July marked the end of an era for the North Sea.

Earlier this month, the Brent Charlie platform was removed and transported back to the Able Seaton Port, near Hartlepool. Here, it is to face dismantling and recycling.

Weighing more than 30,000 tonnes, Brent Charlie is the fourth and final platform from the iconic field to be removed. The platform ceased production in 2021, after more than four decades of operation.

The Brent field is one of the largest decommissioning projects on the UKCS. The work is far from over. Attention now turns to removing the remaining field legs that are still in place.

The project has brought attention to the scale of the task facing the energy industry. As North Sea oil and gas production gradually winds down, we are going to need to take infrastructure apart.

Increasingly costly

The total decommissioning cost for the remaining oil and gas infrastructure on the UKCS is estimated to be £40 billion in 2021 prices. More than half, around £24bn, is likely to be spent between 2023 and 2032.

Well decommissioning is the most expensive aspect of the work and accounts for £12bn (50%) of the estimated decommissioning cost over the period 2023-2032. Other significant expenses include removal and costs pertaining to the owner of the infrastructure, each accounting for £4-5bn, or around 20%. The remainder includes the cost of subsea infrastructure plus recycling, site remediation & monitoring.

Estimates of operator expenditure during this 10-year period has increased by £3bn (14%) in real terms over the past year. Several factors have contributed to the higher estimated cost of decommissioning the UKCS. These include cost inflation, competition for critical supply chain resources, and accelerated Cessation of Production (CoP) for some fields.

Decommissioning accounted for 12% of total oil and gas expenditure in the UKCS in 2022, according to Offshore Energies UK (OEUK). By 2032, OEUK projects it could rise to 25% as North Sea drilling and production continues to decline. OEUK expects it to average 17% across the period 2023-32.

The share of expenditure spent on decommissioning could even exceed field capex by 2040, illustrating the scale of expenses that operators are likely to incur.

Taxing uncertainty

The UKCS upstream oil and gas sector faces a challenging tax environment, adding to the pain felt by operators.

In late July, Chancellor Rachel Reeves announced the Energy Profits Levy (EPL) will increase by 3% from November 1, 2024, bringing the headline rate of tax on upstream oil and gas activities to 78%. The EPL has also been extended by one year to the end of March 2030, unless prices fall “to, or below, historically normal levels for a sustained period”. A phased decrease in the investment allowance will also begin in November.

It’s unclear what the impact will be on decommissioning. A survey by industry organisation Decom Mission, carried out prior to the general election, showed a split as to the likely impact. Operators and owners of the assets voted strongly that EPL would lead to delays in the decommissioning timetable. However, the supply chain thought this would accelerate plans.

OEUK’s latest Decommissioning Insight report suggests the EPL hike has already slowed the rate of decommissioning. They also point to the cost of shutting down old installations not treated as an allowable expense for tax purposes as one reason to defer decommissioning activity.

Incentive to wait

Given the enormous costs involved, it’s understandable that operators might wish to defer that expense. However, opting to defer decommissioning also incurs a knock-on impact across the supply chain.

The ability of the infrastructure industry to deliver on forecasts is crucial to prevent time and cost overruns.

The decommissioning industry is no different. Uncertainty over the future work programme in the UKCS means that supply chain resources. such as the availability of rigs, are often in short supply when they are needed the most.

The UKCS is now falling behind on its announced decommissioning work programme. In 2023, operators decommissioned 71% of planned development wells, 50% of subsea structures, and 33% of topside removals. That is according to the North Sea Transition Authority (NSTA).

Unfortunately, the outlook, particularly to 2030, has also been revised down significantly as operators defer decommissioning. The backlog of inactive UKCS wells previously slated to be decommissioned is increasing.

Tightening the screws

Operators on the UKCS are legally required to leave the marine environment clean and safe when they stop producing. Inactive wells can begin to release oil and methane if they haven’t been secured properly.

Boreholes are meant to be plugged with cement within two years of becoming inactive. However, the NSTA’s latest Wells Insight report found that almost 740 disused wells had not been decommissioned properly.

The NSTA wrote to licensees in an open letter last November. It urged them to “comply with their regulatory obligations in a timely manner”. It recognised that circumstances may result in an application to defer such obligations. However, the letter makes clear the “NSTA will only grant such a deferment of a decommissioning obligation in exceptional circumstances, up to, but not exceeding the five-year time limit”.

The NSTA has recently begun to increase the pressure. In July, it announced it would investigate some operators. The unnamed parties had allegedly failed to complete well plugging and abandonment in line with approved plans. Operators found at fault risk sanctions, including being fined.

