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UK faces costs of £24 billion for North Sea decommissioning

16 January 2017

Britain faces a £24 billion ($29.2 billion) bill for decommissioning ageing oil and gas infrastructure in the North Sea, according to energy research group Wood Mackenzie quoted in The Financial Times. This is 50% more than the Treasury’s original forecast of £16 billion. This is because oil companies are set to spend £53 billion ($66 billion) from 2017, but will claim back almost half of this through tax relief.

Image: CC/Heerema
Image: CC/Heerema

Wood Mackenzie analyst Fiona Legate told the FT that the North Sea will be "a significant annual expenditure for government, rather than a provider of income" for the next few decades.
These figures should be set against the £330 billion ($407 billion) in tax revenue the North Sea oil and gas industry has generated over almost fifty years.

In a report in December entitled ‘Decommissioning: the UK’s US$66 billion headache‘, Wood Mackenzie analysts said that unlike parts of Asia-Pacific, the rules for decommissioning in the UK North Sea were well established and that the shared responsibility between operators and government meant there were strong incentives to bring costs down.

“Since the oil price crash, the sector has made remarkable strides in driving down operating costs. And discretionary development spend has been dialled right back through cost reduction and delaying new projects. But in many ways the outlook for decommissioning is unchanged with mature fields, ageing platforms and old wells still requiring abandonment. Irrespective of the oil price, we expect decommissioning activity to steadily build up as more fields cease production, and abandonment expenditure should overtake development spend in the coming decade, “ the report says.

“Already, several key players including Shell, Repsol-Sinopec, ExxonMobil and Perenco are de facto becoming decommissioning specialists as their looming decommissioning expenditure outlook exceeds their development opportunities.”

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