An Overview on the Decommissioning Process in the Oil & Gas Sector

Decommissioning is a process consisting of the removal of industrial installations and any relevant structures that have come to the end of their productive life in a certain industry and the subsequent restoration of the industrial site to its previous status.

The decommissioning process consists of several stages. In the oil & gas industry and particularly in the offshore industry, wells securing operations are firstly started and afterwards the structures and pipes connecting the platform to the treatment ground centers are removed. Such operations must be performed with extreme care and require both specialized personnel and sophisticated techniques with the aim at avoiding environmental impacts. The removal stage is followed by the identification of adequate sites for the storage of non-usable materials and the final processing of potentially polluting product, such as metallic and plastic wrecks, combustible oils, etc.

The decommissioning costs are very difficult to establish as they depend on a number of variable factors such as the installation typology, the site geomorphology, the choice whether to remove partially or entirely the installation, the market conditions, the presence of key personnel and so on.

With regard to installation, a major role is played by the status of the working area as broadly considered, with special focus on the weather conditions. For instance, decommissioning in the United Kingdom North Area is very much affected by the remoteness and harshness of the environment where it takes place. This is why removal activities are normally performed during the summer. Moreover, removal sometimes proves more complicated than the very installation, as the latter may have been the outcome of a constant overlaying process throughout the years.

In the oil & gas sector, the decommissioning process is legally governed by a wide array of international, national and regional legal sources, which are sometimes in contrast with each other and are under a continuous forging and development process.

On the decommission dealt with at international level, the main legal international principles (meaning principles not covering decommissioning within the States’ territorial waters, where it is entirely regulated by national laws) are contained in the following legal sources:

• 1958 Geneva Convention on the Continental Shelf;
• 1982 United Nations Convention on the Law of the Sea (UNCLOS);
• Non-binding International Maritime Organization Guidelines and Standards of the Removal of Offshore Installations and Structures on the Continental Shelf and in the Exclusive Economic Zone;
• The OSPAR Convention (coupled with the OSCOM Guidelines, as adopted).

Setting aside the different opinions on the interpretation of the wording of the articles mentioned above, the reason why no clear position has been adopted yet is due to the fact that the not all States which are signatories to the Geneva Convention

The debate above has reached international dimension since decommissioning mostly concerns off-shore installations located in the continental shelf. Such lack of clearness undermines the predictability that should instead be ensured in order to attract investments and thus fully exploiting the current buoyant trend the decommissioning industry is experiencing.

Decommissioning in the United Kingdom loomed on the horizon in the 1960s. Looking back today to that time, it is undoubtable that there have been substantial breakthroughs under several standpoints (technical, legal, regulatory, business).

Today, decommissioning accounts for a large share of the future business opportunities for contractors and consulting companies in the United Kingdom; however, it goes without saying such an activity involves large responsibilities and consequently huge costs.

According to the Oil & Gas UK’s Decommissioning Report issued in 2013[3], the costs necessary to meet decommissioning liabilities in the United Kingdom Continental Shelf from 2013 to 2040 will be around £31.5n, with £10.4bn being the total forecast expenditure from 2013 to 2022. In fact, around as many as 475 productive facilities, 10.000 km of gas and oil pipelines, 15 oil terminals and 5000 wells are said to be decommissioned in the next 30 years.

Due to many oil & gas facilities approaching the end of their operational life, the decommissioning market is dramatically changing all over the world, being the North-sea currently one of the most bustling areas.

In it, for too long the decommissioning activity has been considered as an isolated activity, entirely separate from production.