Business Outlook 2019

In many cases, improved investment conditions and the transfer of assets to new owners are helping to delay cessation of production (CoP). As a result, decommissioning activity is being moved to the right. Timings for CoP are continually being assessed to ensure maximum economic recovery is achieved.

1

Figure 18: Decommissioning Expenditure

2

Actual Decommissioning Expenditure Operator Project Management Facilities / Pipeline De-energising

Well Decommissioning

2

Post-CoP Facility Running / Owner Costs

1.8

Topsides Preparation Substructure Removal Subsea Infrastructure

Topsides Removal

3

1.6

Topsides & Substructure Onshore Recycling

Site Remediation

Post-decommissioning Monitoring

1.4

1.2

4

1

0.8

0.6

5

0.4

0.2

6

0 Decommissioning Expenditure (£ Billion - 2018 Money)

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Forecast 2020 Forecast

Source: Oil & Gas UK, OGA

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Decommissioning activity also provides the opportunity for the UK to develop world-leading capabilities which can be exported globally. UK regulation and guidance are sought after, and the supply chain already has the skills, expertise and resources to meet the majority of the work scope of UK decommissioning over the next decade. The UK government is currently undertaking a call for evidence on establishing the UK as a centre of decommissioning expertise — an opportunity which will play an important role in meeting the ambition of Vision 2035. Cash Flow and Taxation It is estimated that around £13 billion of total free cash flow was generated from UKCS production operations in 2018. Production revenues increased from £21 billion in 2017 to £28 billion last year, the result of higher oil and gas prices as production remained relatively stable. Alongside this, there was a reduction in overall expenditure, mainly due to lower-than-anticipated capital investment and exploration and appraisal activity. However, the 2018 figure should not be taken in isolation and must be considered in line with rates over the prior decade when cash flow was low, and often negative. Despite positive returns in 2018, it should be acknowledged that this is a basin-wide estimate and the cash flow position of individual companies will vary significantly depending on their cost, investment and production profiles, corporate and financing structures, and the period of time in which they have been active on the UKCS. Some companies have accumulated losses during the downturn which they can carry forward to offset against profits in future years, reducing their tax bill temporarily.

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