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Page added on December 3, 2016

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Decommission Spending May Skyrocket 540% to $210 Billion

Production

Decommission spending for aging offshore oil and gas assets is on track to increase dramatically from $2.4 billion in 2015 to $13 billion each year by 2040, according to an IHS Markit study.

Currently, the industry decommissions an average 120 projects around the world. During the next five years alone, more than 600 projects are expected to be decommissioned in the UK, Norway, the U.S. Gulf of Mexico and Australia. Within that time, Europe will absorb about 50 percent of the spending as major offshore structures in the North Sea are removed. An additional 2,000 projects are targeted between 2021 and 2040 – amounting to a price tag up to $210 billion.

Bjorn Hem, senior manager of IHS Markit upstream costs and technology service and one of the study’s authors, said increasingly stringent regulations are coming online at the same time the industry has an abundance of end-of-life structures. What’s more, he said, there are no dominant decommission players, which leaves services fragmented and costs unpredictable.

“In terms of decommissioning, the global offshore industry is heading for a perfect storm,” he said in the report.

As offshore exploration and production (E&P) has ventured into deeper water and harsher environments, removing the structures is more complex. Decommissioning bills can reach the billions of dollars and take years to complete – with no return on investment.

“The effective decommissioning of offshore platforms, subsea wells, and related assets is one of the most important business challenges facing the oil and gas industry today and in the future,” said Bill Redman, senior director of upstream costs and technology commercial strategy at IHS Markit. “Decommissioning represents a considerable shift in terms of sustainable business planning for most operators.”

Within the next two years, decommission spending is expected to exceed capital expenditures, according to a Wood Mackenzie report. As a result, oilfield engineering could increase its focus on hiring staff for these projects.

Royal Dutch Shell said in May the 10-year decommissioning of its Brent oilfield in the North Sea is likely to create and sustain thousands of fill-time U.K. jobs … for years to come.”

rigzone.com



15 Comments on "Decommission Spending May Skyrocket 540% to $210 Billion"

  1. makati1 on Sat, 3rd Dec 2016 8:26 pm 

    Costs for decommissioning ALL of the energy sources are going up all over the world. The hidden cost of that cheap energy we enjoyed, in the PAST. Now we pay … and pay … and pay. Or rather, YOU do.

    As for creating jobs, we shall see. I think the loss of hundreds of thousands of jobs due to the low oil prices will take a long time to work through before there is a net increase in employment in the oily industry.

  2. Anonymous on Sat, 3rd Dec 2016 11:09 pm 

    “The effective decommissioning of offshore platforms, subsea wells, and related assets is one of the most important business challenges facing the oil and gas industry today and in the future,”

    Translation: We need to find new ways to offload these costs onto society and the environment in such a way that does not adversely affect either executive pay and options, or our shareholder dividends.

    Translation of the Translation: Need more oily corporate welfare(subsidies if you prefer) and new ways to (hide) externalized costs.

  3. peakyeast on Sun, 4th Dec 2016 5:38 am 

    No problem. They create a new company that seems independent. They sell the “assets” to the company right before decommissioning begins. The company goes bankrupt – the pigs laugh all the way to the bank and the government has to clean up using tax-payer money.

  4. makati1 on Sun, 4th Dec 2016 6:27 am 

    Lets see… to decommission a nuke plant is about $250,000,000,000. each from what I have been reading.
    Times the 400+ nuke plants in the world = ~$100,000,000,000,000. or about 100 trillion dollars. More than the total annual GDP of the world today. (~$72 Trillion)

    Now they are talking similar money to decommission oil fields. I have no idea how many of those there are but many. Another $100 trillion? Now we are up to 3 years GDP.

    Why do I suspect that all of these energy sources will never be decommissioned, but just abandoned to finish destroying the life on the planet?

  5. twocats on Sun, 4th Dec 2016 6:52 am 

    “Within the next two years, decommission spending is expected to exceed capital expenditures, according to a Wood Mackenzie report.”

    I also suspect.

  6. rockman on Sun, 4th Dec 2016 9:11 am 

    Peaky – “They create a new company that seems independent. They sell the “assets” to the company right before decommissioning begins.” In the case of the federal offshore (where the huge costs are) that cannot happen. No company is allowed to lease, buy or have transfered to them any federal lease (even if there’s no infrastructure on it) unless they can show financial capability. This also includes big bonds. And even if a company that acquires a producing company from the original operator slips thru the cracks the liability still falls on the first owner. That’s just one of the unique aspects of operating in federal waters: those companies don’t qualify under bankruptcy laws unlike most US corporations.

    The feds may not be the sharpest pencils in the box but they are completely dumb. LOL.

