Abstract

The financial risks associated with UK field abandonment are identified. Different risk minimisation and value enhancement strategies for the abandonment of UK fields are discussed. They include facility reuse, abandonment deferral, insurance, turnkey production leases, sale and leaseback, divestment, acreage production swap:, and crossfield offsets. The adoption of an appropriate abandonment strategy can significantly reduce the after-tax cost of abandonment.

Introduction

The economics of UK field abandonment, is a function of:

  1. The fiscal treatment of abandonment costs.

  2. The extent to which tax relief for abandonment can be obtained prior to the field's abandonment.

  3. The cost of abandonment.

COSTS

Cost estimates for the abandonment of North Sea fields vary widely, depending on the source of the information, and the costs included within the estimate.

The cost of decommissioning and abandoning the UK fields (developed and proposed developments) will probably average between L50 MM - L160 MM for proposed developments) will probably average between L50 MM - L160 MM for each field, varying from c. 1 MM for the smallest fields to 500 MM for some of the larger fields. Individual structures will probably cost between L8 and 30 MM to remove. The removal of structures associated with UK field: developed before 1988 will cost L2.9 - L4.4 Bn. However, if new and future field developments are considered, then UK abandonment costs may exceed 8 - L16 Bn.

Average UK field abandonment costs are likely to be less than Norwegian abandonment costs which are estimated' to average L110 MM - 166 MM for each existing field. This represents a total cost of L1.8 - 3.0 Bn

The total cost of abandoning the existing North Sea installations is likely to exceed 7 Bn5. If future developments and well decommissioning costs are also considered then the cost of North Sea abandonment is likely to exceed L20 Bn.

The eventual abandonment cost for any field is a function of:

  1. It's location.

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