April 12, 2012 / 12:11 PM / 7 years ago

UK North Sea decommissioning heightens risk of leaks

* Far-reaching regulatory fallout from Elgin leak

* European Commission mulls mandatory 10 billion euro liability pot

By Oleg Vukmanovic

LONDON, April 12 (Reuters) - The UK North Sea’s dwindling oil and gas reserves will make abandoning wells increasingly common, exposing operators to similar challenges facing French major Total when decommissioning work triggered a blowout, the International Energy Agency (IEA) said on Thursday.

“The problem that Total encountered as it decommissioned an old well at the field is likely to portend difficulties at other mature fields in the medium term,” the IEA said in its latest oil market report.

The blowout that led Total to hastily evacuate all 238 workers off its Elgin platform - 150 miles off the coast of Aberdeen - over two weeks ago is still spewing gas, while costing the company $2.5 million per day so far.

The next decade will see several fields and installations in the UK Continental Shelf cease production and commence decommissioning, the West’s energy watchdog said.

A recent report by Deloitte and Douglas-Westwood says over the next 30 years, almost 500 platforms, 8,000 wells, 4 million tonnes of steel and several hundred subsea wells, manifolds and pipelines will need to be decommissioned in the North Sea area.

“Other companies are sure to look towards Total’s experience as an indicator of problems that might occur when routine maintenance becomes problematic for an entire field complex,” it said.

Output from fields and platforms surrounding Elgin also ceased following the leak due to safety precautions, including Shell’s Shearwater platform three miles away.


Experts already believe the regulatory fallout from the ongoing leak will be far-reaching, binding North Sea operators to stricter licensing and safety requirements.

Rating agency Fitch on Tuesday said the European Commission may require explorers to segregate up to 10 billion euros to cover potential environmental liabilities before granting operating licenses in European Union waters.

“That in turn would seriously affect the credit ratings of companies operating in the North Sea and other EU territorial waters,” it said.

The latest North Sea leak may bolster EU proposals to strengthen safety requirements for offshore drilling, Fitch said.

The European Commission first proposed requirements in October 2011 for licensing bodies in member states to ensure only operators with “proven sufficient financial capacities” to meet liabilities were allowed to explore for, and produce oil and gas in a marine environment.

The draft legislation could be approved by the European parliament and member states in a few months, despite opposition from UK authorities, Fitch said.

Independent operators will be hardest-hit by a new wave of regulations potentially forcing some to downgrade activities in order to cut costs, analysts from JBC Energy said.

“Such a move may be justified given the poor offshore track-record of the industry but will accelerate the depletion rates in the region, further drying up the liquidity of North Sea crude,” including that of the global Brent crude oil benchmark, they added.

“Many of the rigs are decades old and on their last legs with operators reluctant to invest in them beyond the bare minimum,” it said.

Evidence suggests that safety checks and maintenance in the UK North Sea are behind schedule, as declining production leads operators into deeper and more hostile terrain. (Editing by James Jukwey)

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