Managing Decommissioning Risks for Government

1. Managing Decommissioning Risks for Government Keith Mayo Head of Offshore Decommissioning Unit, Department of Energy and Climate Change

2. Key Event - Energy Act 2008 • Brings legislation on oil and gas decommissioning up to date • Uses lessons learned • All licensees become liable at same time • Pipeline owners made liable when construction not production starts • Widens powers to require financial information and guarantees

3. DECC Concerns • Failure of banking sector to provide credit and guarantees • Brought forward date for implementation of Act • Decommissioning provisions in force from 26 January • Issued new version (3) of Guidance Notes • https://www.og.berr.gov.uk/regulation/guidance/decommission.htm

4. Industry Concerns Addressed • Licensees not liable if they have never been entitled to benefit from the field • Act and guidance notes explain “benefit” • A share of the oil or gas production • Owners of host platform not liable for other owners’ tieback • “Manager” is the operator

5. Financial guarantees • Can now be required at any time • New fields, licence transfers or other changes • Reviews of financial positions, especially during credit shortage • Will compare decom costs to net worth • If over 50% - discuss security with company • Legal notice requiring guarantee

6. Decommissioning Estimates • £15 billions for UKCS at 2006 figures • 20% inflation in 2007 and 2008 • £22 billions at 2008 peak • Costs falling back now? • >5000 wells for £5 bn to £15 bn • New study by consultants • £20 billion? at current prices

7. No Activity Chart • Operator predictions on 2P basis – pessimistic? • In 2008, predictions for 39 fields changed by 5 or more years • 25 fields extended,14 fields shortened • Predictions cluster around licence expiry • Also around 2015, 2020, 2025 • Actuals don’t support predictions • More uncertainties with smaller fields

8. Operators CoP Predictions 2006,7,8

9. What is DECC? • Set up by the Prime Minister on 3 October • Greater focus on solving twin challenges of climate change and energy supply • Lead on UK responsibility for meeting climate change targets • Develop policies on affordable, secure and sustainable energy supplies

10. DECC activity • Setting up resources, systems and plans for a completely new organisation Three groups 1. Mobilise the transition to low carbon UK 2. Pursue international co-operation 3. Nuclear/Renewables/Clean fossil fuels

11. Impact on oil and gas - longer term • UK to achieve 80% cut in emissions by 2050 ═ zero carbon electricity generation • EU ETS covers operations on UKCS platforms • Will CCS be essential to enable us to keep producing from UKCS? • Will drive for low carbon bring forward decommissioning of older facilities? • But still need to make the most of UK resources

12. What we are doing • Encouraging projects tackling emissions and strengthening security of supply • Energy Bill sets frameworks • CCS projects regulated like oil and gas • Unloading and storage of hydrocarbon gas • Gives clarity for developers • Supports re-use of oil and gas infrastructure

13. Impact on decommissioning - longer term • Decommissioning activity will have to become low carbon • Not an excuse to dump on the seabed • Low carbon options preferred if key impacts are similar • e.g. concrete structures and cuttings piles • More attention to emissions data in EIAs

14. Low carbon decommissioning? • Heavy lift • Single lift • Piece small • Buoyancy float back • Rig or vessel well abandonment • DP or anchors • Which options will cut emissions?

15. Tough Times Ahead? Short term • Banks failing to provide credit and guarantees • Company failures • Oil prices and costs rising again, or falling? Longer term • Drive for low carbon re-use of infrastructure • Low carbon options for decommissioning