North Sea decommissioning faces challenges on several fronts, says Wood Mackenzie

The likelihood of a “dash to decom” in the North Sea remains limited due to a number of speed bumps that are slowing the widespread shut down of offshore assets, Wood Mackenzie reports.

While the UK Government’s Energy Profits Levy (EPL) has accelerated decommissioning for several assets, the latest analysis from the company indicates that a myriad of technical, logistical, legal, regulatory, commercial and financial complexities will likely lead to continued delayed decommissioning on the UKCS.

There is growing evidence in the decommissioning sector of supply chain constraints and rising costs in an industry which Wood Mackenzie estimates will be worth US$58 billion (£41 billion) (real terms) through to the early 2060s.

Today, there are 242 producing offshore fields in the UK North Sea and 255 that have ceased production, 76 of which have been decommissioned. Wood Mackenzie estimates gross decommissioning costs are expected to eclipse development capex by 2032 and peak at over US$3.5 billion per year in the mid-2030s.

Despite the sector’s maturity and the shift in fiscal terms, evidence of a wholesale early COP (cessation of production) trend is lacking. Instead, lingering supply chain constraints, rising costs, and the regulator’s stance suggest a cautious and measured approach.

James Reid, Senior Research Analyst at Wood Mackenzie, said: “Since the energy profits levy (EPL) was introduced in 2022, several UK operators have announced their intention to accelerate COP on their assets, declaring that further investment is no longer viable.”

The report adds that accelerated decommissioning can strain the ability of smaller companies to meet their obligations for shutting down assets, increasing the risk of defaults. In a worst-case scenario, where a company defaults and there are no other parties to pick up the bill, liability would fall to the UK taxpayer

Mr Reid said: “The growth of small players has been key to rejuvenating old assets, but decommissioning, and the potential acceleration of it, presents increasing risks to JV partners and the UK government which presents companies with more reason to keep kicking the decommissioning can down the road.”