Tullow Oil has awarded Jee Ltd and Petrofac contracts relating to the Horne and Wren decommissioning programs (Image credit: East of England Energy Group)

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Projected cost of UK decom higher than previously thought

The total cost of shutting down all the UK’s offshore oil and gas fields could reach as high as £70 billion ($99 billion), with two recent reports suggesting the decommissioning market is worth far more than previously estimated.

Oil & Gas UK forecast in its recent 2016 Activity Survey that total decommissioning expenditure on sanctioned assets will reach £50 billion through to the year 2055. Separately, Xodus Group drew on figures from the Oil and Gas Authority (OGA), Department of Energy and Climate Change, and Genesis Oil and Gas Consultants to show that the total cost of decommissioning will reach £45-70 billion, with a median estimate of £58 billion.

In 2013, Oil & Gas UK estimated the total value of the decommissioning market at £35-40 billion, and in 2015 it raised this to £41-46 billion, Xodus noted.

A little more £1 billion was spent on decommissioning activity in 2015, and this figure is set to rise to £1.5 billion in 2016 and then £2 billion in 2017, according to the Oil & Gas UK report.

Xodus drew on a presentation from the OGA to illustrate how costs might diverge from the £58 billion estimate. Total spending on well plugging and abandonment (P&A) could fall by up to £11.5 billion from the median estimate on higher equipment utilization, better planning and fit-for-purpose concept selection; or it could rise by £9 billion in the worst-case scenario for operators. The cost of removing topsides and substructures could vary by as much as £1.5 billion less than the median or £3.2 billion more.

This level of uncertainty is unnatural given the relatively immature stage of the decommissioning industry, the Xodus report noted. Other industries have experienced similar uncertainty, it said, pointing out that UK nuclear industry provisions have grown by more than 50% in the last six years. “This is due to more analysis of the major technical challenges ahead and a better understanding of the likely costs based on decommissioning carried out thus far,” it said.

Number of decom contracts awarded in North Sea

Bibby Offshore, Jee Ltd and Petrofac were all awarded services contracts in a busy first quarter of the year in North Sea decommissioning.

Bibby said it secured a multi-million pound contract to deliver decommissioning operations in the northern North Sea’s East Shetland Basin. The agreement, due to commence in the second quarter of 2016 and to be completed by the end of 2016, will utilize one of Bibby’s construction-support vessels with adequate deck space and crane capabilities. The subsea-services provider will carry out remedial rock placement over the existing 16-inch oil-export pipeline, recovery of 12-inch pipeline bundles, subsea-structure removal with pile severance and debris removal within the platform’s 500m zone and along bundle routes. It will also provide waste-disposal services, recovering items that can be decontaminated, disposed or recycled, followed by an over-trawl of the cleared field.

Jee Ltd was awarded a contract by Tullow Oil to investigate the most appropriate options for decommissioning their Horne, Wren, Wissey, Orwell and Thurne fields in the Thames Area Complex in the southern North Sea. Tullow asked Jee to review the approach specified in their decommissioning programs for these assets, and to re-define the most appropriate decommissioning options for the subsea sections. The study, due to be completed over the next two months, will assess what infrastructure can be left in situ. In instances where removal is deemed necessary, Jee will look for process efficiency to reduce associated costs.

Petrofac is also supporting Tullow on its decommissioning program for the Horne and Wren platform. The firm has performed the role of duty holder for the asset for more than a decade, and has now been tasked with providing a well P&A campaign. Petrofac said it will manage the entire end-to-end process within a nine-month schedule.