The head of Whalsay Energy has said the North Sea oil industry needs to address high spending on “pseudo-dead” facilities after they stop producing.
Executive director Paul Warwick gave the keynote speech at the Decom Offshore conference at the AECC yesterday, discussing the sector’s challenge to reduce its £59bn decommissioning bill by 35%.
Part of the problem, he said, was the “burgeoning” amount of spending on facilities that are no longer producing.
He said: “An area which I think is a huge surprise is the amount of post-cessation of production operational expenditure (opex) that has emerged within this particular basin compared to others, probably with the exception of Norway.
“In a 35% cost reduction environment, that burgeoning amount of opex running a pseudo-dead facility, effectively operating as though it was still producing hydrocarbons, is a problem for the industry, it’s definitely a problem for the operators.”
Another “surprise” which emerged in the last decade has been the increasing amount of obligation operators’ face to retire their assets, brought on by an inflation of decommissioning costs.
Mr Warwick said this has removed firms’ flexibility to have capital via debt to fund “value-adding” projects.
He added: “One needs to understand the UK perspective as being an unprecedented amount of spend in any basin on decommissioning.
“This is not something that is normal to spend £58bn on something which, for most operators, is not a value-add.
“It is a necessity, it is an essential part of our extractive business, but it is something that the operators would prefer not to spend.”