Energy companies have cut their exploration and production budgets since the Covid-19 pandemic set in and pushed oil prices down, but with few profitable investment alternatives, operators are now likely to increase decommissioning expenses. Rystad Energy estimates that the total value of the global pool of decommissioning projects that will accumulate until 2024 could reach $ 42 billion. With an average asset age of 25 years, the downgrading market in North-West Europe could grow by 20% in annual commitments until 2022 if the current low oil prices do not soon show signs of substantial recovery. In addition to a base of rapidly maturing assets and low oil prices that are eroding commercial viability and potential life prolongations, the decommissioning market in the North Sea will also be supported by contract prices. favorable service.
To date, only around 15% of North Sea assets have been decommissioned, but over the next five years, we expect an average of 23 assets to cease production each year. The United Kingdom is on track to lead the way with nearly 80% of total estimated expenditure on decommissioning in North West Europe over the next five years, followed by Norway with 14% and Denmark with 4%. The pool of moving projects in the region for this period is estimated at approximately $ 17 billion. In comparison, the costs of decommissioning in the United States for the same period are estimated at $ 5.7 billion.
“A prolonged low price environment can potentially motivate operators to take advantage of low contract prices and commit to their asset retirement obligations, thereby stimulating decommissioning activities in the Northern Europe region. Where is. It will also provide welcome opportunities for entrepreneurs in an otherwise grim oil services market, ”said Sumit Yadev, energy services analyst at Rystad Energy.
(Click to enlarge)
The UK’s high market share can be largely attributed to its rapidly maturing production levels, as almost 80% of the country’s oil and gas assets have produced more than 75% of their available resources. In addition, poor exploration results, increasing regulatory rigor and a prolonged environment of low oil prices can lead operators to fulfill their retirement obligations in the absence of any lucrative competitive investment.
Related: Europe to Unveil $ 500 Billion Green Agreement
Some of the main assets that will drive the region’s decommissioning market include the Brent, Ninian and Thistle fields in the United Kingdom and Gyda in Norway. The Shell Brent project would appear to be the largest asset ever to be decommissioned in the world, accounting for nearly $ 3 billion in spending over the next decade alone. Ninian and Gyda would collectively present nearly $ 2 billion in procurement opportunities.
Increased decommissioning costs may limit the flexibility of operators in other segments such as exploration, development and enhanced oil recovery projects. Major players such as Shell, Total, Repsol and Premier Oil are expected to allocate 10% or more of their spending in the North Sea over the next five years to decommissioning activities.
Plugging and abandonment (P&A) of wells is expected to account for approximately 45% of the decommissioning costs for the period, followed by the removal of platforms, which account for almost 20% of total costs. Platform wells are expected to be the dominant segment of P&A activity, accounting for approximately 65% of the total wells to be abandoned, while the remainder are subsea wells. However, in terms of costs, subsea wells will take the lead as they cost an average of $ 11 million each to abandon, compared to $ 5 million for an average platform well.
Low oil prices could play a central role in increasing dismantling spending in the UK if they persist beyond the end of this year. Nearly 10% of all UK offshore assets have costs above $ 25 per barrel, which will hamper their prospects for longer life and make decommissioning a better financial option if low prices persist.
Operators have implemented strong cost optimization measures after the 2014 oil crash and therefore have little room for further cost and efficiency gains now, which could also accelerate dismantling expenses.
Overall, more than 2,500 oil and gas wells are expected to be decommissioned in the North Sea over the next decade, including 1,500 in the United Kingdom. The UKCS will also witness the removal of almost 300,000 tonnes of topsides over the next five years, with almost 50 topsides to be decommissioned, representing an average cost of topside removal of 5,300 $ per ton. In addition, almost 100,000 tonnes of substructures are expected to be removed from British waters. In line with broader trends in the North Sea, platform wells are expected to account for the bulk of P&A activity from wells with almost 70%.
“As decommissioning becomes an urgent concern for North Sea operators, the prevailing low-cost environment offers an opportunity to reduce costs. For example, after the drop in oil prices in 2014, platform and ship prices fell from 30% to 40%. We expect platform and vessel prices to also show a downward trend, with decreases likely to last until 2022, ”concludes Yadev.
By Rystad Energy
More readings from Oilprice.com: