Oil firms trying to sell off ageing North Sea fields are said to be considering shouldering hundreds of millions of dollars in potential dismantling costs in a bid to find buyers.
According to reports, the decrease in spending brought on by the oil price decline, has triggered companies to increase efficiencies and sell or shut down assets which are no longer profitable.
However despite a number of assets going up for sale in recent months, few deals have been completed.
Christopher Young, director of strategy at KPMG, said: “There remains a very big gap between buyers and sellers and that hasn’t been narrowing the way some expected.
“A lot of companies under stress are now starting to consider if retaining some or all of the decommissioning liability might be an option for selling.
“Our conversations with a number of North Sea operators suggest that others are now considering selling assets while retaining decommissioning liabilities.”
New strategies are currently being considered by companies as they come to grips with the extended period of low oil prices and the need to sell assets.
BP and Total are said to both be considering asset sales.
Tony Durrant, Chief executive of Premier Oil, said: “On the big old field, which is what the majors are selling, decommissioning is a major issue. They have been trying to sell some of those fields for quite some time. It’s unattractive to take on those decommissioning liabilities.
“The others, including BP, are coming around to the view that the only way they can reduce their assets in the UK is by retaining those liabilities.”
Decommissioning involves plugging wells with cement on the seabed and removing obsolete platforms and pipelines.
But costs can reach hundreds of millions of dollars for the larger North Sea assets.
Total decommissioning costs in the UK continental shelf over the next 30 years are expected to reach around $78 billion, according to a strategic industry review by sir Ian Wood for the British government.
BP, which has been selling assets in the North Sea since 1996, said it is considering all options.
A spokesman said: “Our preference is to sell assets with the decommissioning liability, however the agreements reached with buyers are deal specific,” a spokesman said.
Total was not immediately available for comment.
The concept of shouldering the decommissioning costs was used at least once when BP sold to DNO DNO.OL in 2003 the Thistle field, today operated by Enquest ENQ.L.
The oil price drop has also offered opportunity for buyers, particularly private equity funds such as Caryle Group CG.O, and Riverstone RSER.L to invest in the North Sea.
Removing the decommissioning costs would make late-life assets more attractive and remove a lot of risk buyers might associate with them.
“The number of potential buyers for such assets will be far higher than is the case in a traditional sale,” a KPMG report said.
At the same time, seller will receive a higher price for the asset which would boost balance sheets in the short-term.
But the risks for sellers are significant as they will have to earmark large sums of money for the future decommissioning. Legal pitfalls may also arise, KPMG said.
Recommended for you
