Low oil price accelerating rate of decommissioning on UKCSNews // September 10, 2015
Wood Mackenzie says it expects the low oil price to enhance the rate at which facilities on the UK Continental Shelf (UKCS) are decommissioned.
The company said high oil prices had enabled operators to extend field life and delay decommissioning “time and time again” on the UKCS, but the current low oil price has brought into stark relief that this cannot continue indefinitely.
The report, prepared for Offshore Europe 2015, forecasts that while a small number of decommissioning projects have been completed to date, decommissioning activity and spend will ramp up over the next five years as mature fields are no longer economically viable in a low oil price environment. 140 fields could cease over the next five years.
Fiona Legate, UK upstream research analyst for Wood Mackenzie, said: “In 2015 operators have reacted to the low oil price environment by deferring spend and delaying sanction of new developments. We have analysed the impact of the low oil price on decommissioning activity looking at the timing of cessation, retained decommissioning liabilities from previous deals and batch decommissioning.”
Wood Mackenzie forecasts that around 140 UKCS fields will cease over the next five years even if oil prices return to US$85 a barrel ($/bbl). However, we may see around 50 fields ceasing even earlier than expected if the oil price returns to a level around US$70/bbl. This compares with 38 new fields that are expected to be brought on stream in the same timeframe.
“17 fields are expected to be sanctioned over the next five years. In the current price environment there is a risk projects may be cancelled or delayed. We could start to see a shift away from work in new developments to decommissioning projects,” Ms Legate concluded.
This would lead to a corresponding shift in spending: Wood Mackenzie believes around £54 billion (in nominal terms) will be spent on decommissioning on the UKCS and anticipates that the process will be completed in the early 2060s. Decommissioning spend is expected to increase by over 50 per cent by 2019 and will overtake development spend in the same year.