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Off the Boil
Britain Braces for Painful North Sea Decommissioning

The halcyon days of drilling in the North Sea are over for Britain, as maturing offshore fields and cheap oil prices are crushing the profitability of the industry’s remaining rigs. The situation is so dire that even if, for some reason, the price of oil were to jump $35 per barrel overnight, projects in the North Sea would still need to halted sometime in the next five years. It’s an inevitable end, hastened by unfavorable market conditions, to an extraordinary energy success story, and as the FT reports it’s going to be an expensive finish, as well:

Companies calculate it will cost an average of £10m to plug and abandon a complex North Sea well. Removing the physical structures could be far more expensive. On Brent Delta it will cost several billion pounds, according to Shell, and take hundreds of workers years to complete.

Oil and Gas UK, the industry body, suggests it will cost nearly £17bn over the next 10 years to remove around 80 platforms and their associated infrastructure. The estimated cost to complete the entire job through to the 2050s ranges between £30bn and £60bn, a figure that has risen on several occasions as the scale of the task has become clear. […]

[C]ompanies face a difficult decision: should they continue to produce oil and gas at a loss, hoping to make the money back if and when the price rebounds or do they pack up altogether, incurring millions of pounds of decommissioning costs in the process? It is prohibitively expensive to come back and start drilling once a well has been left, so any decision to leave is final.

Production has fallen by more than 60 percent this century, but the companies involved aren’t just going to be hurting from lost production, they’re also going to struggle to deal with high decommissioning costs which, one energy manager recently admitted, the industry was “terrible at forecasting and… will continue to be.” Halliburton’s UK vice president pointed out that while the oil industry has dealt with the problem of decommissioning before, it has “never seen anything on the scale of what is about to happen in the North Sea.”

But it’s not all bad—one North Sea roughneck found one reason to be optimistic, remarking that decommissioning “offers continued employment, so those that stay in work are pretty happy.”

For the UK though, one of its most important domestic natural resources is rapidly disappearing, and that’s introducing significant problems for the country’s energy security. But as one reserve of hydrocarbons drying up, another beckons—Britain’s shale gas could perhaps be a timely new target for development.

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  • Pete

    The cost of decommissioning the oil rigs is what they call a negative salvage value.

    Ideally, funds would have been set aside all along for this eventuality. But instead the fools spent every dime they got their hands on.

    Tell me, Mr. Mead, where did prudence go? It use to be considered one of the cardinal virtue. .

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