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Unveiling The Challenges Of Decommissioning In The Oil And Gas Industry

04 Sep

It is estimated that more than 70% of the world’s oil and gas production comes from mature fields and flows through infrastructure that is ageing [1]. As global oil and gas basins become more mature, there is an increasing focus from Government Regulators, Tax Authorities as well as National and International Oil Companies on decommissioning of oil and gas facilities along with their associated midstream and downstream industries. Decommissioning is set to be a key issue for the oil and gas industry soon.

Decommissioning is the final stage of an asset’s lifecycle, whereby reservoirs are isolated, and their associated infrastructure is removed and disposed of, leaving the production area in an environmentally acceptable condition with minimal safety risks associated with it. It is a long, often costly process, requiring cooperation by the key stakeholders to manage the various associated technical, operational, social, economic, and environmental issues.

COMMON CHALLENGES

While over 95 countries have producing oil and gas facilities, there is very limited experience in decommissioning of these fields. One of the main challenges of decommissioning a facility is the estimation of the costs and liabilities involved, and their allocation among the stakeholders of the project. The costs involved can amount to billions of dollars and vary significantly depending on the type, location, and age of the facilities, along with the safety and environmental standards that are required to be satisfied.

The estimation of decommissioning costs requires making assumptions on the Cessation of Production (CoP), time estimates for when the decommissioning operations will take place, how each aspect of operations will be performed and catering for inflation of these associated costs [1]. Decommissioning liabilities are also complex and can have uncertainties, as they may depend on contractual agreements, legal obligations, regulatory frameworks, and social expectations.

Other challenges include the safety and environmental risks associated with decommissioning, along with the financial assurance required to ensure projects can be taken to completion. Decommissioning projects typically generate little or no revenue for operators, so it is crucial to ensure that there are sufficient funds available to carry out decommissioning activities.

With the increasing global momentum towards decarbonisation, governments are also exposed to greater decommissioning risks as the outlook towards oil and gas assets has changed considerably. The increasing pressure on carbon-intensive assets to reduce emissions, coupled with lower anticipated returns and higher capital costs for companies could mean that assets can reach their economic limits significantly earlier than expected. This leads to higher chances of accelerated decommissioning of assets, mothballed assets and bankruptcies; there is a potential risk that governments would be saddled with decommissioning liabilities as a result.

Examples of the consequences seen by AIE include issues such as:

  • Inadequate decommissioning liability provision by up to 500%
  • Default/Bankruptcy of Involved Parties leaving decommissioning liabilities on Governments or other JV partners.
  • Poorly managed Assets incurring unnecessary decommissioning costs or even entering into decommissioning unexpectedly.
  • Asset sales values being eroded by presenting unrealistic decommissioning liabilities in the vendor data room.

OUR EXPERTISE

Our Veracity software suite handles a significant asset inventory totalling nearly 10% of the daily oil production of the Middle East. Our engineering services and software focus on aged infrastructure and we have successfully delivered a range of decommissioning projects from advisory support through to full project management delivery for onshore and offshore projects.

We have a unique understanding of the regional and international decommissioning landscape. AIE has recently been awarded several strategic decommissioning contracts and we have developed a world-class team to support a range of related initiatives.

To learn more about our decommissioning or integrity services, contact us at info@aiegroup.org today.

REFERENCES

[1] Oil and Gas Decommissioning Toolkit – Practical Guidance for Governments



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