Decommissioning is the final stage of an oil or gas project. At the end of a field’s life, when production has ceased, decommissioning is the process whereby the hydrocarbon reservoirs are isolated and associated infrastructure is removed and disposed of, so that the producing area is left in a safe and environmentally acceptable condition. Decommissioning is a long, costly and complex process, requiring co-operation by the key stakeholders to manage technical, economic, operational, social and environment issues.
Decommissioning is the final stage of any oil or gas project and poses significant technical, economic, social and environmental risks. It is a long, costly, and complex process that if not effectively planned, managed, and executed can have disastrous consequences.
With over 95 producing countries, relatively limited experience to date, increasing risks of stranded assets and weak regulatory frameworks, decommissioning is set to become a critical issue – for the industry, governments and citizens.
Contents of the Toolkit
The life cycle of a petroleum project consists of four stages – exploration, development, production and decommissioning. As a field passes its peak production and begins to decline (commonly referred to as a ‘mature field’), multiple options are explored to extend the productive life of the asset. When the costs of maintaining or extending production are greater than the associated revenues, the asset is no longer economically viable and has reached its ‘economic limit’. While it may be possible to continue production, there is no commercial imperative to do so – as the project’s ongoing net cash flows would be negative, as illustrated in Figure 2.1. It is at this point that the operator will cease operations (referred to as ‘cessation of production’ [CoP]) and take measures to decommission the field.
While more than 95 countries have producing oil and gas fields, there is limited experience in decommissioning these fields. The notable exceptions often cited are the United States (Gulf of Mexico) and the North Sea (United Kingdom and Norway). With more than 70 per cent of the world’s production coming from mature fields and flowing through ageing infrastructure, many fields will soon reach their economic limit. Decommissioning is therefore set to become a key issue for the industry.
The ‘regulatory framework’ refers to the combination of policies, laws, regulations and contracts that govern decommissioning. There are several cross-cutting aspects that may be addressed in other sectors’ regulatory framework, such as environmental legislation. This section, however, pertains to elements that are typically addressed within petroleum-specific instruments such as petroleum acts, petroleum regulations and petroleum agreements (for example, concessions, production sharing contracts).
There is growing recognition across the world of the immense health, safety, environmental and financial risks that decommissioning represents. Decommissioning is the inevitable end of all oil and gas projects. Policy-makers and regulators need to bear in mind the issues highlighted in this paper, as they set the rules and guidelines for the development of the resources. If the last part of the field is not adequately dealt with, any benefit derived from its development can easily be negated.