Decommissioning Obligations in the Energy Industry: What is the Balance between Contractual Obligation and Reality?

Abstract

All stages of petroleum development involve a chain of obligations and residual rights which include issues ranging from real environmental concerns to public perception of performance. Events in contemporary times suggest that the ability to deal effectively with these issues will be the defining moment in the energy industry this decade. One obligation currently occupying the front burner is the decommissioning of oil and gas installations. Decommissioning, which is the process of physical removal and disposal of structures at the end of their working life, is particularly complex due to the unpredictability of its date and cost. It is, however, unavoidable. While legislative and contractual mechanisms are easily formulated, the reality of implementation remains the answer to success.

This paper aims at analysing the existing international and other legal regimes applicable to decommissioning, while considering country examples and outcomes of contractual relations. It also discusses emerging trends and explores the most environmentally responsive options. In its conclusion, it recognizes that though dynamic, decommissioning presents a whole new industry calling for creativity to bridge the gap which will yield optimal results.

Acknowledgements

I express my appreciation to David O. Adetoro (University of Glasgow) for his helpful comments on an earlier version of this manuscript.

Notes

1. See, generally, Yergin (1990).

2. See http://www.oilandgas.org.uk/issues/decommissioning/index.cfm; [cited 2009 Jan 26].

3. See http://www.oilandgasuk.co.uk/issues/decommissioning; [cited 2009 Jan 26].

4. The Brent Spar was a 14,500 tonne oil storage facility in the North Sea. An attempt to dispose of it in international waters was met with strong opposition from Greenpeace activists. Although the planned method of disposal was not illegal, opposition to it was based mainly on environmental considerations. The UK government, as well as Shell, had to immediately change earlier plans. This was a turning point for decommissioning.

5. See note 2.

6. See http://www.imo.org.

7. Section 5-1 of the Petroleum Activities Act 1996, No 72, Norway.

8. This was launched on 26 September 2007 during the Oil and Gas UK Decommissioning Seminar in Aberdeen.