Decommissioning oil and gas facilities across the UK continental shelf will cost an estimated £59.7bn, according to a report by the Oil and Gas Authority (OGA). About half of that will be borne by oil companies, the rest by the public purse through tax relief.
The figure is even higher than a recent estimate of £53bn by the energy experts Wood Mackenzie and the business department’s previous estimate of £52bn.
The OGA, a government regulator, said that in its worst-case scenario the bill could jump to £82.7bn. However, the authority said it had set the industry a target of cutting costs by 35%, which it hoped could see the cost drop below £39bn.
The decommissioning of smaller rigs has been under way for years as the region’s production began to decline, but a new wave of bigger projects are beginning to be removed. In May, Shell removed the first of four rigs from the Brent field 100 miles north of Shetland, part of a plan that will take years and cost single-digit billions alone.
Oil companies enjoy between 40% and 75% tax relief on their clean-up costs because of their contribution to Treasury coffers during production years. But decommissioning and a slump in oil prices meant the oil and gas sector was a net drain on the Treasury of £396m in 2016 for the first time.
The Oil and Gas Authority assessment covers the cost of clean-up for existing and proposed offshore platforms, pipelines, wells and terminals. It arrived at the figure of £59.7bn after looking at data from 34 industry operators.
Gunther Newcombe, the group’s operation director, said: “This report provides us with a starting-point cost estimate of £59.7bn to decommission UK oil and gas infrastructure. The challenge now is to save industry and the taxpayer money and achieve safe decommissioning for £39bn or less.” But hitting the cost-cutting target would require a “significant change” in the way industry approached decommissioning, he added.
While technology will be one way of cutting costs, another could be a rethink of the regulations covering the removal of oil and gas facilities. Some conservationists now support leaving an approach of “rigs to reef”, where old rigs are left to become artificial reefs rather than fully removed – with the savings diverted to a fund to protect sea life.
In March, the Treasury said it would look at plans to allow the tax relief for decommissioning to be attached to an asset – eg the oil field – rather than a company. Currently, a company that has run an oil operation and paid tax for years can claim tax relief, but cannot transfer that benefit with a sale.
Oil groups such as BP and Shell have both recently sold stakes in their North Sea interests to smaller, independent players as they look for more profitable prospects elsewhere in the world.
A panel of industry experts has also been appointed to advise government on selling fields and keeping them producing oil.
A government spokeswoman said: “The oil and gas sector continues to deliver significant economic benefits to the UK, by supporting around 300,000 jobs, and meeting half of the UK’s primary energy needs.”