WoodMac: $42 billion will be needed for N. Sea decommissioning

Uchenna Izundu
International Editor

LONDON, Dec. 14 -- Companies operating in the North Sea are expected to spend $42 billion on decommissioning infrastructure, Edinburgh-based consultancy Wood Mackenzie Ltd. said Dec. 14 in a new report.

About 48% of decommissioning costs will be spent in Norway and 40% in the UK, the report, "Decommissioning in the North Sea," said.

According to North Sea petroleum companies, the UK government needs to clarify the regulation, tax, and decommissioning liability rules, which will help them close deals faster on transferring ownership rights over their acreage. The UK Offshore Operators' Association and the Independent Oil & Gas Association have been lobbying the government to make progress on this issue, which was highlighted in the WoodMac report.

The companies are worried about changes to the UK tax regime, which could affect the levels of tax relief they can claim against decommissioning costs. WoodMac said, "However, the UK industry would welcome change to current liability and financial security requirements."

Malcolm Ricketts, a WoodMac analyst of upstream research, said, "Under our current modeling, we anticipate the majority of future decommissioning expenditure to be between 2015 and 2031 with a plateau of spend of around $1.5 billion/year." However, operators are expected to have some success in extending the life of existing fields beyond current plans.

Forty fields have been abandoned to date (23 in the UK, 11 in Norway, and 6 in the Netherlands), according to the report, and a further 66 fields are being decommissioned or await abandonment of their facilities. WoodMac expects there to be a significant increase in fields being abandoned over the next decade.

Contact Uchenna Izundu at uchennai@pennwell.com.

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