Experience RS

UK Decommissioning – Decom Recon

A recent Oil and Gas UK report estimated 203 fields and 1,465 wells across the UK North Sea could undergo decommissioning activity by 2027 – an emerging market for service companies. Activity is expected to be concentrated on the UK Continental Shelf (UKCS), with the bulk of capital allocated to well plugging and abandonment (P&A). According to Oil and Gas UK, the voice of the upstream industry, ~$9 billion will be spent in the Central North Sea (CNS), which contains 48% of all UKCS development wells (Figure 1). Other regions with wells that need abandoning include the Southern North Sea (SNS), Northern North Sea (NNS), West of England/Wales (WoE), West of Shetland (WoS) and the Irish Sea (IS).

FIGURE 1 | Development Wells Drilled Since 2000

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The timing around a cessation-of-production (CoP) permit and the subsequent decommissioning of an offshore field or asset is notoriously difficult to predict as operator decisions are affected by oil price, production efficiency, operating leverage and asset integrity. Natural maturation of the play, technical difficulties or catastrophic failure can result in high water production on mature fields, driving up costs and making fields uneconomic. Figure 2 highlights the typical trend of rising water production in fields as they age. External corrosion from years of exposure to the harsh North Sea may also affect asset integrity, resulting in lower production due to mandated de-rating of equipment.

FIGURE 2 | Water Cut Versus Field Age, Sized by Current Oil Production (Excluding SNS and WoE)

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Field age and current production compared to peak oil can be used as proxies for asset integrity and production efficiency. Figure 3 plots the percentage of peak oil rates for 143 UKCS producing oil fields. Fields in the upper section of the chart (green rectangle) screen as unlikely candidates for CoP filings. Approximately 50 fields (30 CNS, 18 NNS and two IS) plot in the lower portion (red rectangle). Based on field age, current production and percentage of peak oil, these fields could face cost inflation pressure and pose a higher chance of filing for a CoP in the near term, RSEG believes.

FIGURE 3 | Percentage of Peak Oil Versus Field Age, Sized by Current Production (Excluding SNS and WoE)

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