In July 2021, the OGA published a new cost estimate for offshore oil and gas decommissioning in the UK Continental Shelf (UKCS).
The total cost of decommissioning UKCS offshore oil and gas infrastructure has reduced to £46bn equating to a projected saving of nearly £14bn (23%), marking steady progress towards the £39bn by end-2022 target called for in the 2017 report. The substantial saving already achieved is good news for both industry and the Exchequer.
The £2bn (4%) reduction in the 2021 estimate is the result of continuous improvement and reductions in:
- Well decommissioning costs, driven by reductions in subsea P&A costs across both Central North Sea (CNS) and West of Shetland (WOS)
- Cost estimating uncertainty and associated cost risk
An average annual cost reduction of 6% has been delivered over the past four years. If this average is maintained the 35% target remains achievable by end-2022.
Expenditure in 2020 was impacted by Covid-19 and the low commodity price, contributing to a continuation of a plateau in the rate of cost reduction reported last year. While short-term forecasts show a recovery from this slowdown, commercial transformation remains key to meeting the cost reduction target.
The costs of completed decommissioning projects are approximately 20% lower than initially forecast, tracking the downward trajectory of the overall cost estimate.
There are positive signs that operators are embracing lessons learned from across the industry plus also embedding a culture of continuous improvement and setting ambitious best in class performance targets. This is helping drive the downward cost trajectory and, more will be needed to meet the target. At the same time however there remain some real inconsistencies in cost performance, reducing the overall improvement of the basin.
The majority of decommissioning cost is forecast to be incurred over the coming two decades and the window of opportunity to identify and embed the necessary changes to drive the next step change in cost efficient decommissioning is immediate.
The Oil and Gas Authority’s updated Decommissioning Strategy sets out the commercial transformation and strategic objectives required to deliver cost efficiency and achieve the UKCS cost reduction target of greater than 35%.
The 2021 Estimate notes that there are a number of opportunities to bring about further cost reductions, but it also highlights risks to continuing to bring down costs.
The report identifies:
2021 “Like-for-like” Decommissioning Cost Estimate (2017 inventory and prices). The cost reduction target is based on this number.
- Comparing the same inventory as 2017, estimated costs have reduced by 4% to £46 billion.
2021 Decommissioning Cost Estimate (2021 inventory, 2020 prices):
- Estimated (P50) decommissioning costs at total £48 billion.
The OGA is supporting the UK government's commitment to reach net zero emissions by 2050 and is actively engaging with operators on more extensive repurposing of offshore infrastructure to meet that aim.
Earlier cost estimates were also provided in the UKCS Decommissioning 2017 Cost Estimate Report, published in June 2017, the UKCS Decommissioning 2018 Cost Estimate Report, published in June 2018, the UKCS Decommissioning 2019 Cost Estimate Report, published in July 2019, the UKCS Decommissioning 2020 Cost Estimate Report, published in August 2020.