Royal Dutch Shell’s UK decommissioning pile stacks above fellow UK operators

10 May 2019 (Last Updated September 22nd, 2020 13:50)

Royal Dutch Shell (Shell) has the largest decommissioning expenditure liability, of approximately US$3.2 billion.

Royal Dutch Shell’s UK decommissioning pile stacks above fellow UK operators

In 2018, Abandonment and Decommissioning Expenditure (ABEX) in the UK was the second highest on record, with £1.45 billion (US$1.93 billion) spent in total.

Oil and gas decommissioning

The forecast in ABEX in the UK will continue increasing out to 2033 by a number of estimations. There was a sharp increase in asset retirement contracts awarded following the oil price drop in 2014, but growth has steadied over the last few years.

Multiple mega oil and gas projects in the UK contain hundreds of wellbores and comprise of facilities weighing tens of thousands of tonnes, are undergoing or scheduled for dismantlement and disposal.

GlobalData forecast over 150 fields may cease production in the UK out to 2025 and roughly 85% of the fields currently in production have produced over half of their total reserves. Of the UK operators, Royal Dutch Shell (Shell) has the largest decommissioning expenditure liability, of approximately US$3.2 billion, driven mainly by the Brent field but also consisting of developments such as Pierce and Nelson.

GlobalData estimates the largest decommissioning projects that currently exist off the UK Continental Shelf (UKCS) are the Brent and Forties developments. The estimated combined ABEX of the Brent and Forties fields alone could be approximately US$4 billion. The total Plug and Abandonment (P&A) expenditure for the Brent field could reach US$900 million and spans over five years or more, and removal of all Forties fixed facilities could cost the participants some US$700 million.

Estimated ABEX breakdown of the Brent and Forties fields

Source: GlobalData Oil and Gas

GlobalData has recorded significant growth in the number of asset retirement contracts issued since the industry downturn in 2014, but the number has remained relatively flat since 2016 after a sharp initial rise. Hydra Well Intervention AS (Hydra) has been awarded the most P&A contracts in the UK since 2016. Forecast future expenditure is heavily weighted towards P&A activities at least in the near term.

Higher abandonment activity in the UK appears to coincide with periods of lower oil price as profits weaken from producing fields and companies opt to take advantage of the lowered service costs. Given the recent stabilisation of the oil price and a push by the UK government to maximise economic recovery from existing assets, the outcome will likely lead to project abandonment delays and rejuvenated investment at legacy fields.