Decommissioning Insight 2019

DECOMMISSIONING INSIGHT 2019

3.2 UK Decommissioning in Context Decommissioning is part of the natural lifecycle of an oil and gas asset and should always be viewed in context with the wider oil and gas industry. Industry expenditure across the lifecycle, investment in new developments, activity levels, cessation of production (CoP) dates and decommissioning plans are all influenced by prevailing market conditions and overall uncertainty levels. Although oil and gas markets have shown some increased stability in recent years compared with late 2014–16, they have still been characterised by uncertainty. During the first three quarters of 2019, Brent crude averaged just under $65 per barrel (bbl), with a 40 per cent swing in prices. Alongside this, day-ahead NBP gas prices averaged just under 35 pence per therm (p/th) and have declined frommore than 60 p/th at the start of the year to less than 20 p/th in September — the lowest price since 2004.

Figure 1: Total UKCS Expenditure 1970, to 2019

30

Operating Expenditure

Development Expenditure

E&A Expenditure

Decommissioning Expenditure

25

20

15

10

5

Total Expenditure (£Billion - 2018 Money)

0

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

Source: OGUK, OGA

Decommissioning remains a small part of overall expenditure — Overall UK oil and gas industry expenditure in 2019 is expected to be around £15 billion, which means that decommissioning represents just under 10 per cent of overall expenditure in the basin. This shows that investment in the basin and expenditure on the continued operation of current assets still significantly exceeds what is being spent on decommissioning, despite the view a few years ago that decommissioning would by now dominate spending on the UKCS. Forward projections assume less volatile market conditions — Operators' planning assumptions have stabilised in recent years, reflecting more stable oil and gas prices in comparison to 2014–16, an improved cost base, and the increasing maturity of the decommissioning market. It is therefore no surprise that this year’s outlook is similar to those presented in Decommissioning Insight 2018 . The relative stability is beneficial for operators and the supply chain, while greater transparency is also beneficial for regulators and HM Treasury as it tracks expenditure.

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