Decommissioning Insight 2018

New field investment is sustaining many older assets — In combination, these factors have improved the investment outlook for new developments in the basin and improved the economic viability of later-life assets, helping to prolong productive life and delay cessation of production. Industry continues to work closely with government and regulators to maintain and build upon the improved investment conditions.

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At the time of writing, 12 new fields or field extensions have been given approval in 2018, resulting in around £3.3 billion of new investment and delivering almost 400 million boe over time.

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Likewise, the UKCS has seen a wave of more than $8 billion in mergers and acquisition (M&A) activity over the last couple of years, bringing many new operators to the basin. Analysis by Oil & Gas UK has shown that, on average, fields which have changed ownership have seen their productive life extended by five years, stretching to more than a decade in some cases. The introduction of Transferable Tax History (TTH) will facilitate further such transactions by providing greater certainty for companies around access to future decommissioning tax relief, helping to simplify and streamline the deal process. Decommissioning remains a small part of overall expenditure — Total yearly expenditure on the UKCS fell by almost 50 per cent, from around £30 billion in 2014 to around £15 billion in 2017, as E&P companies looked to preserve cash flowamidst challengingmarket conditions. During this period, decommissioning activity represented the only increasing area of expenditure in the basin and there were concerns that decommissioning would become the largest single area of expenditure, dominating activity on the UKCS. However, as a result of recent cost efficiency and operational improvements, the growth of decommissioning has not been as great as many predicted at the beginning of the downturn. Decommissioning still only accounted for around 8 per cent of overall expenditure in the basin in 2017. If current trends continue, by 2020 this could rise to more than 10 per cent, although the level of investment in developing and operating assets will continue to significantly exceed decommissioning expenditure.

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