Furthermore, the NSTA can carry out the work – and then bill the licence holder. A note from Bracewell on the move said the regulator would be “evaluating all enforcement tools available to it. Whether there will be an increase in warning and sanction notices remains to be seen.”

Emission targets at risk

If operators decide the cost of decommissioning is too high, and that it makes sense to carry on producing, UKCS emissions may not fall as fast as expected. This decision could have a knock-on impact on the UK meeting its net zero targets.

In particular, the 2021 North Sea Transition Deal (NSTD) commits the North Sea to becoming a net zero basin by 2050. The NSTD requires the oil and gas industry to cut emissions by 10% by 2025, 25% by 2027, and 50% by 2030, when compared against a 2018 baseline.

Projected UKCS emissions are very sensitive to changes in the Cessation of Production (CoP) date. Under the NSTA’s business as usual scenario (BAU), which assumes no further emission abatement, there is an 11% emissions range in 2030 based on varying the CoP date.

The energy transition

Decommissioning doesn’t just involve the removal of legacy oil and gas infrastructure. It can also involve repositioning existing assets, often with a view to enabling the energy transition. Indeed, the NSTA has developed a new screening tool that enables operators with fields nearing the end of their productive lives to assess the potential for repurposing.

Take carbon capture and storage (CCS) as an example. The volume of CO2 being injected into the North Sea by 2050 may equal the natural gas currently being extracted.

The report was developed in collaboration with Subsea7. It found 50-70% of North Sea CO2 storage could “reuse existing infrastructure, delivering significant cost savings and environmental benefits”.

In addition, existing fossil fuel infrastructure could also prove useful in building out the UK’s hydrogen production capacity.

The Net Zero Technology Centre (NZTC) and Apollo examined the potential for replacing North Sea topsides with electrolysers. Apollo found “potential for significant cost savings” despite the “demanding” re-engineering of jackets and platform legs that would be required.

Sequence of events

North Sea operators are understandably unsure of whether the future value lies in decommissioning, or maintaining and repurposing the infrastructure so that it can be used for CCS or hydrogen. The problem is one of sequencing. Any delay to the implementation of the UK’s CCS Strategy for example, could have a knock-on impact on decommissioning activity.

The pressure to decommission can also come into conflict with the energy transition. For example, removing oil and gas topsides and subsea structures involves using heavy lift vehicles of the type used at Brent Charlie. However, the offshore wind industry uses these same specialist vessels to install turbines.

OEUK estimates that companies will remove over 100,000 tonnes of topsides and substructures in 2026. In the same year, industry will install 200 large-scale wind turbines. That number will double to 400 by 2031, placing even more pressure on the same type of vessels also required for decommissioning.

Deep well of human capital

The North Sea Transition Deal (NSTD) includes a pledge that at least half of the spending on decommissioning projects goes to the UK supply chain. The UK is in line to secure around 70% of the work associated with UKCS projects listed in Supply Chain Action Plans (SCAPs) and submitted to the NSTA in 2022. With around 95% of decommissioning contracts awarded to UK based firms in 2023-24, the position could be even higher.

This has been a boon to employment prospects in regions at risk of structural unemployment as North Sea production dwindles. There are approximately 14,000 people working in decommissioning in the UKCS at any point, according to Decom Mission.

This number varies since many companies working in decommissioning also work in greenfield and brownfield services. However, as UKCS assets age inexorably and decommissioning activity increases, this number is likely to rise.

As Sam Long, CEO of Decom Mission outlined, the skills required for decommissioning, aside from a few specialisms, are similar to those required for construction and maintenance activity.

“As more assets are brought offline, more people will be able to complement existing skills with experience in decommissioning. Combined, these also have potential for export and use in other oil and gas basins and indeed other industries such nuclear decommissioning.”

Global demand

As such there is growocompetition for decommissioning resources and skills from other mature deepwater projects across the globe. Brazil, the US Gulf of Mexico, and Angola account for 80% of forecast expenditure on decommissioning over the next decade.

This presents an opportunity for the UK, according to Decom Mission. “Decommissioning services and capability from the UK and North Sea are highly sought after in other locations, which have similar challenges but are slightly behind in terms of experience and execution.”

“Greenfield oil and gas (in other locations), renewable projects, (in Europe and beyond) and decommissioning in other markets all draw on the same pool of personnel and expertise,” it said.

The North Sea faces many challenges as it seeks to secure its energy transition. These include higher decommissioning costs, a hostile tax environment, pressure to cut emissions, uncertainty over the pivot to CCS and hydrogen and declining revenues from oil and gas.

What is becoming clearer though is that decommissioning is an intrinsic part of the UK’s energy transition. As other countries around the world look to accelerate their own energy transition the risk is that the UK loses its key advantage – its human capital.

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