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RISING TO THE CHALLENGE OF DECOMMISSIONING IN SOUTHEAST ASIA

Lifecycle stage
Late-Life

HOW HIGH?

The vast number of wells that require decommissioning means that the bill in Asia Pacific is expected to be around £80 billion, though it is difficult to predict the cost, as it depends upon many factors.

One is the age and condition of the asset prior to decommissioning. If the length of time between cessation of production and decommissioning is significant, it is likely that decommissioning will become much more difficult and could substantially increase the amount of time it takes to decommission the asset.

Moreover, the quality of the data held about the asset will affect the cost, as errors in this data could reduce the effectiveness of the design choices made prior to decommissioning.

Overall, there are many factors that can affect decommissioning and as a non-revenue generating activity, decommissioning must be completed at the lowest possible cost.

WHO WILL PAY THE PRICE?

The industry has received much controversy over decommissioning and a key topic of discussion is who will pay the price to dismantle the world’s oil fields.

In the UK, oil companies receive 40-75% tax relief on their decommissioning costs. In Malaysia, it’s 38%, Indonesia 40%, Vietnam 32-50%, and Thailand 50%. In some countries, governments will finance up to 100% of the decommissioning costs, depending on the terms of the contract.

REGULATIONS

Most Southeast Asian countries do not have fully-developed decommissioning legislation in place but are instead covered by the Association of Southeast Asian Nations’ Council on Petroleum (ASCOPE) guidelines. ASCOPE represents nine Asia-Pacific countries and aims to coordinate regional decommissioning problems.

Thailand is one of the countries in the region that has begun its first decommissioning projects and has established a basic legal framework for doing so as well as creating an online portal to facilitate obtaining decommissioning approvals.

However, much more needs to be done to develop the region’s regulations and allow for efficient decommissioning to take place.

CUTTING COSTS

The initial cost of decommissioning is high for countries such as Southeast Asia with a lack of experience, knowledge, and legislation in place. This high cost can cause public scrutiny due to the environmental and social implications it can have. Therefore, operators, regulators and, governments must work together to reduce the cost to both the public and the environment.

A key way to reduce this cost is to share and transfer knowledge acquired by more mature industries such as the North Sea and the Gulf of Mexico. Between 2017 and 2018, decommissioning costs per well in the North Sea decreased by an average of 26% through a rapid improvement in productivity and efficiency gained through experience. This knowledge transfer could be through the collaboration of regulators, operators and service companies.

The Netherlands has recently introduced a platform aiming to encourage the collaboration of operators and regulators. The joint initiative from the Dutch oil and gas industry and EBN is called ‘NexStep’. The platform provides a forum for operators and regulators with the common goal to optimise decommissioning.

Economies of scale can be achieved to reduce costs, by undertaking multi-well decommissioning campaigns to spread mobilisation costs across wells. It has been reported that in some cases, time savings of a third have been achieved through multi-well campaigns. This approach would also allow for the retention of knowledge and acceleration of the learning curve.

The Rigs to Reef programme has been adopted by some countries whereby substructures are left in place in water depths from 10-30 metres to allow for marine life to grow, reducing the cost of removing the whole asset, and it is favourable to marine life.

Moreover, a large cost reducer is rigless solutions, which has the potential to cut costs by up to 50% of the overall P&A costs. Claxton performed the world’s first rigless platform well abandonment in 2003 and has since performed many more. Claxton offers innovative rigless solutions such as the SABRE™ abrasive cutting package which can realise massive cost savings on decommissioning projects.

The challenge of decommissioning in Southeast Asia is set to be high, but the advantage the region has is the opportunity to gain knowledge from the frameworks and regulations put in place by more experienced regions, and to build upon those. Through these developments and continued learning, Southeast Asia could see a rapid improvement in efficiency gains for its own decommissioning market.

References:

Boston Consulting Group (2018) https://www.bcg.com/en-gb/publications/2018/preparing-for-next-wave-offshore-decommissioning.aspx

King & Spalding (2018) https://www.kslaw.com/blog-posts/king-spaldings-upstream-oil-gas-decommissioning-workshop-decommissioning-liabilities-in-asia-pacific

Offshore Magazine (2018) https://www.offshore-mag.com/home/article/16804390/asiapacific-needs-to-address-decommissioning-costs-analyst-warns

Woodmac (2018) https://www.woodmac.com/press-releases/asia-decom/

OGA UK (2018) https://oilandgasuk.co.uk/wp-content/uploads/2019/03/OGUK-Decommissioning-Insight-Report-2018.pdf

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