With UK’s oil & gas decom costs on the rise, operators urged to get the job done by securing supply chain resources ‘now’ to avoid bottlenecks

After starting its probe into missed deadlines for well decommissioning, the UK regulator, the North Sea Transition Authority (NSTA), has warned operators on the UK Continental Shelf (UKCS) to pick up the pace of their well decommissioning operations and back the supply chain to prevent price hikes from spiraling further and avoid bottlenecks down the road.

Based on the ‘UKCS Decommissioning Cost and Performance Update 2024’, the UKCS operators completed much less work than originally planned last year despite spending around £2 billion ($2.5 billion) on decommissioning, with 70% of planned well-decommissioning activities achieved.

The report further warns about the increase in backlog of inactive UKCS wells since hundreds will need to be decommissioned annually as more oil and gas fields shut down. As a result, the NSTA is urging operators to move forward with their well plugging and abandonment (P&A) work and put an end to delays so that the competition for rigs from overseas can be tackled by securing spots before these units move away. 

The regulator also wants to see more support for Britain’s supply chain so that operators can come to grips with cost pressures and stop the estimated decommissioning bill from rising further.

Pauline Innes, the NSTA’s Supply Chain and Decommissioning Director, urged licensees to step up their plug and abandonment (P&A) game in November 2023, warning there would be consequences for those who refuse to do so. An in-house investigation into the alleged failures to complete P&A activities in line with approved plans and schedules has now been launched at the NSTA’s Directorate of Regulation.

“With spending forecast to peak at £2.5bn per year in the current decade, decommissioning can ensure that the UK’s world-leading supply chain is equipped to help operators clean up their oil and gas infrastructure over the next 50 years and support the carbon storage sector, which will rely on many of the same resources,” noted Innes.

“I am concerned that this huge opportunity to safeguard highly-skilled jobs and support the transition will be wasted if operators fail to tackle their well-decommissioning backlogs. The supply chain wants to do this work, but it is not physically tied to the UK. Its skills and resources are in demand in other regions, and we are starting to see companies marketing their rigs elsewhere. Operators need to use the supply chain, now, or risk losing it.”

The UK regulator has shared its intention to explore the use of sanctions, as well as map UKCS wells that will be ready for decommissioning between 2026 to 2030, hoping to support collaboration and maximize campaign opportunities. This will complement the previous map created in 2022.

The NSTA expects operators to leave the marine environment clean once they stop producing, in line with their legal obligations. While decommissioning is a complex and expensive process requiring preparation and planning, delays increase the cost and can include releasing emissions from platforms no longer producing oil and gas.

Although decommissioning cost estimates dropped by £15 billion, or around $19.4 billion, between 2017 and 2022, with a decrease registered for four consecutive years in 2021, thanks in part to contributions by industry stakeholders, no significant improvements have been achieved since.

The regulator sees a solution in engaging early with the supply chain, providing greater visibility of decommissioning schedules, and awarding contracts to deliver regulatory obligations on time. It also expects an increase in P&A, which is the most expensive aspect of decommissioning. 

Around £24 billion ($31.1 billion) is expected to be spent on decommissioning between 2023 and 2032, which is a £3 billion ($3.8 billion) increase compared to the forecast from last year’s report. As over half of the estimated £40 billion ($51.8 billion) is to be spent during these ten years, near-term activities could set the direction for the sector.

The erosion of energy producers’ investment confidence in the UK has become an issue recently, with Offshore Energies UK (OEUK) highlighting the knock-on damaging impact of the Energy Profits Levy and other economic factors. The windfall tax hike is said to have affected decommissioning progress since the cost of shutting down old installations is not treated as an allowable expense.