Marc Hammerson Quoted in Natural Gas Europe on Preparations for Decommissioning Upstream and Brexit Fallout

Natural Gas Europe has quoted Akin Gump London oil and gas partner Marc Hammerson in the article “UK Prepares for Decommissioning Upstream,” a process that the article says will likely take several decades and at a significant cost.

To the extent the decommissioning is done in clusters, Hammerson said, “it will be a lot less expensive as there are economies of scale; but the costs will need monitoring as they will fluctuate from year to year.” He noted, “Abandonment used to be talked of as something that needed to be done swiftly after CoP (cessation of production) but in practical terms it may be possible for a platform to be decommissioned after a couple of years of non-use (rather than immediately) providing that the operator maintains all the certificates relating to environmental and health and safety and otherwise maintains the integrity of the infrastructure so that workers can re-enter the platform for the purposes of decommissioning.”

Hammerson said the U.K. “wants a good, functioning decommissioning industry in line with our international obligations.” With prices well off their highs from two years ago, the process is expected to spike in the early 2020s, he said, observing that the current oil price “is leading to an accelerated push for decommissioning,” and the government and industry need to be ready for that.

Hammerson said the government has done a very good job of preparing for decommissioning, from a legislative perspective. “The 1988 Petroleum Act consolidated earlier laws regarding decommissioning. The UK could be the first really big example of a basin to see it on this scale, a test case, and the expertise could turn into an exportable business,” he said. “The government wants to facilitate a new industry. Like anything else to with oil and gas, it is an international industry that will look for opportunities around the world.” London, he added, will be the ultimate guarantor of the costs with taxpayers covering about a third of the cost.

Finally, there is the matter of Brexit and how much of a direct impact it might have on the upstream oil and gas business. Hammerson does not think it will be much of a factor, but it could affect the midstream and downstream sectors, depending on how the U.K.’s departure from the EU plays out. Anything that jeopardizes the movement of energy across Europe, such as higher trading or network access or other costs, would be bad for the government, he said. “If we go for ‘hard Brexit’ then there will be a medium and long-term effect on UK midstream and downstream space,” he added.

In a second article in the same publication, “Weekly Overview: All Change in the UK Government,” which reports on new Prime Minister Theresa May’s choices for her cabinet posts, Hammerson discusses the different Brexit scenarios likely to be encountered.

Hammerson said he could imagine two options for Brexit: soft and hard. A 'soft' Brexis, he said, would see less disruption, though he does not think it would quiet the core Brexit voter who is worried about the loss of employment. The 'hard' version, he said, would be more compatible with the spirit of the referendum, but could prompt another referendum in Scotland on whether to leave the UK. Most of the country, which has laid claim to a chunk of the UK’s remaining oil and gas reserves, wanted to stay in the EU.

There is also the possibility, Hammerson said, that without the presence of the UK as a partner, market liberalization will be left to less enterprising countries and could slow down. Additionally, leaving the EU market will hasten the shrinking of Europe’s first gas hub, the UK’s national balancing point, as traders prefer to stick to euros for as long as possible.