Concerns about agreements around decommissioning costs on the UK Continental Shelf have been added to a rising tide of warnings about the future of the North Sea oil and gas industry.
The warnings, which focus on the future sustainability of the North Sea, amid rising cost pressures and the more recent softness in oil prices, come ahead of next week's Autumn statement.
In the Autumn Statement, scheduled for 3 December, Chancellor George Osborne is expected to set out broadly how the UK Government intends to address the UK North Sea tax regime. A fiscal review of how the industry is taxed was launched earlier this year, following Sir Ian Wood's Wood Review, which was commissioned by Government to set out the state of the industry and suggest ways the UK's resources could be better maximized. Production and exploration rates have fallen dramatically in recent years in the basin, meanwhile costs have soared.
A further concern is decommissioning cost liabilities. According to Richard Heard, managing director of Aberdeen-based decommissioning consultancy Strategic Decom, maximizing economic recovery from the UK Continental Shelf (UKCS) could be compromised if decommissioning is not considered in detail and in advance.
“Maximizing recovery from the UKCS will be reliant on key infrastructure remaining in place but the present environment of decreasing oil prices and increasing costs could bring decommissioning into consideration much sooner than anticipated for some important assets," he says.
“The decision on whether the life of an asset should be extended currently resides with the owner in consultation with the regulator. But the right economic decision for a specific asset may not be right for the basin in the long-term. There is a danger that we may miss the opportunity to fully maximize economic recovery if we don’t adequately plan for decommissioning.
“The Wood Review called for many things which the industry is striving to implement. As we make the transition to a new regulator, industry and government alike will be looking for progress across the range of actions arising from Sir Ian’s work. Not least is the question of how we identify and preserve the infrastructure that will allow the industry to deliver on the vital premise of "maximizing economic recovery.'"
Read more:
Subscribe
