Tumbling oil prices are to accelerate the pace of decommissioning in the North Sea over the next five years
Falling oil prices could lead to the closure of 140 fields in the North Sea over the next five years as operators accelerate plans for decommissioning amid drastic cost cutting, a leading energy consultancy has warned.
Wood MacKenzie said that the decommissioning of the fields could go ahead even if oil prices return to $ 85 per barrel, from their current price of around $ 49.
Even (Taiwan OTC: 6436.TWO – news) a partial recovery to around $ 70 a barrel would leave 50 oil fields facing early closure, the Edinburgh-based firm said.
Over the same period just 38 new fields are expected to be brought on stream in the UK Continental Shelf (UKCS), according to Wood Mackenzie.
“In 2015 operators have reacted to the low oil price environment by deferring spend and delaying sanction of new developments,” said Fiona Legate, UK upstream research analyst for Wood Mackenzie. “We have analysed the impact of the low oil price on decommissioning activity looking at the timing of cessation, retained decommissioning liabilities from previous deals, and batch decommissioning.”
The report comes after Oil and Gas UK said that 65,000 jobs had been lost in the North Sea since the slump in oil prices began last November. The trade body has warned that with so few new projects gaining approval, capital investment is expected to drop from £14.8bn last year to between £2bn and £4bn in each of the next three years.
Decommissioning is already underway in more ageing fields in the North Sea. Royal Dutch Shell is planning the decommissioning of the Brent field. Four Brent platforms Alpha (Shenzhen: 002292.SZ – news) , Bravo, Charlie and Delta have generated £20bn of tax revenue since they were brought into production in 1976.
“We expect around £54bn (in nominal terms) will be spent on decommissioning on the UKCS and anticipate it to be completed in the early 2060s. Decommissioning spend is expected to increase by over 50pc by 2019 and will overtake development spend in the same year,” said Ms Legate.
Lower oil prices are forcing companies to review their operations around the world. New (KOSDAQ: 160550.KQ – news) basins opening up in the Arctic and Brazil mean that the UK Government will have to provide more incentives to drillers to keep working in the North Sea.
