Energy > AG Speaking Energy > New Regulator, New Rules: The OGA’s Decommissioning Costs Estimates for the UKCS
29 Jun '17

A recent report on decommissioning provides up-to-date predictions for the future costs of dismantling infrastructure in the United Kingdom Continental Shelf. It is the first financial estimate by the Oil & Gas Authority (OGA) since the regulator was established in 2016. The methodology used is different from that of previous surveys.

The report is noteworthy in its application of the new statutory requirement of Maximising Economic Recovery (MER). As applied to decommissioning, this requires that persons undertaking an activity must do so in a cost-effective way. This includes employing new and emerging technology. The report emphasizes the potential to reduce costs by the application of MER.

The P50 midrange estimate is £59.7bn. This is approximately £8bn higher than previous figures produced by government and industry. The report provides a range of between £44.5bn and £82.7bn. It also provides a lower target if MER is implemented and savings can be achieved.

The OGA has targeted decommissioning cost reductions of 35 percent. If attained, this would produce a midrange estimate of £39bn. Indeed, the report contemplates the possibility that this £39bn figure can be reduced even further with “paradigm shifts in behaviours, methodologies and practices.” This includes industrywide collecting and sharing of data and “lessons learned” and encouragement of “collaborative solution” (for example, multi operator plugging and abandonment campaigns).

The report recognizes the shared desire of both industry and, because of the impact of tax relief on decommissioning payments, government to reduce the costs of decommissioning. It will be seen whether the application of MER to industrywide decommissioning costs can produce the desired savings.

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