There are still too many questions and not enough answers when it comes to decommissioning costs and liabilities, an industry analyst has said.
Dougie Youngson, research director for oil and gas at finnCap, said current cost estimates were unreliable, given the industry’s “poor track record” of sticking to budgets.
Mr Youngson also said it was unclear how the bill would be divided up and that no one wants to be “left holding the parcel”.
In recent years, assets have increasingly been sold to mid-cap companies, who do not have enough money to decommission the infrastructure, and should not be expected to foot the bill alone, Mr Youngson said.
He said a framework needed to be put in place to clarify how decommissioning liabilities would be divided among operators and the Treasury, which is expected to be left with a large chunk of the costs.
“Decommissioning has to be paid for by someone and the payment mechanism is not clear at the moment,” Mr Youngson said.
“The bulk of the costs should sit with the company who installed the infrastructure in the first place.
“If it goes to the final user, a company which has only used the field for the last five years, then the economics do not stack up.”
Mr Youngson said decommissioning costs could be calculated based on the amount of revenue individual companies extracted from a producing asset.
He said: “That would be the fairest way of doing things. There needs to be a mechanism for apportioning the costs depending on when you came into the asset.
“But I can imagine a situation where a company gets rid of an asset and 20 years later they get a tap on the shoulder − they might not be pleased about that.”
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