Decommission of Aging Offshore Installations

By David Pritchard

The UK offshore oil and gas fields in the North Sea are still a viable commodity, although
these mature installations are now quickly reaching the end of their shelf life, they still
have around 25 billion barrels of oil equivalent.

Now in the current climate, with oil prices at a record high (and at the petrol pump) the
North Sea oil fields should have investors climbing all over them, those rich enough to
make the investment will surely make a good return on their investment.

However there is a fly in the ointment which is causing new investors NOT to even be
tempted, why? Well it all comes down to the decommissioning of the aging offshore
installations, they are worried they will be stung with a hefty bill to decommission the 450
offshore installations, 10,000 kilometers of pipelines and 15 onshore terminals.

All of these are quickly reaching their decommissioning phase which should be met in 2030
at an estimated cost of 15-20 billion pounds. This flags up several challenges, operational
assets, liability for decommissioning, government liability, environmental issue, supplier and
contractors issues.

What seems to be the fundamental issue here is one of fiscal pain. The 25 billion barrels of
oil reserves need to be recovered if the long term future of the UK North Sea oil and gas
industry is to be maintained. Though this requires investment and investment isn't happening
due to the decommissioning liability. The government has tried to help with some tax relief
for the companies investing in these assets, but here's something else to consider the regulatory
body the Department of Business and regulatory Reform (BERR) can serve a notice to
decommission these assets usually issued to the licensees. But a number a number of parties may
be liable including the operator, the license holder, parties to joint operating agreement and
anyone who has any investment or association with companies of the above. (OK i'm not a lawyer
and may have this not quite right but it seems to me if you have had anything to do with these
installations past or present you may very well be in line for some of the decommissioning costs).

So in conclusion my advice would not to invest just yet, as there is still some time to go before
the government and industry heavyweights fight it out and come up with a more sensible and
workable solution.