There is a statutory obligation to decommission offshore installations when they reach end of life. This pending work represents a significant opportunity for the supply chain, with £27bn in projects expected by 2032.

Over recent years there has been a marked decline in future expected UK oil and gas production. This is not due to changes in assets or geography, but due to shifts in government policy, which have resulted in a significant decline in investment into the United Kingdom Continental Shelf (UKCS) coinciding with a rising tide of decommissioning.

Decommissioning now accounts for 15% of total oil and gas spend in the UKCS.

The UKCS decommissioning challenge

As with all large projects, there are three interlinked but competing constraints: quality, speed and cost: often referred to as the iron triangle. To prioritise one or two will typically be at the detriment of the other(s). We are seeing these competing constraints play out very visibly in offshore decommissioning.

Quality

Health, Safety, Security and Environment (HSSE) are at the forefront of every decision in offshore work. Given the difficult environment, HSSE is embedded into energy culture in a visceral way. There is a baseline acceptable ‘quality’ that must be reached to meet HSSE standards.

Cost

Decommissioning costs are substantial and are accounted for over the life of the field, but the cost is also difficult to estimate. The process of decommissioning is complex. Each site will have novel and hazardous challenges, and the work requires both skilled workers and large assets to complete. A record £2.4bn was spent in 2024 on UKCS decommissioning and the North Sea Transition Authority (NSTA) forecast decommissioning costs for the UKCS currently sit at £44bn, with £27bn expected to be committed by 2032.

The industry has gained considerable experience in decommissioning in the past five years, helping to improve cost estimates, but current commercial and political environments has made sustainably achieving those budgets harder.

The complexity of the work along with a focus on cost control has resulted in commercial challenges around risk sharing and fixed priced contracts. The commercial environment for decommissioning is therefore typically lower margin and less financially predictable for the supply chain in comparison to exploration and production projects.

Government policy has almost eliminated all new exploration and production opportunities in the UK. In addition, frequent adverse changes in tax policy have further damaged investor confidence in the UKCS. Cessation of Production (CoP) has been accelerated for many assets increasing the near time decommissioning pipeline and currently there is no meaningful exploration or production work in the UKCS. So, we have seen a migration of specialised mobile assets and skills toward overseas exploration and production projects and out of the UK, along with an increase in near time decommissioning work, which together has further increased UK decommissioning costs.

Speed

There is now a significant backlog of more than five hundred wells that have missed their original decommissioning deadline. In the iron triangle, ‘speed’ seems to have been sacrificed. This is understandable given there is no material profit-driven incentive to speed up the process.

Evolution of decommissioning

Rising costs and fiscal uncertainty

NSTA estimate decommissioning costs from 2023 to 2032 have increased from £21bn (2022) to £27bn (2024 prices). The increase in costs is due to acceleration of CoP, inflation, higher day rates, changes in estimates due to better understanding of well conditions, or repurposing goals.

The government are concerned about both the increasing backlog and cost. Government policy has also added to the uncertainty on timeline, the Energy Profits Levy (EPL), the no new licence policy and the challenges with consenting have stalled investment in the UK. EPL also restricts tax relief for decommissioning, meaning that increases in decommissioning estimates result in a tax cost. This is due to the mismatch caused by the income being subject to tax at up to 78% while the decommissioning expenses are capped typically at 40%. These policies and numerous policy changes have caused fiscal uncertainty for asset management.

Decommissioning tax relief and government exposure

While decommissioning costs are not deductible for EPL, they are typically relievable against ring-fence corporation tax, supplementary charge, and petroleum revenue tax. In July 2024 HMRC estimated the cost of decommissioning to the exchequer would be £10.8bn. The details behind this calculation are unclear, it is however a discounted number which may explain why it is low (25%) in comparison to NSTA’s estimate of future decommissioning spend (£44bn). Calculating the tax relief on decommissioning costs is complicated and relief could be 0% to 75%, but typically will sit between 30%-40%.

Government therefore has a vested interest in managing the costs of decommissioning as it links into future tax receipts and tax repayments. Beyond this, the government sees decommissioning as a transitional market for current oil and gas skills, filling the gap caused by the time lag between the current declining oil and gas activity and the expected future scaling of the renewables and carbon capture industries. This lag is being driven in part by the structural challenges slowing the UK’s renewable transition, including grid bottlenecks, long connection queues and policy uncertainty.

Regulation, enforcement and delivery pressure

NSTA has taken an increasingly involved approach to decommissioning, setting cost efficiency targets, publishing UKCS decommissioning benchmark reports and data visibility dashboards, issuing letters restating decommissioning obligations should be met within specified stated timescales. In 2024, NSTA escalated enforcement, opening investigations into multiple operators for missing decommissioning deadlines and in December 2025 they published a report naming operators with overdue wells. Within the North Sea Future Plan, published in November 2025, the government sets out additional powers for NSTA to impose enforceable well decommissioning milestones and extend their ability to take financial security. The expectation is that NSTA will use these additional powers to put increasing pressure on licensees both reputationally and financially to clear the backlog.

The actions by the NSTA will put more stress on the third leg of the iron triangle: speed. The pressure on licensees to deliver on plan and clear the backlog is expected to create a pipeline of more predictable work. UKCS decommissioning projects have historically struggled to compete for mobile assets and associated skills. It is hoped the cascade of projects will provide confidence for specialist assets owners to deploy and retain assets in or near the UKCS.

There is clearly much work needed with all three legs of the triangle now showing strain. NSTA decommissioning strategy focuses on planning, commercial transformation, collaboration and technology, processes, and guidance as key to managing costs. The industry appears to be at an early stage of defining how asset owners and the supply chain can collaborate effectively to deliver projects that meet quality, timing and budget expectations. The anticipated surge in activity over the next seven years presents a significant opportunity, but whether this will translate into a clear, committed plan that enables supply chain investment remains uncertain.

What do we expect to see in the near term?

We expect to see significant change over the next 12-24 months. The industry has gained considerable experience in decommissioning in the past five years, helping to improve cost estimates.

The sector is also navigating the common megatrends of technology adoption, environmental policy, geopolitical changes, inflation and skills gap. Going forward, we expect to see a more collaborative and tech enabled approach resulting in changes in contracting, financing and execution to address the specific operational challenges currently faced.

Assessing, understanding and challenging the consequences of these changes will be fundamental in managing risk, accessing opportunities and driving profitable growth.

How we can help your oil and gas business

With extensive experience working with clients in the oil and gas sector across the UK and globally, we are dedicated to supporting businesses in the industry across our Audit, Tax and Consulting lines of service. By combining deep technical expertise with cross-industry experience, we partner with our clients to support through periods of rapid change, providing sector specific expertise to develop integrated solutions that generate lasting value.

If you would like to understand how RSM can offer support through periods of rapid change or discuss the impact for your energy and natural resources business, please contact Grant Morrison.

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