Delayed UK decommissioning projects stand to cost the UK an extra £4.25 billion ($5.5bn), according to data from Westwood.
Drilling contractors will see prices inflate in the country as well plug and abandonment (P&A) will account for around half of the £20bn-plus decommissioning bill set to come in the next decade, the analyst firm’s new Atlas Decommissioning module found.
Westwood research director Yvonne Telford said: “As the UK North Sea enters a new phase where decommissioning becomes the dominant industry driver, the supply chain faces significant demand and major financial risk.”
Westwood found that contract awards, especially for rigs, have lagged behind as timing uncertainty is driving financial and operational risks for operators and decommissioning liabilities stack up.
© Supplied by AJLAs projects slip, the North Sea Transition Authority (NSTA) plans to dish out fines and name and shame operators that fail to meet decommissioning deadlines.
Telford added: “Based on current investment plans, up to 40% of UK fields could cease production before 2030. With the impact of decommissioning tax liabilities on abandonment expenditure, cost-effective P&A must be paramount.”
As delays mount up, strain is created on the UK’s supply chain, which has limited capacity to take on the mountain of work that is on the horizon.
As a result, P&A costs are set to climb to $5.5bn over the next ten years due to higher offshore rig dayrates, Westwood argued.
With continued uncertainty around decommissioning timelines, supply chain firms are looking to overseas markets to secure work, leading to fears assets such as rigs will be in short supply for future offshore wind and carbon capture projects in the North Sea.
This will increase the costs passed on to the UK’s purse strings as the government gives tax relief on decommissioning costs for North Sea operators.
The more things change, the more they stay the same
This was an issue raised by Mark Patterson, co-founder of decommissioning-focused rig operator Well-Safe Solutions, at an Aberdeen event last month.
Patterson argued that the decommissioning sector is still facing many of the same challenges it faced over a decade ago.
Despite an estimated £40bn overall spend on North Sea decommissioning, Patterson expressed scepticism over the short-term opportunities for the UK supply chain.
© Image: Well-Safe Solutions“10 years ago, I sat and listened to the same stories about decommissioning and all the challenges, and nothing’s really changed,” he said.
Westwood gathered this data using Atlas Decommissioning, a module that models project schedules based on economic factors, such as commodity prices and operating costs.
Dominic Ferry, chief executive of Westwood, added: “By delivering granular insights into decommissioning activity, the module helps operators, service providers, and investors make informed decisions, mitigate financial exposure, and seize emerging opportunities in this evolving landscape.”
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