Decommissioning: Future Risks to be Considered in Advance · DPR Petroleum Act Egaspin (1969)

Decommissioning: Future Risks to be

Considered in Advance

Caroline HAQUET - SCOR

Latin American Natural Resources

Conference

Buenos Aires, 6th 7th February 2017

2 Latin American Natural Resources Conference, Buenos Aires, 6th 7th November 2017


Decommissioning Round Table: Operators/Contractors/Regulators/Insurers Are we all on the same page? Lloyds Old Library 9:30, Thursday 15th September

About the Round Table:

The round table has gathered the major industry players who have shared their views, needs and experience

of Oil&Gas Decommissioning

Roger Esson, Chief Executive of Decom North Sea has addressed the North Sea regulatory regime

related to decommissioning obligations

Olivier Leblond, working in the insurance risk management team of Total did a focus on the financial

aspect of the decommissioning

Andr Steenhuis from Allseas has highlighted the technical challenges of offshore decommissioning

Euan Nicholson, Head of Upstream & Offshore Construction of AON was representing the

insurance/market

Short lively presentations were followed by a round table discussion chaired by Caroline Haquet in an open

Q&A session.


DECOMMISSIONING: Future Risks to be Considered in Advance AGENDA

What are we talking about?

Why dismantling?

How?

What about Insurance?


DECOMMISSIONING: THE SURFACE FACILITIES

Fixed Steel

Concrete

Self erected (jack-up type)

Floating Semi-submersible

(associated with subsea

wells)

On seabed Pipelines & flowlines

Umbilicals

Xmas-trees & templates

Fixed platforms

Subsea

systems

Floating Production

Storage Offloading

Floating systems

FPSO SPAR TLP

Compliant

tower

Steel

platfo

rm

Concrete

platform Tension Leg Platform

Semi Submersible


DECOMMISSIONING: THE INVENTORY

More than 7 000 fixed

platforms including

4 000 in the Gom

500 in Europe

2 500 in Middle East/Asia

200 in Africa

More than 100 floating

platforms

millions of tons to be

dismantled




Why dismantling?

How?



DECOMMISSIONING: WHY TO DECOMMISSION?

Geological / Reservoir Trigger: Technical feasibility Financial Trigger: Oil Barrel Price

Decommissioning


DECOMMISSIONING: REGULATORY REGIME

Three levels: International/local/Regional

(National and sub-national

are examples only)


DECOMMISSIONING: INTERNATIONAL CODE

Geneva Convention on the continental Shelf (1958)

requires to remove all installations

London Dumping Convention (1972) & Protocol

(1996)

prohibits dumping of wastes into the sea

except 7 categories including platforms

UN Convention on the Law of the Sea UNCLOS (1982)

accepts partial removal of platforms

IMO Guidelines & Standards (1989)

Gives rules for partial removal of facilities

(>4 000 tons) & requires that new installations

to be totally removable


DECOMMISSIONING: OSPAR (OSlo PARis) CONVENTION (1992 & 1998)

Signed in 1992, in force in 1998. The 1992 Oslo Convention for the

Prevention of marine pollution by Dumping from Ships and Aircraft.

The 1974 Paris Convention for the Prevention of Marine Pollution from

Land-Based Sources.

Presumption for removal of all facilities with possible derogation for:

Concrete structures

Footings of jackets weighing more than 10 000 tons


DECOMMISSIONING & DISMANTLING DISUSED PIPELINES & CABLES

Permission to be leave in place can be granted when no significant

fishing activity is taking place or when pipelines and cables are properly

trenched and covered


DECOMMISSIONING: NATIONAL LAWS AND REGULATIONS

Norway Petroleum Act (1985)

NPD guidelines (1990)

UK Environment Protection Act (1990)

DTI Guidelines (1998)

Nigeria DPR Petroleum Act Egaspin (1969)

Australia Petroleum and Submerged Lands Act 1967 (PLSA)

replaced by the Offshore Petroleum Act (OPA)


Approximately 7,000 offshore oil & gas installations currently exist worlwide. Of these 340 are

located in South America

South America depicts the lack of both decommissioning policy and actual state practice

Regional sea programs and projects do not include offshore oil and gas

Joint development agreements for hydrocarbon resources do not include provisions on

decommissioning

In the past, Brazil (70 fixed platforms, 26 floating production systems and various subsea

equipment) and Peru (80) have supported the sea disposal option within the London Convention

Venezuela on the other hand has its structures in Lake Maracaibo which are inland waters and

thus not subject to any international regime

Offshore extraction mostly the responsability of national oil companies

New obligations introduced to accelerate decommissioning activity in Argentina by national

regulators: Resolution 5/1996 issued by the Energy Secretariat establishing the rules applicable to

the abandonment of inactive wells for example

DECOMMISSIONING: WHAT ABOUT South America?


