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Hot topic: Decommissioning Oil & Gas assets in the Middle East.

With a significant number and concentration of older Oil & Gas facilities, decommissioning is becoming a major issue in the Middle East. Our expert guides you through the process and the key challenges in a four-part blog.

Part One: Technical and commercial landscape

Existing oil and gas infrastructure in the Middle East is considerable. Although recent numbers are lacking, it has been estimated that there are around 700 facilities that will need to be decommissioned in the Middle East. The industry has to rely on estimates because some installations pre-date modern record keeping.

In addition, many fields have been more productive than expected. As a result, a lot of infrastructure still in use has already reached the end of its original design life. Age degrades infrastructure, but declining production means investment in new infrastructure may not be viable. This presents governments and oil companies with a conundrum: how to maximise production whilst operating safely.

There are strong economic incentives not to retire assets, as the longer a production facility remains available, the more opportunity there will be for adjacent fields and pools of resource to be exploited. Regulators across the world recognise the desirability of maximising opportunities and the inter-dependency of oilfield operations.

In addition, large scale decommissioning can be very expensive. Eight international oil companies have Asset Retirement Obligations (AROs) on their balance sheets of more than $10 billion each and, since 2010, the AROs of the seven largest international oil companies have increased year on year1. Estimating future costs is inherently risky, as the industry does not know how technology or standards will develop so, whilst decommissioning is clearly a critical issue, it is difficult to tell whether sufficient or excess capital is being set aside.

The challenge therefore is clear: to produce safely and efficiently for as long as possible and to have sufficient financing to dispose of the infrastructure responsibly and return the land or sea to future legitimate use. This creates a three-dimensional challenge for policy makers with three separate axes:

  1. Governance/legislation
  2. Cost
  3. Risk

Make sure you read the rest of the series to find out how best to approach and overcome these challenges.

1The North Sea’s US$100 Billion Decommissioning Challenge, The Boston Consulting Group, 30 March 2017 (https://www.bcg.com/en-mideast/publications/2017/energy-environment-north-sea-decommissioning-challenge.aspx)

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