Operators have been urged to sell ageing oil and gas assets but retain decommissioning liabilities worth billions in order to avoid the threat of early shut downs in the North Sea.
Analysts at KPMG have warned that oil and gas operators as well as the new Oil and Gas Autority (OGA) need to approach decommissioning in a new way or risk failing to “maximise economic recovery” as recommended by industry veteran, Sir Ian Wood.
In the report, KPMG said many North Sea firms lacked the capability to undertake decommissioning or were “poorly suited” to managing late life assets. This would only be worsened by the possibility of a “ large wave” of decomissioning projects going ahead by 2020, driving up costs and increasing the burden on skills.
KMPG has argued that selling assets but retaining the cost burden of decommissioning could break up a “log jam” of proposed asset sales that companies that have so far failed to attract buyers. It pointed to the example of Marathon Oil which failed to seel its Brae field assets despite initially offering them as a package including a “sweetener of a range of potentially more
attractive Norwegian assets”.
Instead, “specialist owners” that would operate the assets more effectively and that would collaborate with others in the region should take them over, KPMG said.
Fergus Woodward, Energy Partner with KPMG, said: “The Wood Review and the new Oil & Gas Authority (OGA) recognise the real threat that a poorly coordinated and badly executed approach to decommissioning poses to maximising economic recovery in the UKCS if companies operating mutually dependent infrastructure decommission earlier than they might. Operating costs in the basin and low commodity price bring this threat closer.
“By becoming much more innovative about their approaches to selling assets, separating the question of decommissioning liability from the question of asset ownership, companies could help break through the current log jam in mature-asset sales, getting late-life assets into the hands of specialist owners who could operate them more effectively for longer, supporting the goal of maximising economic recovery.”
The accountancy firm has also urged OGA and the Aberdeen-based trade body Decom North Sea to draw up guidelines so that decomissioning and late life asset management can be outsourced to service firms.
It said that although outsourcing in this manner was “theoretical” in the UK at the moment, it would be a “win-win” for both operators and oil and gas services companies.
Mr Woodward added: “As assets enter decommissioning, we also see enormous potential for the creation of new, decommissioning service models.
“There is enormous scope for increased collaboration among operators, going beyond information sharing, to develop new models for example in standards related to plugging and abandonment of Wells and other related questions, arrangements for joint campaigns on related assets, and potentially even the creation of new entities to allow common buying of services and execution of end-to-end programmes.
“Getting these things right will require a more focused approach by each company and a broader, more active level of cooperation among E&P firms, service companies, the OGA, and HM Treasury.
“The potential prize is there, but time is of the essence,” he said.
Stephen Marcos Jones, business development director for OIl and Gas UK, said: “The strategic approach to decommissioning is one welcomed by the industry, which recognises that it must ensure a careful balance between outlining the opportunities decommissioning activities present to the UK supply chain and channelling its efforts into maximising economic recovery of oil and gas from the UKCS.”
The recent Wood Report estimated that the total decommissioning cost over the next 30 years could reach £50billion.
The OGA and Decom North Sea were unavailable for comment.