Forecasts for North Sea decommissioning spending over the next two years have been cut by half a billion pounds by Oil and Gas UK (OGUK).
The trade body, which produces an annual decommissioning insight report, has updated estimates for 2020 and 2021 since the start of the year to reflect the impact of Covid-19, which has seen work deferred.
Spending for 2020 is now down 27% to £1.08bn, while 2021 is down 8% to £1.19bn.
The combined reductions amount to a cut of £498million in decommissioning spending for the two years, with the stats being revealed during an industry webinar hosted by OGUK on Wednesday.
However, activity is expected to recover slightly in 2022, projected to increase by 12% from £1.17bn to £1.31bn, meaning the net total for 2020-2022 is down by £366million.
OGUK decommissioning manager Joe Leask revealed the stats amid increasing concern for the health of the supply chain, with companies failing as projects are deferred and work dries up.
The event was used to cover the OGA’s new decommissioning cost report for the UK North Sea.
Mr Leask said it was “important to note” that the £1.08bn projected for 2020 is still a “lot of activity” and that it is “not uncommon” for spending to be below forecasts, as was the case in 2019.
That is in some cases due to industry being more efficient, Leask said, (although costs for key areas like well decommissioning and Post-COP costs went up in 2019) and, more generally, cash strapped operators deferring decom to future years.
Earlier this year decom work on the the Shell Curlew FPSO in the UK had to be halted due to a “lack of facilities” in Dundee, with the job being instead picked up in Norway.
Concerningly, one of the “hardest hit” areas for the fall in decom spending to 2022 is wells, which represents around 45% of the total cost of shutting down oil and gas fields.
“If we don’t decommission enough wells then this will have a knock-on effect on potential future removals so it is important that we stimulate activity in that area”, Mr Leask said.
“It’s expensive for a reason, it’s expensive because it is a very high-skilled element of decommissioning work. There’s lots of resources and infrastructure, like drill rigs, we use to do this.
“If the industry doesn’t spend money in this area we could see some of that skills and infrastructure being lost, some of that infrastructure being decommissioned itself, or indeed moving away from our basin to explore where there is work being conducted.”
Decommissioning progress ‘slowdown’ – questions raised
The OGA report, measuring progress against its target to reduce the UK North Sea decommissioning bill by 35% to £39bn on 2017 prices, found 2019 was a “slowdown”.
Just a 2% reduction was made, compared to 7% in 2017 and 10% in 2018, which the report partly put down to a small group of operators “compromising” the progress of others with heavy costs.
The OGA’s head of decommissioning, Pauline Innes said the regulator will be making inquiries.
“There’s no doubt that this year’s 2% reduction raises some questions for all of us.
“It’s never ideal to look at one year in isolation and, when you look at the trend, not many people will deny that a 19% reduction in costy estimates over a three-year period is good.
“But at the same time, when we see 2% this year, we must ask ourselves why and what that means for future cost estimates.”
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