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.
Introduction
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.
Executive Summary
This Guidance highlights the following key issues associated with decommissioning which have significant implications for governments:
- Relative to other oil and gas activities, decommissioning is at an infancy stage with limited country and company experience
- Decommissioning carries significant environmental and safety risks which should be factored across the entirety of a project’s life cycle.
- Decommissioning costs are extremely large and can easily amount to billions of US dollars. Estimates are subject to large uncertainties and can increase significantly closer to the time when decommissioning activity is required.
- Decommissioning occurs when the asset no longer generates revenues. It is therefore imperative that there are adequate funds available when needed – i.e. an effective financial assurance mechanism is in place.
- As decommissioning is at a relatively early stage across the world there is limited technical guidance and experience in managing complex social and economic aspects.
- The local communities and general public are important stakeholders that need to be considered as fields enter the decommissioning phase. Experience has shown that without early engagement, data-driven debate and timely communication, there can be resistance and opposition to a selected decommissioning solution.
- In many jurisdictions the regulatory and liability frameworks for decommissioning is weak – ultimately posing significant risk to the public and the taxpayers.
- The energy transition and growing bankruptcy rates in the sector are increasing the decommissioning risks to countries.
This toolkit provides guidance to governments on the key issues associated with oil and gas decommissioning and recommendations for effective management. A summary of the key recommendations to help address key challenges associated with decommissioning is shown below:
Recommendations
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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.
