On the back of the U.K. government’s recent move to allow the transfer of tax history on assets sales, confidence is surging that the industry will experience growth in many areas, such as plugging and abandonment (P&A) work, thus spurring jobs growth and increased spending.
In addition, Aberdeen’s Robert Gordon University (RGU) has launched a decommissioning simulator aimed at servicing the growing sector. The simulator and its software will be used to support decommissioning activities in the U.K. and elsewhere, RGU said.
“RGU, in collaboration with funding partners The Oil & Gas Technology Centre (OGTC), KCA Deutag and Drilling Systems, with technical support from Baker Hughes, a GE Company (BHGE), has established the simulator to focus on well plugging and abandonment (P&A),” said RGU. “P&A is an area, which is forecast to cost the U.K. more than US $10.77 billion over the next decade, with around 2,500 wells expected to be decommissioned across the U.K., Danish, Dutch and Norwegian continental shelves.”
The simulator can support both oil and gas operators and service companies with the planning and preparation for well P&A, in a similar way pilots get trained and tested on flight simulators.
“With industry driving efficiency improvements which have led to a 16% increase in [U.K. Continental Shelf] production following a decade of decline, the sector is successfully controlling the cost of well plugging and abandonment,” said Mike Tholen, upstream policy director of industry body Oil & Gas UK.
“The report reveals that the average forecast cost for well P&A has fallen by 5% in the central and northern North Sea and west of Shetland, and by 4% in the southern North Sea and Irish Sea with further cost reductions predicted as the sector ensures decommissioning is carried out as cost-effectively as possible, while maintaining high safety and environmental standards.”
Blyth’s Decom Focus
Another player showing confidence is the Port of Blyth in Northeast England, which is planning to step into the offshore decommissioning market after a successful application for a decommissioning license from the U.K. Environment Agency (EA).
The port is preparing a site that is suitable for decommissioning at the Battleship Wharf terminal during 2018, the Port of Blyth said, adding that pursuing decommissioning work in the North Sea is a key area for the port’s future growth plans.
The designated decommissioning site in the terminal is now licensed to handle up to 50,000 tonnes of offshore energy materials per year. The port will now focus on small to medium sized projects and work of up to 4,000 tonnes.
Jobs Boost, Spending Forecast
“Comparing the number of jobs posted throughout the industry in the year to the end of July versus the same period in 2016, there has been a 2% increase, with jobs from corporates up by 8%,” Alex Fourlis, managing director of oilandgasjobsearch.com, noted in reaction to a recent survey that was part of the Oil and Gas Outlook 2017 report.
The forecast upturn could be seen as an indication of the oil market potentially stabilizing, according to Fourlis.
The report signaled a return in confidence since oil prices stabilized from July onward.
Lee Anderson, operations director at NES Global Talent, said that prospects in the North Sea were looking brighter than they had been for several years, including for the upstream sector.
“Confidence is now returning to the market,” Anderson said. “Although we are still at the very early stages of the recovery we are now seeing clients look at new development opportunities and further exploration in the North Sea.”
Transfer Of Tax History Boost
The U.K. oil and gas industry was generally pleased with the recent U.K. Budget in November, especially as it introduced a means of transferring tax history on assets sales.
This move is forecast “to unlock further investment in the U.K. North Sea by enabling more assets to change hands and allow new owners to provide fresh investment in many mature oil and gas fields,” according to industry body Oil & Gas UK.
The measure is planned to be effective by November 2018, U.K. Chancellor Philip Hammond said. Under current legislation, existing owners of oil and gas fields are unable to pass their tax history onto a buyer. This means the buyer can often consider the field to be less attractive commercially, partly because they are unlikely to be able to access the same level of tax relief than the current owner when entering the decommissioning phase.
“Enabling the transfer of tax history allows the purchaser to value the asset on a similar basis to the vendor and removes a significant barrier to asset trading,” according to Oil & Gas UK. “Transferable tax history will not permit the purchaser to gain greater tax relief than the vendor and will be at no net cost to the Exchequer.”
Deirdre Michie, chief executive of Oil & Gas UK, called the action “a vital step that can bring in new investment to increase recovery from existing fields and fund fresh investment.” She added that it will also “help extend the lives of many mature fields and postpone decommissioning.”
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