Subsea Expo

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Deconstructing the Cost of Decommissioning

07 October 2009

Senior figures from across the oil and gas industry gathered in Aberdeen yesterday to discuss the findings of the latest research from Deloitte and Douglas Westwood which examined the economic implications of dismantling North Sea infrastructure.

During the next two decades the oil and gas industry will begin to decommission many of the installations that have been producing oil and gas for the past 30 to 40 years.

With some 10,000 kilometres of pipelines, 15 onshore terminals and around 5,000 wells involved, this is a complex process during which a number of economic, tax, legal and environmental aspects need to be addressed.

The Deloitte and Douglas Westwood report states that over the next ten years 65% of fields currently active on the UKCS are due to be decommissioned, including 45% of steel platforms and over two thirds of all subsea units.

It also found that there are some constraints facing the industry when entering the decommissioning phase of the North-Sea as there are potential bottlenecks in the supply chain and a lack of appropriate onshore disposal facilities.

Providing an overview of the study's findings, which encompasses the UK's regulatory regime, planning requirements, the economic aspects of decommissioning and an analysis of the decommissioning supply chain, the seminar also highlighted the accounting and tax treatment of decommissioning costs.

Speakers included Rhydian Williams, of Deloitte's Petroleum Services Group, and Andrew Reid of Douglas Westwood, who both provided an overview of the current decommissioning environment.

They were joined by Clare Munro, partner at Bond Pearce LLP, who discussed the legal aspects of decommissioning and Gunther Newcombe, head of decommissioning at BP, who provided an operators perspective gained from recent experiences with North West Hutton.

Presentations were followed by a lively Q&A session with the panel, which included Paul Dymond of Oil & Gas UK.

Andrew Ogram, tax partner at Deloitte in Aberdeen, said:

“The oil and gas industry is likely to begin the process of decommissioning in the North Sea in earnest over the next 20 years. The industry will need to address the challenge of a shortage of skilled personnel and decommissioning infrastructure.”

He continued:

“Total costs involved in decommissioning UKCS infrastructure are estimated at £15-20 billion; however this could prove a conservative estimate when substantive work starts in the next 10 years.”

The seminar took place on Monday, October 5 at the Marcliffe Hotel & Spa, Aberdeen at 3pm.