Report warns UK taxpayers face billions in oil decommissioning risks

A new report by Redwater Insights has issued a stark warning that UK taxpayers could be left liable for billions of pounds in oil field clean-up costs if decommissioning arrangements fail. The analysis highlights a significant structural risk in the global oil and gas industry, where developers may retain financial exposure for years after selling assets. With the sector facing an estimated four trillion dollars in total decommissioning costs, the report argues that current regulatory frameworks often leave the public purse to absorb losses when operators become insolvent.

The core of the issue lies in what the report terms “late-life” asset transfers. Major energy companies are increasingly transferring ageing infrastructure to smaller entities that may lack the financial capacity to handle the eventual clean-up. This practice creates a scenario described as “private profit, public risk,” where the initial operators extract value from the assets while the long-term environmental and financial liabilities are passed on to weaker buyers. Organisations such as Uplift have long advocated for developers to set aside dedicated decommissioning funds to ensure projects are dismantled responsibly, but the report suggests current voluntary arrangements are insufficient.

Sophie Marjanac, director of legal at Redwater Insights, explained that under the UK’s current decommissioning regime, voluntary security arrangements only arise once a field is in very late life. By that stage, the asset’s future cash flows are often no longer sufficient to cover the clean-up costs. Marjanac argued that a more robust system would require funding to be set aside upfront, rather than relying on end-of-life mechanisms that may be too late to prevent financial failure. She noted that without such provisions, original operators or the public sector can ultimately be held liable for substantial associated costs.

The report cites the case of the Northern Endeavour Floating Production, Storage and Offloading vessel in Australia as a cautionary tale. The 274-metre vessel accumulated a decommissioning bill of 2.5 billion Australian dollars, which was passed to new owners. Woodside Energy, which had previously been part of a joint venture with Shell and BHP Billiton, paid the NOGA Group 16.5 million dollars in cash and 5.4 million dollars in services to take over a portfolio of assets including the Northern Endeavour. However, a loss of production revenue and the high cost of maintaining the idle vessel pushed NOGA into voluntary administration in late 2019, followed by liquidation in February 2020.

The financial collapse of the operator left the Australian government responsible for the ageing vessel and the billion-dollar decommissioning of the associated oilfields. Freedom of information requests indicated annual estimated monitoring costs of 71 million Australian dollars to keep the vessel floating without producing oil. This incident triggered a government-led review and resulted in the introduction of new “trailing liability” laws under the Offshore Petroleum and Greenhouse Gas Storage Act. These laws extend legal responsibility for decommissioning beyond the current owner to include former owners, enabling the government to call back prior owners such as Woodside to pay for decommissioning if the new owner fails to do so.

Redwater Insights warned that even in countries lacking such specific legislation, governments tend to absorb the cost of decommissioning in insolvency cases. The report highlighted that unmet decommissioning liabilities have direct tangible implications, particularly when wells are “orphaned” and left without proper sealing, posing ongoing environmental and health risks. While the UK does not currently operate trailing liability laws in the energy sector, certain cases have prompted revisions to existing regulations. Marjanac questioned whether UK regulators currently have the power to prevent similar transfers of late-life assets from companies that can pay to those that cannot, noting that financial assurance requirements remain largely absent in the UK.