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Lloyds List: North Sea removal costs may top GBP20bn

Martyn Wingrove
Published: Jul 04, 2007

RISING vessel charter rates, higher oilfield service costs and development of new projects could push total facility removal expenditure in the UK North Sea past the GBP20bn ($40bn) mark.

The British oil industry forecasts facility decommissioning costs for all platforms, pipelines, wells, subsea facilities and floating production systems ever installed on the continental shelf are climbing, which is why it is negotiating with the government over liability and tax issues.

Investment in existing oil and gas infrastructure has delayed the eventual abandonment, decommissioning and removal of North Sea facilities by at least two years, and in most cases more than five years, but the industry will need to spend far more in the future and is not content with current liability laws.

Analysts forecast the UK North Sea industry will eventually spend GBP20bn on decommissioning infrastructure, meaning oil company liabilities and the insurance sector costs are climbing.

With more than 470 oilfield installations to be removed in the UK, plus several hundred in Norway, Netherlands and Denmark, there will be plenty of opportunities for ship and rig owners and fabrication yards in the future.

Drilling rigs at dayrates of more than $250,000 will be needed to abandon the wells, heavylift barges will be required to remove platform topsides and jackets, while subsea construction vessels will be needed to remove or bury pipelines and subsea structures.

Industry organisation Oil & Gas UK’s current decommissioning expenditure forecast is GBP15bn and economics director Mike Tholen predicts total decommissioning liabilities could continue to rise to GBP20bn due to new structures being installed and rising service costs.

As the industry prolongs field life, delaying platform abandonments, annual decommissioning expenditure is still fairly small. This year it is expected to be around GBP200m to GBP300m.

British oil major BP is planning decommissioning of the large NW Hutton and Miller platforms in the UK, while Shell has started planning for removing four Brent platforms and is steadily abandoning the Inde gas wells in the southern sector.

Oil & Gas UK is assisting the Treasury and the Department of Business and Enterprise in an industry consultation over tax and decommissioning issues that will report back in September.

The industry wants all decommissioning obligations to be removed from the seller of offshore installations to prevent liabilities falling on to the companies that originally installed them.

It hopes this will sustain the high levels of asset trading to allow smaller independent companies to invest and recover more of the nation’s hydrocarbon resources.

‘Assets are going into the hands of new players, so we must get the decommissioning liabilities right. If investments are right then in 2020 the North Sea could still be attractive and produce 50% to 60% of the country’s oil,’‛ said Mr Tholen.

Oil & Gas UK is hoping the tax consultation will eventually lead to removal of the old Petroleum Revenue Tax on mature fields to double the attractiveness of investing in these fields. It also wants the Treasury to reduce uncertainties over tax relief from decommissioning investments and overall tax on gas fields. and its sister non-profit websites,,,,,, and are owned by John Donovan. There is also a Wikipedia feature.

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