Delay-induced clouds over UK’s oil & gas decom realm warn of billions in extra costs and fines

With the backlog of wells due for decommissioning on the rise, the UK’s regulator, the North Sea Transition Authority (NSTA), has issued a stark warning to operators on the UK Continental Shelf (UKCS), urging them to take steps to decommission permanently inactive wells now to stave off a future scenario where they, alongside taxpayers, will need to face cost hikes and potential sanctions because of the missed decommissioning deadlines.

Within its ‘Decommissioning Cost and Performance Update,’ the NSTA highlighted a backlog of over 500 wells, which missed their decommissioning deadline, warning that the figure could grow considerably unless operators quickly ramp up their activities, with more than 1,000 additional wells expected to be due for decommissioning between 2026 and 2030.

Even though some companies are showing good performance in meeting their regulatory duty to decommission wells that have permanently stopped producing, the UK regulator is adamant that many have delayed this work and fallen behind. As a result, they are likely to face higher costs if they continue to keep the supply chain waiting for work, causing further reductions in rig availability as rig owners seek opportunities overseas.

Aside from an uptick in costs, the operators also risk fines as last year the NSTA opened its first investigations into missed deadlines and more could follow in the future. Determined to drive improvements through regulatory measures and data visibility, Britain’s regulator underlines the urgency of tackling the backlog of wells that are already due for decommissioning to stop rigs leaving the North Sea and prevent billions of pounds of additional costs for operators and taxpayers.

Pauline Innes, NSTA Director of Supply Chain and Decommissioning, remarked: “The NSTA is pulling every lever at our disposal to encourage operators to decommission more wells more quickly. We are willing to help operators when that is necessary but, equally, we are prepared to get tough on those who continually frustrate and delay.

“The stark reality is that operators are running out of time to get to grips with the backlog as more contractors consider taking their rigs abroad, which damages the supply chain’s ability to meet demand and remain cost competitive. We need operators to rise to the challenge and use the supply chain before they lose it.”

Since operators are obliged by the law to decommission oil and gas infrastructure, including permanently inactive wells, to protect the marine environment in the long term, seen as crucial to safeguarding the sector’s reputation in the eyes of the public and investors, the NSTA claims to be using a ‘carrot and stick’ approach to address the issue.

With this in mind, the regulator has developed an initial plan to show operators how well decommissioning activities could be sequenced; thus, it expects industry to use this information to set up well decommissioning campaigns involving multiple operators and fields, which have demonstrated their ability to save time and money.

The NSTA emphasized: “Well decommissioning should also provide a stream of predictable work for the supply chain, whose transferable skills and equipment could underpin the UK’s transition to net zero and support energy production. The same rigs will be needed to drill carbon storage wells and development wells on approved oil and gas projects.

“However, not all operators have been awarding well decommissioning contracts quickly enough or on a sufficient scale, compelling rig owners to look for opportunities overseas in hope of securing longer deals and at higher day rates than in the UK. Wells are decommissioned in stages as different types of vessels and equipment are needed to carry out specific jobs.”

The North Sea Transition Authority reported that operators carried out some form of decommissioning work on 223 wells in 2024, progressing 103 of those to final abandonment status, with more than £1 billion (around $1.36 billion) spent on the activity. The regulator sees this as a sign of some operators’ commitment to cleaning up their legacies.

As about 300 wells need to be fully decommissioned annually to clear the existing backlog and the 1,000 additional wells, which are due to become inactive by 2030, the NSTA’s report pinpoints higher well plug and abandonment (P&A) cost forecasts as the main driver behind the spike in the overall estimate for UKCS decommissioning, which now stands at £41 billion (about $55.56 billion) in constant 2021 prices.

The British regulator believes that minimizing costs benefits taxpayers by slashing the cost of decommissioning tax reliefs to the Exchequer. With fewer rigs in the UKCS to meet projected demand, the pressure on the market will increase and costs will rise further if deferrals continue and more rigs leave the UK.

Commenting on the regulator’s report, Mike Adams, CEO of Elemental Energies, underlined: “As the decommissioning landscape continues to evolve, a major challenge lies ahead. To meet our commitments, coordinated action across operators, regulators, and the supply chain is essential, ensuring alignment and efficiency at every stage. A crucial part of this effort will be harnessing the skills that have been cultivated in the North Sea over decades.

“These skills are now ideally placed to support the transition of these assets through late life and into decommissioning, especially with the expertise of offshore teams who have operated and maintained these assets for years. It is these teams who will be vital in driving efficiency and ensuring safe, timely, and cost-effective decommissioning.”

The NSTA underscores that these costs have the potential to increase by more than £4 billion (over $5.42 billion), as reactivating rigs or attracting vessels back to the United Kingdom from overseas is bound to be costly and add further delays to the decommissioning schedules.

Adams added: “Continued investment in the development of new technologies will be essential. Much of this innovation is happening right here in the North East of Scotland, and these advancements will make a material difference in reducing time and cost across the P&A process, enhancing the overall efficiency of the sector.”

𝐃𝐨 𝐲𝐨𝐮 𝐰𝐚𝐧𝐭 𝐭𝐨 𝐠𝐫𝐚𝐛 𝐭𝐡𝐞 𝐚𝐭𝐭𝐞𝐧𝐭𝐢𝐨𝐧 𝐨𝐟 𝐲𝐨𝐮𝐫 𝐭𝐚𝐫𝐠𝐞𝐭 𝐚𝐮𝐝𝐢𝐞𝐧𝐜𝐞 𝐢𝐧 𝐨𝐧𝐞 𝐦𝐨𝐯𝐞?

𝐇𝐮𝐫𝐫𝐲 𝐮𝐩 𝐚𝐧𝐝 𝐭𝐚𝐤𝐞 𝐚𝐝𝐯𝐚𝐧𝐭𝐚𝐠𝐞 𝐨𝐟 𝐨𝐮𝐫 𝐬𝐮𝐦𝐦𝐞𝐫 𝐬𝐚𝐥𝐞 𝐝𝐢𝐬𝐜𝐨𝐮𝐧𝐭 𝐨𝐟 𝐮𝐩 𝐭𝐨 𝟓𝟎% 𝐨𝐧 𝐚𝐝𝐯𝐞𝐫𝐭𝐢𝐬𝐢𝐧𝐠 𝐩𝐚𝐜𝐤𝐚𝐠𝐞𝐬!

ADVERTISING OPTIONS