DECOMMISSIONING MUST BE THOUGHT AT THE VERY EARLY STAGE OF A PROJECT

Engineering: Conceptual and Development studies include site restitution

Financing: Decommissioning Security to be provided before start-up of

production

Accounting: Liability booked before or at First Oil


DECOMMISSIONING: TRANSFER OF LIABILITY

Principle

Risk Assessment

Minimum Requirements

Petroleum Act: Liability for Decommissioning


FINANCIAL DECOMMISSIONING SECURITIES

Acceptable securities (depending on the countries):

Cash (escrow account)

Bond / Letter of Credit from a bank or an insurance company

Parent Company Guarantee

Trust Fund


FISCAL ASPECTS OF DECOMMISSIONING: THE UK EXAMPLE

Provisions are not tax deductible

But tax relief on decommissioning costs is available as and when the

expenditure is incurred (subject to cap)

There is a Carry back mechanism to offset tax losses on the tax basis

from the previous years

There has always been industry concern around the certainty of tax relief

To address this concern, the UK government has adapted legislation in

2013 by introducing a Decommissioning Relief Deed (DRD) which

provides:

Certainty over the rate of relief

Ability to claim a shortfall payment if the level of relief is not achieved

Guarantee of tax relief if the corresponding taxes were to be abolished


ECONOMIC CHALLENGES IN DECOMMISSIONING

Great uncertainty about timing and costs of decommissioning

Availability of Rigs to plug and abandon wells vs. use of rigs for

development matters

Limited capabilities from contractors for dismantling &

decommissioning, especially for cutting and lift operations

Disposal strategy between Energy Recovery, Recycle, Reuse and

Landfill




Why dismantling?

How?



DECOMMISSIONING: WORKERS


DECOMMISSIONING: LIFTING


DECOMMISSIONING: TOOLS & MACHINERY


DECOMMISSIONING: FROM OFFSHORE TO SHORE


DECOMMISSIONING: WHICH CONTRACTORS??

Decommissioning Contractors: as per construction

Few Words on Pioneer Spirit Vessel: Allseas




Why dismantling?

How?



INSURANCE MARKET PERSPECTIVE KEY DECOMMISSIONING EXPOSURES

The risks:

Balance : Project cost overrun

Third party liability for property damage and bodily injury

Existing property exposure (proximity agreements, etc)

Removal of wreck

Damage from pollution

Onshore disposal liabilities

Increase cost of works following an incident

Regulatory Risk


DECOMMISSIONING:WHAT ABOUT INSURANCE ?

Physical Loss or Damage: Really ???


Standard Insurance Solutions: is it enough ?

Operator Contractor

Traditional Operating Policy

Extended for removal of

Wreck?

Dropped object cover

Protection & Indemnity:

Pre-existing Fault

Claims directly against

platform Operator and not the

vessel

Contract Work Exclusion even

when Specialist

Operations cover

Traditional Liability Policy Traditional Liability Policy

O.I.L.:

Dropped Object cover?

Cover for Contractors and

Sub-contractors

Welcar 2001

Need for Offshore Dismantling & Removal Policy Wording


DECOMMISSIONING: INSURANCE ISSUE

What will be needed :

Removal of wreck / dropped objects

Liability

Extra cost and expense

Contract objects


INSURANCE ISSUE: Policy wording to be clarified

Policy period

From the dismantling and removal contract

Until the property is safely unloaded at the

Contractors dock

Additional onshore cover if required

Market appetite: strong appetite in liability and energy market

Marine Warranty Surveyors MWS

Limits, Deductibles

Adequate premium


DECOMMISSIONING: TAKE AWAY

Different scale of offshore dismantling & removal Projects : from the

disposal of a single platform through the removal of all the structures in

an entire field:

Emerging risk category

Analysis and understanding of the clientss exposure: one risk matrix for

each dismantling scenario

Currently there are several decommissioning wordings not a

standard one

Tailor made solution

The next step belongs to us all of us


Gracias por su atencin

Documents

Decommissioning: Future Risks to be Considered in Advance · DPR Petroleum Act Egaspin (1969)