from 2017-2022 and activity levels are expected to remain high, with about £2 billion a year forecast to be spent on decommissioning in the next decade, representing a “massive opportunity” to keep developing skills and experience in the basin and help the supply chain win lucrative contracts overseas, the Decommissioning Cost and Performance Report writes.

According to the report, UK suppliers are in line to secure around 70% of the work associated with UK North Sea decommissioning projects listed in Supply Chain Action Plans (SCAPs) lodged with the NSTA last year.

This is said to indicate the sector is living up to its North Sea Transition Deal pledge to ensure at least half of spending on decommissioning projects goes to the UK supply chain, as well as meeting its legal obligation to clean and remove infrastructure once fields stop producing.

“Decom Mission, as the independent voice of decommissioning in the energy sector, welcomes the 2023 Cost Report. As might be expected, macro factors continue to influence both the cost, pace and delivery of decommissioning in the UKCS and beyond,” said Sam Long, Decom Mission Chief Executive.

“Decommissioning is but one of many market opportunities that members face, with the continuing advancement of the energy transition and the international need for decommissioning services. Transparency of coming works and interaction between the owner/operator community and the supply chain is key to ensuring that the services, preferably offered from within the UK, exist to meet this current and future demand.”

Achieving further improvements will be challenging, NSTA believes, however, in the face of factors including heightened demand for equipment, vessels and services from other regions and sectors, such as offshore wind – which have pushed up prices, taking the total cost estimate for decommissioning to £40 billion.

The UK regulator believes that the industry can overcome these hurdles and meet its cost-efficiency target – lowering the estimate to £33.3 billion by end-2028 and emphasizes that operators must strive to deliver their agreed schedules and commitments, work even more collaboratively with the supply chain and share their plans earlier, ensuring resources are available at the right time.

“The North Sea decommissioning sector is highly active and productive, and the industry is ideally placed to realise the massive £21 billion opportunity which will come its way over the next 10 years,” said Pauline Innes, NSTA Director of Supply Chain and Decommissioning.

“However, operators must redouble their commitment to collaborate with the supply chain and plan even more effectively if they are to overcome challenging market conditions and remain competitive on cost. The NSTA will continue to use its powers and influence to support the industry as it strives for continuous improvement, including through the development of new benchmarks.”

The NSTA said it is providing ongoing support by introducing new key performance indicators and benchmarks, developed with industry and underpinned by the collection of new datasets, including the length of time taken to complete specific tasks, number of crew members employed, and types of vessels used.

The new metrics are expected to provide a more complete picture of how well decommissioning projects are being planned and executed, helping identify opportunities for the industry to improve its overall performance and realize cost efficiencies.