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News Article

New Opportunities in Decommissioning

By Pedro Alcalá | Fri, 07/23/2021 - 09:59

A recent legal decision made in the US has changed the liability structure of cleanup operations for oil and gas operators. This could result in new business opportunities for oil and gas service providers able to face up to the challenge that these cleanups represent.

A US federal judge issued a ruling on Fieldwood Energy’s bankruptcy protections. According to a Wall Street Journal analysis of the ruling, the ruling declared that the company “could pass on hundreds of millions of dollars in environmental liabilities to prior owners and insurers of the wells as part of its reorganization plan.” This means that any well in which Fieldwood operated and produced oil and gas does not necessarily have to be cleaned up and decommissioned (a process sometimes referred to as “abandonment”) by Fieldwood. Instead, those costs and responsibilities could be offloaded to other operators who either originally drilled those wells or owned them in some other capacity.

This ruling caused an uproar among major industry operators, all of whom have done significant work on both sides of the Gulf of Mexico (GOM)  and could be liable to pay for this cleanup work as a result. These operators include BP, Shell and Exxon Mobil, along with all insurers that work with them, who are all nervous about this ruling which has created a situation where they cannot keep their promises to their clients to keep them away from liability. All of these companies have objected to the ruling and are threatening to appeal it in Houston courts. While the question of onshore wells is up to individual state governments, offshore well cleanup is regulated by the Department of the Interior, who supports the ruling, since they believe somebody needs to take care of decommissioning if the last operator is unable to pay for it, as is the case with Fieldwood. 

The total cost of this GOM cleanup varies significantly at the moment; the quotes cover the spread from US$300 million to US$7.2 billion, depending on what exactly these decommissioning responsibilities entail and how exactly they will be distributed among stakeholders. This large amount of money represents an equally and proportionally large business opportunity, since that money will have to be spent directly on contracts with service providers that specialize in well cleanups. 

The growth of this kind of opportunities will only accelerate as an increasing number of measures to comply with energy transition objectives result in more and more environmental responsibilities and payouts from operators. This subsector has already seen significant growth in Canada, where cleanup operations and public contracts have received record amounts of applications, according to this report from Global News. 

The data used in this article was sourced from:  
Wall Street Journal, Global News
Photo by:   PEMEX
Pedro Alcalá Pedro Alcalá Senior Journalist & Industry Analyst