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.”
A study conducted by researchers at the University of California–Davis and Louisiana State University, published in May 2023 in Nature Energy, found that of the more than 4.4 million oil and gas wells drilled in the US, only 113,000 are located offshore or in coastal waters and represent an outsized share of the production. The federal offshore wells have contributed 15% of all US production over the past 2 decades, with state waters adding to that number, according to the study.
The researchers’ review of the data led to the estimation that the cost to P&A all 14,000 unplugged, nonproducing wells in the US GOM offshore waters, inland waters, and wetlands is $30 billion. Of that number, the shallower wells closer to shore make up 90% of the inactive wells but only 25% of the total P&A cost.
In his OTC presentation, Steve Louis, senior vice president of decommissioning for Houston-based Promethean Energy, peeled back the layers of what he sees as a “highly complex problem” to reveal that it is more than an engineering or an HSE problem contributing to the delays. It is a cultural problem, too.
“There seems to be a reluctance until recently to share experiences, ask for help, spend money, speak to regulators, and even invest in innovation,” he said. “Often the industry chooses to do the bare minimum, and in doing that, accumulates liabilities.”
Breaking the Cycle
While all these factors contribute to delays in decommissioning projects, he said that the most significant problem to overcome is procrastination, which is embedded in the business in that “executives are focused not on the next quarter century, but the next quarter.”
To break this cycle, Louis urged operators to begin with the end in sight, advice that he credits to Stephen Covey, author of The 7 Habits of Highly Effective People.
“To act before the problem occurs, to build a plan, and prioritize the important over the urgent,” he said. “The plan should provide a flexible approach to prioritizing the huge list of activities that enable us to optimize the sequence for decommissioning and thus reduce costs and risks.”
Louis cited the UK’s North Sea Transition Authority’s requirement of decommissioning planning 6 years in advance of the cessation of production (COP).
“If we’re not tracking our asset retirement obligation estimates periodically, we’re going to be surprised,” he said. “If we don’t engage with regulators until we have a decom order then we miss out on finding many win-win opportunities.”
By not engaging with the supply chain or hiring people to get the best team in place until after the COP of a GOM asset, it will be more difficult to obtain those resources, he added.
“If we don’t start planning our COP during our production and operations and maintenance, we’re probably going to be wasting a lot of money,” Louis said.
Partnering Up
Working early on decommissioning plans can make a big difference, as can working with partners.
“Decommissioning should not necessarily be a competitive environment, at least not from an operator’s perspective,” said Lamothe. “There’s no intellectual property here that we should safeguard against, right? There are no reserves at stake here. And I will argue that there are potentially some technologies that the service companies want to keep for themselves. Still, the operators ought to work together to figure out how to abandon these properties and decommission these as efficiently as possible as an industry.”
Lamothe said the first question an operator should consider when contemplating decommissioning is to determine if it has the availability of in-house engineering expertise to support the project or if it should consider using a designated agent. This approach has become popular in the GOM.
For example, Promethean Energy’s dedicated end-of-life business unit—Promethean Decommissioning—is focused exclusively on the safe, cost-efficient, and timely decommissioning of assets that have already reached COP, according to Louis. Its single focus is to be a designated accountable decommissioning operator managing interfaces and engagement with all project stakeholders.
A recent project had the company working on a set of boomerang assets that had been reassigned for decommissioning following a bankruptcy. The overall scope of work included 11 leases, nine platforms, nearly 200 wells, and more than 30 pipeline segments. The company and its partners de-risked the project, mobilized, and began offshore decommissioning in 100 days and executed with an exemplary HSE record.
For its decommissioning projects, Hess evaluates each on a case-by-case basis and adjusts their program as needed, Lamothe said.
“Currently, we’re going direct managed or operated for many of our traditional portfolio assets, but with boomerang properties, we’ve elected to go with a designated agent approach,” Lamothe said.
Hess, with its deepwater focus, has limited familiarity with the GOM shallow-water shelf assets. When its legacy West Delta Block 79 field boomeranged back to Hess after Fieldwood Energy declared bankruptcy in 2021, Hess opted to use Houston-based White Fleet Abandonment as its designated agent.
“Hess has had no involvement with this field for over 20 years, having sold the properties in 2004,” Lamothe said. “Ongoing activities include decommissioning and abandoning 115 wells, 13 pipelines, and seven facilities. Since receiving these properties less than 12 months ago, we’ve made all seven facilities safe, which is no small undertaking given the condition that they were in. We flushed hydrocarbons from all seven facilities and all 13 pipelines.”
He said that Hess has permanently abandoned 25 wells, plugged and temporarily abandoned two dozen more wells, and is currently running simultaneously two rigless P&A spreads in the field.
“We’re also in the process of mobilizing a hydraulic workover unit for a couple of the more technically challenging wells, and we’re on track to have two more platforms ready for removal and reefing later this year,” he said.
Another critical consideration is access to legacy information such as field data. Lamothe said that concerning its boomerang properties, the information was severely lacking.
“We were stepping back into these projects with little to no knowledge of the state of the facilities or the condition of the wellbores,” he said. “We’ve often found that the wells in the facilities were left in an unacceptable and noncompliant state. So that has resulted in significant spending upfront.”
Hess is using the experiences and lessons learned during decommissioning to improve the design of its newer deepwater wells. The operator uses a well-delivery process that features a decommissioning review.
“When we do a deepwater well design now in the Gulf of Mexico, it has to go through an abandonment review as part of that well design process,” he said. “We’re finding with wells that we drilled 20 years ago that we’re going back now and looking at how we’re going to abandon those wells.”
Lamothe offered as an example placement of packers or the well completion assembly.
“At that point in time, we might have left ourselves an easier and cheaper path for abandonment in the future by adjusting the completion design,” he said. “We have implemented that into our well-delivery and facilities-delivery process to review how we’re going to decommission and abandon at the very early stages of planning.”
Decommissioning offshore oil and gas assets is an inevitable and critical aspect of the industry that requires planning and collaboration among operators, regulators, and service providers. By adopting a long-term perspective and focusing on early engagement with all stakeholders, operators can optimize costs, minimize risks, and ensure assets’ safe and efficient abandonment. Implementing lessons learned from past experiences into future projects and fostering a cooperative environment within the industry will be essential in addressing the $100 billion challenge ahead.
For Further Reading
Financial Liabilities and Environmental Implications of Unplugged Wells for the Gulf of Mexico and Coastal Waters by M. Agerton, University of California Davis; S. Narra, B. Snyder, and G.B. Upton Jr., Louisiana State University.
Join the SPE Plug and Abandonment Technical Section, dedicated to cost-effective well decommissioning and leakage prevention from abandoned wells, including the repair of failed or patently inadequate prior abandonments of old wells that were plugged off under outdated industry practices or regulatory expectations.