    Same true for Texas…actually a tad smarter then the feds. LOL. Even if a company goes under and leaves a well unplugged we have the “orphaned well fund”:

    “There have been thousands of wells over the years that have cost the State of Texas millions to clean up and plug. Since 1984, Texas has spent over $247 million using the Oil Field Cleanup Fund. The plugging of orphan wells and cleanup of abandoned sites is funded by fees collected from the industry and deposited in the Oil & Gas Regulation Cleanup Fund, formerly the Oilfield Cleanup Fund. Texas taxpayers DO NOT PAY into this fund.”

  7. peakyeast on Sun, 4th Dec 2016 10:23 am 

    @ROCK: Yeah – I am sure there are some funds to prevent it from happening. Those exist everywhere for many reasons.

    But I have also seen several cases where companies were audited and were valued at a billion $. A few months later: Belly Up.

    Perhaps you remember ENRON? The “Ask why, motherfucker” CEOs. Personal friends of the current president and with no small influence.

    Billions worth? Yeah financial wizards they love these things. Its not really expensive at these levels to have a few coca junkie accountants signing up for a few years in prison. Or even to provide the junkie with a “.”. Hell, I am sure Goldmann-sucks could do it without even getting their feet wet. Which is exactly why the company should be wiped out.

  8. penury on Sun, 4th Dec 2016 10:45 am 

    IMVHO It will become much more obvious in the next while that the “world” is in a mess. The economies of the world will admit (or hide) the fact that they cannot afford to do the closure of either the off shore wells or the aging nuclear facilities. People will be shocked at the amount of money the banks and corporations will need, So all of this type of “care” will become like returning the coal producing areas in W.V to their “original” configuration. The corps go away, the gov promises action and your great grand children (if there are any) will get to help pay for the bankers bonuses.

  9. shortonoil on Sun, 4th Dec 2016 10:52 am 

    “Now they are talking similar money to decommission oil fields. I have no idea how many of those there are but many.”

    There are 48,000 oil fields in the world and about 2 million operating wells. Plus, onshore oil wells have to re-plugged every twenty years, or they leak methane.

    There is no conceivable way that humans can ever pay for cleaning up this mess. It will probably take nature a few million years to do the job.

  10. Boat on Sun, 4th Dec 2016 11:53 am 

    Trumps wall plan explained. The materials will come from gulf decomissioned pipelines using Mexican labor. Raising nat gas exports a few cents will pay for it all. Problem solved.

  11. rockman on Sun, 4th Dec 2016 12:29 pm 

    Shorty – “Plus, onshore oil wells have to re-plugged every twenty years, or they leak methane.” In 40 years I’ve never seen first hand even one well that had to be “re-plugged”. Can you name a few hundred? Should be easy given the many hundreds of thousands of US wells that have been P&A. Thanks in advance.

  12. rockman on Sun, 4th Dec 2016 12:56 pm 

    peaky – “Perhaps you remember ENRON?” You pick a poor choice as far as oil patch operators. Enron’s problem didn’t stem from its oil/NG drilling and production operations. Perhaps you aren’t aware of the name, EOG, one of the more stable big independents even after the oil price bust:

    EOG Resources, Inc. (successor to Enron Oil & Gas Company) is a petroleum and natural gas exploration company headquartered in the Heritage Plaza building in Houston, Texas.
    EOG was spun off from its parent in 1999, before Enron collapsed under allegations of fraud and corruption.”

    You’re thinking of the other Enron: Enron was formed in 1985 by Kenneth Lay after merging Houston Natural Gas and InterNorth. Several years later, when Jeffrey Skilling was hired, he developed a staff of executives that – by the use of accounting loopholes, special purpose entities, and poor financial reporting – were able to hide billions of dollars in debt from failed deals and projects. Chief Financial Officer Andrew Fastow and other executives not only misled Enron’s board of directors and audit committee on high-risk accounting practices, but also pressured Andersen to ignore the issues.

    Remember we’re talking about decommissioning liabilities and not corporate valuations. The Enron Corp you’re referring to didn’t produce oil/NG. As far as valuations eventually proven to be excessive that happens with some public companies in every industry: sitcoms, airlines, etc. Why would the oil patch be any different?

    But back to my original point: with respect to Texas and the federal offshore the tax payers aren’t going to be stuck with decommissioning costs.

  13. peakyeast on Sun, 4th Dec 2016 2:47 pm 

    @Rock: You misunderstand my reference – the reference was only to point out that financial wizardry can maintain an illusion of great wealth – which means that the company looks worthy.

  14. peakyeast on Sun, 4th Dec 2016 2:50 pm 

    @Rock: Now suppose enough companies leave worthless wells to be decommissioned that empties the fund 10 times over.

    Who will then pay?

  15. Kenz300 on Mon, 5th Dec 2016 1:40 pm 

    Fossil fuels require lots of cleanup and shut down costs.

    Wind and solar are safer, cleaner and cheaper.

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