North Sea Decommissioning Costs Outpace Investment in New Oil and Gas Fields

A report from Offshore Energies UK warns that the cost of dismantling obsolete oil and gas platforms in the North Sea has reached a new high, set to surpass spending on the search for new reserves within three years. Last year, operators spent a record £2.1 billion on decommissioning, with projections indicating a rise to £3 billion annually by 2028. Investment in new exploration and production is expected to decline to £2.6 billion, leaving a gap of around £400 million between demolition and development.

This reversal has been attributed to the ban on new oil and gas fields introduced by Ed Miliband as well as a 78 percent tax imposed on offshore profits. With the economics of many fields undermined, operators are accelerating the decommissioning of their North Sea assets, cutting new investment and beginning to exit UK waters. Industry analysts have described this period as a critical inflection point for both operators and the supply chain, as decommissioning projects overtake the development of new energy resources.

According to the industry body, the decline in North Sea production is set to accelerate, with approximately 2,000 wells expected to be dismantled over the coming decade. The removal process typically requires mobile rigs to extract pipework, followed by filling wellbores with concrete to prevent leakage. Decommissioning costs for individual wells generally average between £2 million and £4 million. Additional expenditure is required for dismantling platforms, pipelines, and associated infrastructure, bringing the estimated total cleanup bill to £26 billion over the next ten years and £43 billion by 2060.

The North Sea Transition Authority has forecast a £10.8 billion loss to the Treasury resulting from the surge in decommissioning activity. Half of this figure is accounted for by tax rebates, as offshore operators can offset decommissioning expenses against historical profits to claim substantial refunds. The remainder reflects anticipated losses in tax receipts arising from early cessation of production in the absence of new field development.

Energy analysts argue that the windfall tax has significantly impaired the viability of marginal fields on the UK continental shelf, prompting an early end to their operational lives and triggering a sharp increase in decommissioning relief claimed by companies. The Department for Energy Security and Net Zero has reaffirmed its commitment to the ban on new exploration, stating that the policy will remain in place and that only pre-licenced fields will continue in production. Officials maintain that granting new licences would neither reduce consumer energy bills nor address energy security concerns, and assert that it would exacerbate the worsening climate crisis.