Decommissioning Insight 2020

4.2 The Impacts of COVID-19 and Commodity Price Collapse Reliable and definitive information is invaluable in uncertain times, which is why for Decommissioning insight 2020 , OGUK has conducted an additional survey to test the impact of COVID and the commodity price fluctuations on decommissioning activity and expenditure. Industry is still spending almost £1.1 billion on decommissioning in 2020 — Figure 2 shows that over the next three years industry expects to spend about 13 per cent (£514 million) less than anticipated at the beginning of 2020. Reductions carry through into 2021 and 2022 with around 8 per cent and 1 per cent less expenditure anticipated, respectively. It is not unusual for the forecast expenditure at the beginning of each year to be higher than actual expenditure realised at year-end. Last year the industry anticipated that around £1.6 billion would be spent during 2019, whereas only around £1.4 billion was actually committed. The OGA’s UKCS Decommissioning Cost Estimate 2020 2 attributed 70 per cent of this to project efficiencies rather than deferral of scope. The future is uncertain — Figure 3 shows the cumulative expenditure in June 2020 (solid purple) in comparison with the start of 2020 (orange). Although hopes of a vaccine have risen, there remains a high degree of uncertainty over near-term oil supply and demand profiles. Low oil prices may bring forward Cessation of Production (CoP) for some assets but will also put pressure on cash flow within operators, which could prevent progression of decommissioning projects. The full impact of COVID and the commodity price volatility remains to be seen. The UK oil and gas industry has proved in the past to be resilient and it is likely that this resilience will be tested once again. Budgets could be further reduced — As shown, budgets set at the beginning of 2020 have been reduced substantially throughout the year. Budgets are now set for 2021 at a lower level and could be reduced further, depending on market environment.

All decommissioning activities affected — Figure 4 shows that all areas of the decommissioning Work Breakdown Structure (WBS) have been affected by the events of 2020. Platform and subsea well decommissioning activity have fallen by over 30 per cent and topsides and substructure removals activities are also down by 18 per cent and 11 per cent this year, respectively. All areas see an anticipated rise in activity in 2022, suggesting some work has been deferred to this point and beyond. Supply chain-led scopes — Encouragingly, a lot of removals scopes have progressed in 2020. Many topsides and substructure removal workscopes are placed with long execution windows, enabling the supply chain to select when to conduct work, and ensuring better asset utilisation. Many companies have selected 2020 as the time for these removals, with order books otherwise quiet. This is a good example of collaboration between operators and supply chain co-ordinating schedules to make activity occur — a co-operative behaviour industry and regulators have been advocating for some time. Survey methodology Data for the Decommissioning Insight 2020 have been provided by all 31 operators across the UKCS as part of the Asset Stewardship Survey, overseen by the OGA. The survey collates information from all UK operators between November and February each year. The impacts of COVID-19 took hold around March 2020, which meant that the information provided by operators for the survey had changed, particularly for short-term activity and expenditure. Recognising this, OGUK conducted a survey in June which sought to understand differences in activity and expenditure from 2020–22. The data from the response to this survey have been used to make assumptions over the remainder of the dataset. The forecasts in this report are provided by operators and represent their best estimates at the time of the survey. Timings are therefore subject to change.

2 https://www.ogauthority.co.uk/media/6638/ukcs-decommissioning-cost-estimate-2020.pdf

DECOMMISSIONING INSIGHT 2020

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