Decommissioning Insight 2017

DECOMMISSIONING INSIGHT 2017

5.1 Maturity of Estimates Each year, UK operators provide the cost classification for each of their decommissioning projects using the Association for the Advancement of Cost Engineering (AACE) classifications. These seek to define the project stage and indicate the degree of uncertainty in the estimates. Estimates are comprised of various elements and the detail typically increases as project planning progresses. Class 4 or 5 estimates mean that the projects are in the early planning stages where the scope of work is still being defined and feasibility studies are being carried out. Class 5 estimates have an expected accuracy range of -20 to +100 per cent; this wide range narrows over time. Class 2 estimates, meanwhile, represent projects that are in the contracting stage with some activities already being executed. These have a higher degree of accuracy of -5 to +20 per cent. In the last five years, over 90 per cent of projects reported in the Decommissioning Insight have been Class 4 or 5 estimates, with forecasts being refined year-on-year as the project scopes are better defined. Logging carried out to determine a well stock’s condition, for example, may change the assumed duration of well P&A, or engineering studies might change the planned method for removing a platform. 5.2 Cost Reduction Targets In June 2017, the OGA estimated that it would cost around £59.7 billion to decommission all current and proposed future offshore facilities, pipelines, wells and onshore terminals in the UK 16 . This forecast was derived by applying a probabilistic cost estimation methodology to operators’ 2016/2017 Asset Stewardship Survey data. It is the mid-point in a range from £44.5 billion to £82.7 billion (2016 money), which reflects the high level of uncertainty in Class 4 and Class 5 projects used in the forecast. The OGA has set a target, working with industry, to reduce decommissioning costs by 35 per cent to £39 billion, as set out in its Decommissioning Strategy 17 . Progress is already being made in a number of areas, as outlined in the following sections, while maintaining safety and environmental standards.

5.3 Historical Comparison of Forecasts

Accounting for 2 per cent of total UKCS expenditure in 2010, the decommissioning market is expected to grow to 11 per cent (£1.8 billion) this year.

Overall, decommissioning expenditure in the basin is forecast at £17 billion from 2017 to 2025, compared with the £16.4 billion forecast over the same period in the 2016 Decommissioning Insight 18 . This increase is due to greater survey coverage, resulting in the inclusion of new projects, rather than increased cost estimates for existing projects.

16 The OGA’s UKCS Decommissioning 2017 Cost Estimate Report is available at www.ogauthority.co.uk/media/3815/ukcs-decommissioning-cost-report-2.pdf 17 See the OGA’s Decommissioning Strategy at www.ogauthority.co.uk/media/1020/oga_decomm_strategy.pdf 18 The nine-year time period 2017 to 2025 is the timeframe included in the OGA’s Asset Stewardship Survey whereas historically the Decommissioning Insight has covered a ten-year timeframe.

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