Business Outlook 2018

BUSINESS OUTLOOK 2018

Decommissioning Expenditure The focus of the UK offshore oil and gas industry is to maximise economic recovery of resources, but a necessary part of the life cycle of a field is decommissioning activity. As would be expected in a mature basin such as the UKCS, decommissioning activity is steadily increasing, with annual decommissioning expenditure rising from £1.2 billion in 2016 to an expected £1.8 billion in 2017 10 . Decommissioning expenditure is forecast to remain consistent at £1.7-£2 billion per year through to 2020. This indicates that although themarket is growing, industry’s ability to reduce costs and deliver efficiency improvements have largely mitigated any rush to decommission, despite the downturn. The transfer of late-life assets to operators who view them as being a core part of their business will play a vital role in extending field life further. The UK Government has taken steps to facilitate these types of deals by announcing the introduction of a mechanism for transferring tax history, where required, for deals that complete on or after 1 November 2018 11 .

Figure 23: Decommissioning Expenditure

2.5

Actual Decommissioning Expenditure

Forecast Decommissioning Expenditure

2

1.5

1

(£ Billion - 2017 Money)

0.5

Annual Decommissioning Expenditure

0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Source: Oil & Gas UK

To carry out decommissioning activity in the safest, most environmentally sound and cost-effective manner, it is important that stakeholders in the industry work together to ensure the future programme of activity is visible to the supply chain. Total UKCS decommissioning costs are currently forecast to be £59.7 billion, with industry collectively targeting a 35 per cent reduction 12 .

10 See Oil & Gas UK’s Decommissioning Insight www.oilandgasuk.co.uk/decommissioninginsight 11 See www.gov.uk/government/publications/an-outline-of-transferrable-tax-history 12 See www.ogauthority.co.uk/media/3815/ukcs-decommissioning-cost-report-2.pdf

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