Stena Wells look at the future – Decommissioning versus EPL

Where does the focus lie when two government policies conflict?

As the industry recovers from price wars and pandemics, there is promise of light at the end of the tunnel. Finally, there is a feeling of inertia building for decommissioning operators with cash flow sufficient to commence large-scale projects.

Has big Decomm arrived?

In a world of ever-changing forces, inflation, and the requirement for energy security, the UK government chose to react by implementing the Energy Profit Levy or EPL. 

The EPL came into law in late May 2022 – in effect, an additional 25% tax on UK oil and gas profits on top of the existing 40% headline rate of tax, this takes the combined rate of tax on the profits to 65%. Source – Commons Library Parliament UK.

There is, however, an opportunity for the industry to claw back a significant portion of the EPL through an investment allowance for future investment within a three-year window.

In short, those paying the Energy Profit Levy can reclaim up to 91 pence on the pound. Source EPL factsheet.

This is where the potential conflict begins:

The introduction of the levy potentially creates two competing policies; the first of these being the appetite to reinvest and recover the above-mentioned EPL, the second being driven by the regulatory bodies to expedite well decommissioning.

With the Plug and Abandonment (P&A) schedules of many operators reading unchanged from their commitments pre-covid, it is no surprise there is a significant pressure to liquidate the work near term.

At a recent Well Decommissioning event, there was genuine surprise at the sheer number of wells being brought forward by operators for near-term decommissioning.

This raises a question – and in some way an assumption – where will operators focus near term?

The assumption being a finite resource pool cannot accommodate both work scopes in full.

In this case where there is a drive to undertake both drilling and decommissioning activities, there is one company is preparing to meet both demands.

Stena Wells has been created to accommodate and cater for this situation. The company was launched in mid-2022 with the following remit.

Stena Wells will provide safe, predictable, and cost-effective solutions for Well Construction and Well Decommissioning.

The company aims to combine the capability of the Stena Drilling assets with an experienced capable engineering and execution team.

Stena Wells is led Led by Dillan Perras, an industry expert in UKCS well operations and decommissioning, a previous co-chair, and a current sitting member of the OEUK guidelines workgroup.  

When asked about the current EPL policy and the potential effects on the decommissioning sector, Dillan said, “The summer of 2022 will be a turning point for many of the operators in the UKCS, the full effect of this has yet to been seen” – adding, “We are in the middle of what is typically the operators budget season – operators will be finalising and setting their 2023 budgets. This change in policy may significantly change their near-term strategies.”  

“Companies may look to the current resource pool of rigs in the UK and realise there is a significant crunch point coming, the market has moved significantly with many rigs contracted – the ability to reclaim EPL could be resource constrained’.

Stena Wells aim to offer premium summer drilling opportunities alongside ‘cost surety’ for decommissioning activities. By creating strategic partnerships and aligning commercial objectives, the team will be in position to deliver on our client’s requirements.

“We believe this to be unique in the market – an adaptable solution for an ever-changing environment.”

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