Offshore Decommissioning: Planning for the End at the Beginning
Authors: Presley Jennifer 
Published: July 2023

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It is the $100 billion elephant in the room. It is the last item on a never-ending list of things to do that gets delayed until it can no longer be deferred. It is the decommissioning of mature offshore oil and gas fields, and—like death and taxes—it is an unavoidable certainty.

Decommissioning, the safe and environmentally sound removal, disposal, and repurposing of obsolete infrastructure, marks the end of a field’s operational life cycle. A critical part of the process is the plugging and abandonment (P&A) of wells to ensure that hydrocarbons, other fluids, and gases do not escape the wellbore.

As the world grapples with the need to transition towards cleaner energy resources for the future, the decommissioning of mature or inactive offshore oil and gas wells has become a growing concern. These wells, which have been in some state of operation for decades, now present a range of environmental, economic, and social issues that must be addressed.

While many factors delay decommissioning activities, advance planning is one way to manage the risk and expenditures associated with it, speakers said during the “Starting with the End in Sight: Planning for Decommissioning to Ensure Long Term Success” opening keynote at the 2023 Offshore Technology Conference (OTC) in May.

Accumulating Liabilities

In areas like the Gulf of Mexico (GOM), for example, oil and gas production has been the cornerstone of the region’s economy for more than half a century. According to the US Bureau of Safety and Environmental Enforcement there are about 1,885 active production platforms on the GOM Outer Continental Shelf, with over 60% of these facilities more than 25 years old. Over the past decade, the offshore energy industry has averaged 200 platform removals per year.

“IHS Markit forecasted that the global offshore decommissioning spend will reach almost $100 billion in 2021 through 2030,” said Ryan Lamothe, director of decommissioning at Hess, adding that it is “an increase of over 200% from the prior 10-year period.”

He noted that the 2021 survey found Europe with the largest market, with 33% of spending, followed by Asia Pacific and North America with 23% and 17%, respectively. Decommissioning in the GOM is expected to grow at a compound annual growth rate of about 6.89% from 2020 through 2030.

“There’s not been an update on the numbers since 2021,” Lamothe said. “However, based on the size and magnitude recent bankruptcies in the Gulf of Mexico and the number of assets being returned to predecessors in title, I sense that the North American market is greatly understated.”

As bankruptcy causes more asset liabilities to boomerang back to previous owners, so do the risks and costs associated with decommissioning.

These boomerang assets are the result of what Lamothe said “is the lack of a full understanding of the chain of title obligations for the federal leaseholders, the discounting effect of net present value.”

He added that “the cost is always cheaper in the future and sometimes coupled with the ‘not in our careers’ mentality. Assets that are no longer the shiny penny in many companies’ portfolios and not necessarily getting the attention they deserve.”