BCG: Oil and Gas Needs Decommissioning Models That Work at Scale - August 2019 - eng

It could be the half-trillion-dollar elephant in the global energy industry room. We estimate that more than 50,000 offshore wells and 10,000 offshore structures will be decommissioned worldwide along with hundreds of thousands of onshore wells, facilities, and sites. Since our previous estimate just over a year ago, that undertaking has increased by 50%—to $150 billion—in the North Sea alone.

Government and companies recognize the issue. Some governments have set goals of reducing decommissioning costs by 30% or more, and operators are starting to develop plans of action. But few companies have decided on the decommissioning operating model they want to adopt, which means that they have yet to identify the skills they wish to maintain internally, the activities they will outsource, and the network of contractual relationships they will need in order to liquidate their decommissioning liabilities. And even as the industry gears up for a global wave of work that will run for the next several decades, it is still operating with multiple models in parallel. Oil and gas company shareholders and managers—along with taxpayers, who could be on the hook for as much as 80% of the bill—are looking at the prospect of billions of dollars of waste and inefficiency.