Oil & Gas

‘Concern’ over how the North Sea will pay for decommissioning

A Boston Consulting Group analyst told Decom Week in Aberdeen that she would be “concerned” about where the money for North Sea decommissioning is coming from if she was the industry regulator.

Martha Vasquez – described by the CEO of the newly renamed Decom Mission, Sam Long, as an “analyst and protagonist for the decommissioning market” –  said production and cash flow are “declining super-fast.”

Ms Vasquez highlighted that cash flow projections for the basin through to 2035 just about cover decom costs – if other areas for spend aren’t taken into account.

If a company defaults on decommissioning payments, the UK Government has powers to reclaim that from the company, or previous operators or partners on the asset in question.

Ms Vasquez explained that there is a 5-10% decrease in cash flow per year projected between 2015 and 2035.

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© Supplied by Rory Raitt
Sam Long, CEO of Decom Mission at Decom Week 2023 in Aberdeen

To this, Ms Vasquez said: “All the cash flows in this time period to 2035 from these assets, if we combine them, they amount to more than £30 billion, which is enough to pay for decom of all those assets.

“The challenge is that we have many other ways that we could potentially use that money. It’s not all going to decom.”

This prompted the Boston Consulting analyst to ask: “Where is the cash going to come from? If I am the regulator in this country, I would be really concerned about that.

“If I was a shareholder in one of these companies, I would also be very interested to know what money you are putting aside to make sure that whenever your management team leaves the company, the future generation has something to rely on.”

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Ms Vasquez admits: “Some people are putting money aside”, and “We have also the new developments that are going to have to finance the legacy asset decom.

“We are also counting on the tax relief from the country and hopefully the regulation doesn’t change drastically, we are also counting on the new technologies and the new delivery models to slash costs. There’s a lot of factors we’re counting to be able to pay for all of this.”

© Supplied by Rory Raitt
NSTA top brass Stuart Payne at Decom Week 2023

Just before the analyst took to the stage at the Ardoe House Hotel, the UK regulator’s chief executive, Stuart Payne delivered a keynote speech addressing some of these issues.

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The North Sea Transition Authority (NSTA) boss told attendees that the industry is making “a safe and successful effort to decommission and repurpose of the North Sea.”

Mr Payne explained that the NSTA forecasts “up to £200 billion worth of private capital” to be invested in the North Sea between now and 2030.

The regulator boss said that decommissioning has been the “coming feature” in the industry for a while now, however, “we are right in the delivery period now” and that “£20 billion worth of activity” is needed this decade.

Mr Payne described this as both “a massive opportunity and a major challenge.”

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