- Industry challenged to reduce costs by further 10% in next five years
- Target underpins next phase of continuous improvement
- Approach supports UK energy security and net zero ambition
A new cost efficiency target for redundant oil and gas infrastructure set by the North Sea Transition Authority (NSTA) will not only benefit the Treasury but will also free up money to be invested in energy security and the transition to net zero.
The North Sea industry has made great strides cutting the overall cost estimate for decommissioning, by 25%, or £15 billion, since the start of 2017, but it can go further.
The NSTA is challenging the sector to build on its strong progress by lowering the total estimate for decommissioning redundant platforms, wells and pipelines by an additional 10%, from £37 billion to £33.3 billion, between 2023 and end-2028.
Keeping costs under control is good for industry and the UK public, as the money saved can be invested in new production as well as emissions reduction projects, such as carbon capture and storage and platform electrification.
This bolsters the UK’s energy security while helping the government deliver its net zero ambitions. The cost to the Exchequer of decommissioning tax reliefs is also reduced.
While the UK supply chain already has a world-leading reputation, continuing to complete North Sea decommissioning projects in a cost-efficient manner will only raise demand for its skills overseas.
The impressive progress seen to date is due to industry’s ability to learn from experience, share lessons and execute projects more efficiently, aided by the deployment of new technologies and techniques. Clear targets have helped sharpen focus on cost competitiveness.
With operators getting better at providing more accurate forecasts, the time is right to look again at the way forecasts are calculated and set a new target which will drive the next phase of learning and continuous improvement.
A large number of fields are expected to permanently stop producing over the next 10 years – decommissioning those assets is currently forecast to cost £22 billion, a great opportunity for the supply chain to get more work under its belt, create new jobs and work with operators on more efficient approaches.
The 10% target, agreed following consultation with industry, is based on NSTA decommissioning benchmarking and actual cost savings secured by the sector’s top quartile performers in recent years.
This objective is achievable, but also ambitious and challenging in light of inflation and because much of the potential savings have already been made.
Importantly, the new target will be applied to the actual cost of completed projects, as well as the overall estimate. In the past five years, reductions to estimates were reflected in the final cost of projects and the NSTA wants industry to continue this trend.
The NSTA will continue to use its influence, analysis and benchmarking to push those who consistently lag behind the top performers. Companies are encouraged to plan early, adopt innovative commercial models such as well decommissioning campaigns, repurpose infrastructure, and use new technology, in line with the NSTA Decommissioning Strategy.
Pauline Innes, NSTA Head of Decommissioning, said:
“We have rightly praised industry for the work it has already done to save billions of pounds on decommissioning, but now is the time to press home the advantage. This new target will help keep up momentum and strengthen our industry’s reputation for safe, efficient and economical offshore project execution.”
Bob Fennell, co-chair of the Decommissioning and Repurposing Taskforce, and North Sea executive vice president at Harbour Energy, said:
“Over the past six years, the North Sea decommissioning industry has made significant steps in better forecasting, improved planning and more effective execution. This has been achieved by using new technologies, sharing knowledge, data and best practice and campaign collaboration. It is now important for us to focus on the next 10 years, building on the great progress industry has already made.”
The Exchequer Secretary to the Treasury, James Cartlidge, said:
“The North Sea industry in the UK has made strong progress cutting decommissioning costs in the past five years.
“I welcome the North Sea Transition Authority’s challenge to build on this momentum and reduce these costs even more, supporting the UK’s net zero ambition and importantly saving money for the taxpayer.”
Notes to editors
The Decommissioning and Repurposing Taskforce’s objective is to support industry to reduce the cost of decommissioning and assist the Government with meeting its net-zero target, by providing strategic direction, oversight and delivery of key projects.
Decommissioning tax relief comes in three forms:
- lower levels of tax on current profits, which are reduced by current decommissioning costs;
- if any decommissioning costs remain, repayments of previously tax paid, when losses resulting from decommissioning expenditure are carried back against past profits; and
- if any decommissioning costs remain after the first two forms of relief, lower levels of tax on future profits, which are reduced by losses created by current decommissioning costs being carried forwards.
In all cases, if decommissioning costs are lower, both the companies and the Exchequer are better off. For further information see here.
For further information please contact:
Tel: 07776 548196