Petroleum Contract Compliance and Inspection


5.    Decommissioning obligations

Over the years governments have developed more precise obligations on decommissioning to ensure that the costs do not fall disproportionately on the public sector. In most jurisdictions, an outline decommissioning plan must be submitted as part of the exploration permitting process by the investor for implementation at the end of production. Decommissioning requires the investor to plug and abandon wells, rehabilitate the site and restore or remove any causes of danger or damage to the environment. If a financial reserve obligation is not imposed at the outset, the governments may be left to bear the cost of reclamation. To avoid this, detailed rules need to be made providing for plans and budgets as part of a decommissioning fund. This may be carried out through payments made ahead of closure based on estimates of decommissioning costs and placed in an escrow (holding) account at an approved bank. Decommissioning costs incurred in advance of closure are usually allowed as deductible expenses.

Many service companies, operators, contractors and shareholders will generally be involved in the disposal of equipment and abandonment of wells. However, every decommissioning will have unique features and, outside of the Gulf of Mexico, there is still little industry practice to draw upon as a source of guidance. The regulation of decommissioning is made more complex because there may be uncertainty about the exact time of decommissioning. Depending on the jurisdiction, decommissioning could be planned years before wells stop their production or temporary abandonment of wells could be allowed while other wells in the same field continue production. Price changes, geological discoveries or enhancement techniques are factors that may result in changes to closure schedules.  

Compliance with the host governments’ laws and regulations on decommissioning should be pursued from the project design stage. Prior to operations commencing, investors should consider the engineering, logistical, equipment and personnel requirements of decommissioning and determine a budget for the execution of decommissioning in line with applicable national and international standards. Local consulting firms are often contracted to avoid disruption and ensure that all permits are in place prior to decommissioning activity.

Tanks, flares, pipes, and any equipment used for productions need to be cleaned of any residual hydrocarbons for onshore and offshore fields, pads and platforms. All the equipment used in previous operations must be removed from the field (onshore), and platform equipment (offshore). Removal of marine growth, cutting pipe and cables between deck modules, separating the modules, installing pad-eyes to lift the modules, and reinforcing the structure are some of the activities that are carried as part of decommissioning in offshore platforms.

Because of the high costs of decommissioning operations, some operators may reuse parts of their offshore facilities. Manifolds and wellheads are some of the most common parts that operators tend to use and reuse. However, deciding on the reuse of a part of a facility depends mostly on its physical condition (basically the presence of corrosion). Another alternative is the application of wind and water power generation to repurpose a platform. Placing a wind turbine on the top of the non-producing platform or structural modification of a platform to use wave sequences are two recently developed decommissioning alternatives. Strategies for decommissioning a platform or well structure are determined on a case-by-case basis and evaluated against factors such as operational, financial, and local environmental and safety policies.

The materials used in platforms can be reused and refurbished, scrapped and recycled or disposed of in specified landfills. To ensure proper disposal, operators must execute a step-by-step site clearance procedure. This includes a pre-decommissioning survey and a post-decommissioning survey to identify the materials and components which have to be removed during the process of disposal and any material which can remain after this operation.