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Oil Price Rally Hits Resistance

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North Sea Field Decommissioning Comes At A Hefty Price

Offshore Drilling

The decommissioning of depleting oil and gas fields in the North Sea will have a price tag of US$29 billion (24 billion pounds) for UK’s taxpayers, which may very well turn it from a cash cow into a drain on the budget, the Financial Times writes.

The amount, calculated by Wood Mackenzie based on the latest data about well-plugging and platform-dismantling costs from the energy industry, is substantially higher than the US$19.5 billion (16 billion pounds) estimated by the UK Treasury as the size of the burden that will fall on the budget.

On the other hand, the total bill has risen from US$36.6 billion (30 billion pounds) estimated five years ago to some US$64.6 billion (53 billion pounds), to be shared by the platform operators and the UK government. The government’s share will take the form of tax relief.

The good news is that the decommissioning process will take decades. The bad news is that a fifth of the total spend will have to be paid by the government over the next five years, according to Wood Mac. According to Oil and Gas UK, the country’s offshore energy industry association, the bill for the next decade will be US$21.5 billion (17.6 billion pounds).

Related: Will Natural Gas Go On Another Run In 2017?

While the decommissioning program is likely to prove a major drain on both the UK budget and platform operators, it will open up opportunities for contractors that will take part in the process. Already, Scotland’s government has prepared an action plan to help local players make the most of the decommissioning, which is estimated to bring in some US$13.4 billion (11 billion pounds) by 2025 and create 23,000 jobs at its peak.

Scotland is particularly susceptible to the adverse financial effects of the decommissioning plan, especially now that First Minister Nicola Sturgeon is pushing for independence, should Theresa May’s government fail to negotiate Britain’s remaining in the single European market. According to the FT, the financial burden of the decommissioning efforts will weaken Sturgeon’s chances for success among voters.

By Irina Slav for Oilprice.com

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