What opportunities does decommissioning offer?

The oil price crash has increased the number of ageing and unprofitable fields that are being decommissioned. With current low oil prices and lower drilling activity, there is now an opportunity to develop a new revenue stream. Decommissioning is estimated to be worth $1 billion annually in Asia alone. What can be done to take advantage of this opportunity?

The scale of the opportunity

With over 600 fields poised for decommissioning across the Asian region over the next decade, there are opportunities. This is the first time APAC has faced decommissioning on this scale. One of the biggest challenges in this region is the lack of clarity from government regulations on decommissioning. This affects operators directly and also complicates asset financing, M&A transactions, service sector resourcing and the handling of ceased fields.

What will determine the speed of decommissioning?

The speed of field decommissioning will mostly depend on the responsiveness of the service sector, oil prices, cost management, and environment protection concerns. Local regulations will also play a major part in influencing how the market develops. Australia and Thailand have clear rules in place, while China, Indonesia and Malaysia have less defined controls on issues like liability. Lack of clear regulations could make it more difficult for companies to obtain financing to decommission fields in those countries.

UK decommissioning expenditure to overtake development spend

Unlike parts of Asia-Pacific, the rules for decommissioning in the UK North Sea are well established. And through tax rebates the government is liable for nearly half of the US$66 billion decommissioning cost, meaning there is a big shared interest between operators and government in bringing the cost down.

Since the oil price crash, the sector has made remarkable strides in driving down operating costs. And discretionary development spend has been dialled right back through cost reduction and delaying new projects. But in many ways the outlook for decommissioning is unchanged with mature fields, ageing platforms and old wells still requiring abandonment. Irrespective of the oil price, we expect decommissioning activity to steadily build up as more fields cease production, and abandonment expenditure should overtake development spend in the coming decade.

Already, several key players including Shell, Repsol-Sinopec, ExxonMobil and Perenco are de facto becoming decommissioning specialists as their looming decommissioning expenditure outlook exceeds their development opportunities.