Oil and Gas

A New Industry Rises From the Dust of Old Oil Fields

The Gulf of Mexico is jam-packed with offshore oil and gas rigs, platforms, and pipelines. It’s a massive expense for Big Oil.

But after more than 60 years of filling the Gulf with rigs, it’s now the first place where platforms must be removed.

Eventually all oil and gas fields run dry. At that point, the platforms and rigs are just big piles of scrap metal.

And in every case, the owners of those rigs are contractually obligated to plug the wells, decommission the platform and remove any related equipment from the site.

Unfortunately, decommissioning represents a huge cost for Big Oil. And those costs are starting to skyrocket.

Back in 2015, the average annual amount spent on rig removal was $2.4 billion worldwide.

By 2040, annual spending on rig and platform removal is expected to balloon to $13 billion – an increase of 540%. And the cost to remove these rigs, especially some of the larger ones, is expected to go up too.

The cost of decommissioning a platform varies based on location. Removing a shallow-water structure in the Gulf can cost anywhere between $500,000 and $4 million. In the North Sea, where platforms are in much deeper water, removal costs can be significantly higher.

Not only is decommissioning pricey, but there are plenty of platforms and rigs that have reached the end of their lives.

Right now, the global industry is removing 120 platforms annually. But the number of rigs and platforms scheduled to be removed between now and 2021 exceeds 600.

Additionally, an estimated 2,000 rigs will need to be dismantled between 2021 and 2040… for an eye-opening sum of $210 billion.

European governments and companies are already gearing for a concentrated decommissioning effort in the North Sea.

In 2017, one of the largest decommissioning projects in the North Sea started. It involved removing and scrapping four large structures from the Brent field in Great Britain.

(As the country’s largest oil field, it lent its name to what is now the international pricing benchmark for crude oil.)

The cheapest way to remove these huge platforms is to cut them from their supports. In a single massive lift by a huge construction vessel, these platforms are transferred to a barge and towed to shore. It’s there that dozens of these former giants are being cut apart and scrapped.

Over the next two to three decades, this decommissioning process will be repeated over and over. About 470 platforms and 6,200 miles of pipeline will be removed from the North Sea.

Other emerging hot spots for decommissioning – besides the Gulf and the North Sea – are Southeast Asia, Latin America, West Africa and the Arabian Gulf.

At this time, the global rig decommissioning business is still small and fragmented. In the U.K., one privately owned company, Able UK, is garnering most of the decommissioning business.

However, as decommissioning ramps up over the next few years, I expect more global scrapping companies to emerge. Perhaps even one of the Big Oil names will start a rig decommissioning operation.

I’ll be keeping an eye on this potential moneymaking opportunity – and you should too.

Good investing,