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abcmoney.co.uk: Cost of decommissioning liability putting off North Sea investors – UKOOA

Mon, 05 Mar 2007 16:31 

LONDON (AFX) – The UK Offshore Operators Association said it believes decommissioning liabilities may be hindering oil and gas investment in the North Sea.

A spokeswoman for the UKOOA, which unites the companies operating in the North Sea such as BP PLC and Royal Dutch Shell PLC, said the current decommissioning laws are partly to blame for a dwindling number of North Sea deals as companies are put off investing in the region.
 
Corporate deals, where companies trade commercial North Sea assets, fell to 17 in 2006 from 29 the year before, while the value of the deals more than halved, the spokeswoman said.

Current rules require companies to take out cover against the possibility of defaulting on their obligations to decommission offshore installations, which includes removing rig structures, pipelines, and debris from the North Sea, and bringing them back to shore for re-use or disposal.

But the UKOOA said the cost of securing decommissioning obligations is outstripping the cost of the risk of default.

Extracting the last few drops of oil from a field often falls to smaller companies as the large corporations exit due to dwindling supply, but these costs are putting some of them off.

‘We know of a couple of deals that have been affected by outstanding decommissioning liability issues,’ the UKOOA spokeswoman said, declining to comment on the companies involved.

And the Petroleum Act also means companies may still be liable for decommissioning costs when they no longer own the assets, because the law places the liability on former operators if the new owners default on their decommissioning obligations.

The UKOOA is currently working with the government on a standard decommissioning contract for North Sea ventures that would reduce these costs and allow a company selling out of a venture to walk away without the future obligations.

Because as the association points out, there are still between 16 and 25 bln barrels of oil equivalent in the North Sea, and companies need to be encouraged to invest in the fields to extract the remaining oil.

‘The point is to encourage further investment in fields and to remove one of the barriers to further investment in the North Sea,’ the spokeswoman said.

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