UK North Sea decommissioning estimate drops nearer $49 billion target

LONDON (Reuters) - The estimated cost to companies of decommissioning oil and gas infrastructure in the British North Sea has fallen to close to a target of nearly 40 billion pounds ($49 billion).

Production in the North Sea basin started in the 1960s, making it a petri dish for other fossil fuel extracting regions trying to bring down the cost of dismantling wells, platforms, pipelines and other oil and gas assets.

While companies are the first in line to pay, taxpayers can be asked to foot the bill if they do not have the money. Tax incentives for decommissioning also affect public coffers.

The North Sea Transition Authority, the sector regulator, said in a report on Thursday it estimates a total bill of around 44.5 billion pounds.

This compares with an estimate of around 60 billion pounds in 2017 and the sector's target of reducing the cost to 39 billion pounds, which was pencilled in for end-2022.

"The Covid-19 pandemic has undoubtedly had a negative impact on progress, and it will be challenging to achieve the ambitious 35% target set by the NSTA by the end of 2022," NSTA said.

"The sector can achieve further cost reductions, though it must do so against a challenging global economic outlook."

A large chunk of costs has been saved by infrastructure owners clubbing together to plan big campaigns for decommissioning wells, the biggest cost factor, rather than on a project-by-project basis, the NSTA said.

Another approach is to reuse old fields and pipelines offshore for storing carbon siphoned off industrial processes.

The proportion of decommissioning spending compared with operating spending on oil and gas fields in the UK North Sea is expected to rise from just over a fifth over the next ten years to almost half over then next 30-40 years, NSTA said.

($1 = 0.8215 pounds)

(Reporting by Shadia Nasralla; Editing by Alexander Smith)