Intelligence brief: US tightens rules on reporting of decom costs; GoM, North Sea drilling at multi-year lows
Decommissioning news you need to know.
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US tightens rules on reporting of decom costs
Offshore oil and gas operators will be required to submit summaries of actual expenditures within four months of completing any decommissioning activity, under new rules announced by the US Bureau of Safety and Environmental Enforcement (BSEE).
The proposed rule originally called for companies to report expenditures within 30 days of completing each activity. Following a period of public consultation, the BSEE extended the period by 90 days but added a clause allowing it to require additional supporting information, on a case-by-case basis.
According to the BSEE, this information will help it better estimate future decommissioning costs related to offshore leases, rights-of-way, rights-of-use and easement. The Bureau of Ocean Energy Management, which recently announced the tightening of financial security regulations for offshore oil and gas operators, may use these estimates in setting financial assurance levels, the BSEE said.
GoM, North Sea drilling at multi-year lows
Fewer rigs are drilling for oil and gas in US waters than at any time in the past five years, while in the UK offshore activity is on track for its quietest year in at least three decades.
The oil price slump saw only 23 rigs used for exploration or development in the US portion of the Gulf of Mexico in the second week of December, down from 58 in the same period last year, according to oilfield services company Baker Hughes. Nineteen of the active rigs were focused on oil and four on gas. The previous time activity was so low was in December 2010, when the number of rigs drilling for oil crashed to single figures in the wake of the Deepwater Horizon accident.
Only 12 rigs were used for exploration or development in British waters in November, with three-quarters of those focused on oil. An average of 13.4 rigs have been active per month in the year to date. The quietest full year since records began in 1982 was in 2011, with a monthly average of 14.6 active rigs.
Baker Hughes’ rig count includes only those rigs that are significant consumers of oilfield services and supplies. It does not include small or unpermitted rigs of the type that are usually found on land.
The number of rigs in action across the United States, including offshore, fell to 709 last week, 62.5% down on the same period last year, and the lowest figure since September 17, 1999. About three-quarters of all the rigs active in the US were drilling for oil.
KPMG predicts ‘domino effect’ in decommissioning
KPMG has become the latest firm to predict an uptick in decommissioning in the face of sustained lows in the price of crude oil.
“Lower for longer is here to stay in 2016 and hence, the willingness, and ability, of companies to continue to operate marginal fields is reducing,” said Mark Andrews, UK Head of Oil & Gas at the Big Four accounting firm.
“In some instances, this will result in earlier than anticipated cessation of production and the acceleration of the associated decommissioning burden. The impact could be a domino effect, raising the very real possibility of significant resources being left in the ground, as the cost of maintaining ageing infrastructure mounts for certain mature, late-life assets that remain active.”
Despite a prolonged period of depressed oil prices, OPEC has had a poor record of meeting its quota of 30 million barrels per day over the last 12 months, with both Saudi Arabia and Iran breaking production records, noted George Johnson, an executive advisor in the firm’s oil and gas practice.
“Going forward, cooperation among OPEC members is critical. If the Iranian situation is handled poorly, and both camps (OPEC and Iran) operate independently, we could see further price erosion,” he added.