The steep fall in the oil price could lead to a boom in the decommissioning of older North Sea platforms.
One expert, Richard Cockburn of law firm Shepherd and Wedderburn, believes the decommissioning market – which will be worth billions of pounds – is facing a watershed.
He said: “For some time now, there has been concern in the UK oil service sector that the expected bulge of contract work arising from the decommissioning of oil and gas installations in the North Sea was being repeatedly postponed as the high oil price – which peaked at just over $140 a barrel in 2008 – led operators to extend the life of their facilities.
“The trading environment is changing as the pace of the global economic slowdown quickens, and this is likely to signal the start of boom time in the decommissioning of rigs.
“The oil price collapse in recent weeks is changing the operators’ views on the sustainability of some of their older facilities.
“Whereas a year ago the high oil price justified the capital expenditure required to extend the operational life, the much lower oil price is calling those calculations into question. Calculators are hastily being pulled out of drawers and formulae re-run to check if the bottom-line figure is still black if an installation’s life is extended.”
Mr Cockburn, an Aberdeen-based partner with Shepherd and Wedderburn specialising in energy and decommissioning, added that another factor was the unwillingness of smaller operators to take over more mature assets which the major operators might otherwise have looked to sell on.
“The lower oil price, combined with the extreme difficulty for all but the most well-balanced of independent oil companies to obtain funding from their banks, means that the option of selling on assets is now less readily available. This may lead the operators to look at early decommissioning in respect of some facilities instead of selling them on.
“Of course, this might all change again if the economic slowdown is shallow rather than deep and prolonged and demand pushes the oil price sharply upwards again.”
Mr Cockburn said another factor being flagged by some in the industry is the fast-developing EU emissions trading scheme (ETS).
“In its current phase, the ETS requires those emitting carbon to have corresponding emissions allowances in place.
“Until recently, these were mostly allocated by the government but a growing proportion of these allowances are instead being auctioned. From the beginning of 2013, all such allowances will be auctioned and it is thought that this may increase the costs of these considerably.
Mr Cockburn said a number of North Sea decommissioning projects have already been started and, in some cases, completed. “Whether there is an imminent rush of other such projects will depend largely on the oil price staying at its current low levels,” he added.
Shepherd and Wedderburn is holding a free seminar on Tuesday, February 3, from 8.30am-11.30am at Aberdeen’s Marcliffe at Pitfodels Hotel which will update delegates on the key issues currently at play in the decommissioning sector. For more information, visit website www.shepwedd.co.uk/ seminars