June 26, 2018 / 11:11 PM / 10 months ago

Decommissioning costs sink for North Sea oil, gas firms: regulator

LONDON (Reuters) - The cost of decommissioning oil and gas production facilities in the British North Sea has sunk 7 percent over the past year, the Oil and Gas Authority (OGA) regulator said, potentially helping revive investor interest in the aging basin.

Cheaper decommissioning can make acquisitions and the development of fields more attractive.

The oil price slump starting in 2014 hit investment in the North Sea, traditionally a high-cost environment, hard. That forced oil and gas companies to cut costs, while the British government has also reduced taxes on decommissioning activities to tempt investors back.

“People are realizing that (while) the UK is still relatively high cost... the fiscal regime, coupled with the resources, coupled with higher efficiency, are now making it very attractive to invest,” the OGA’s Director of Operations Gunther Newcombe said.

“On the decommissioning side, there’s been a fear of this huge cloud hanging over people. They can see that it’s more manageable.”

The OGA sees the cost of decommissioning all of Britain’s current and currently planned off-shore facilities, pipelines, development wells, exploration wells and appraisal wells and onshore terminals at 55.7 billion pounds ($73.71 billion) on a like-for-like basis, compared with 59.7 billion last year.

Including projects identified since that estimate, it sees the cost at 58 billion.

Over 40 percent of overall decommissioning costs are related to well abandonment, Newcombe said. Since the downturn operators and oil service companies have got much better at sharing experiences and lessons learned, he said.

“12 percent of the current inventory is being decommissioned in the UKCS, we’re gathering information that we can then benchmark,” Newcombe said, referring to the UK continental shelf, the body of water surrounding Britain.

One way to cut costs, he said, was for operators to group together to hire vessels to decommission a number of wells at once, rather than hiring equipment to close wells individually.

More flexible contracts between producers and service companies have also boosted efficiency, with timeframes being less rigid and more specialized companies getting freer range from operators to design projects.

New technology can help cut costs further, for example using high temperatures to plug wells through melting rock and well pipe, rather than pumping cement down a well.

The downturn has also forced companies to plan the whole life cycle of an oil field better, Newcome said. The OGA encourages people to start planning how an installation will be decommissioned six years before the oil stops flowing.

Royal Dutch Shell on Monday announced its third project approval in the North Sea this year, including a 50-50 joint venture in the west of Shetlands area which is operated by BP.

Reporting By Shadia Nasralla; Editing by Jan Harvey

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