Intelligence brief: Investigation finds holes in US decom liability data; UK pledges to become global services hub
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Investigation finds holes in US decom liability data
Limitations with the US Department of the Interior’s (DOI) data system raise doubts about the department’s claim that $2.3 billion in decommissioning liabilities may not be covered by financial assurances, an investigation by the US Government Accountability Office (GAO) has found.
Decommissioning liabilities in the Gulf of Mexico were worth about $38.2 billion as of October 2015. The DOI holds or requires about $2.9 billion in bonds and other financial assurances, and has foregone requiring about $33 billion in bonds for the remaining liabilities, according to the post-investigation report.
DOI procedures include identifying and tracking unused infrastructure, reviewing lessee plans to decommission infrastructure, and using different cost estimates for decommissioning in shallow and deep water, officials told the GAO.
However, officials must manually enter cost estimates into the DOI’s main data system to override inaccurate estimates automatically calculated by the system – which is “inconsistent with internal control standards”, the report said.
Until the DOI improves its ability to obtain valid data and revises and implements its financial assurance procedures, the federal government remains at increased risk of incurring costs in the event that operators fail to decommission oil and gas infrastructure, it further warned.
Removals have outpaced installations in the Gulf of Mexico since the start of the 21st century (Source: GAO analysis of BSEE data)
The GAO, the non-partisan investigative arm of Congress, applauded the DOI’s issuing in December 2015 of regulations that require operators to report data on most decommissioning costs.
It recommended the Secretary of the Interior take six additional actions:
• Ensure the Bureau of Safety and Environmental Enforcement (BSEE) collects all relevant data associated with decommissioning from lessees.
• Direct BSEE to establish documented procedures for estimating decommissioning liability.
• Develop a plan and set a time frame to ensure the DOI’s data system for managing offshore oil and gas activities includes processes to accurately and completely record estimated decommissioning liabilities.
• Develop a plan and set a time frame to ensure the DOI is able to identify, capture, and distribute the data in a timely manner.
• Ensure the Bureau of Ocean Energy Management (BOEM) completes its plan to revise its financial assurance procedures (detailed in DecomWorld in December)
• Revise BOEM’s regulations to establish a clear deadline for the reporting of transfers to require that lessees report the transfer of rights to lease production revenue.
UK pledges to become global decom hub
The UK government’s Oil and Gas Authority will publish a plan in mid-2016 to make Aberdeen the center of the global decommissioning services market, Prime Minister David Cameron has announced.
Cameron made the promise as he unveiled a £270 million ($385 million) investment package for the North Sea port city, which has been hit hard by the falling oil price. The UK and Scottish governments will contribute equal funding to a £250 million package to the oil and gas industry and other sectors. The UK will contribute an additional £20 million of funding for new exploration activity in the North Sea.
The prime minister also committed to appointing an oil and gas ambassador to ensure British companies the best possible access to foreign markets. And he promised £1.5 million in funding for small- and medium-sized business from outside the energy sector to design disruptive technologies in response to challenges set by the oil and gas sector – such as monitoring corrosion under installation, vessel inspections, and use of sensors and data.
The UK Continental Shelf (UKCS) saw record capital expenditure of £14.8 billion in 2014, according to government records.
Capital expenditure in the UKCS is expected to fall each year to 2019 (Source: Department of Energy and Climate Change)
Oil & Gas UK, the largest representative body for the UK offshore oil and gas industry, welcomed the government’s commitment to a decommissioning strategy but said more would need to be done to ensure the UKCS becomes an attractive place to do business.
“Fiscal as well as regulatory reform have a key role to play in the transformation of the UKCS into a highly competitive, low-tax, high-activity basin attractive to a variety of operators and supporting a global supply chain. The 2016 budget needs to deliver an effective package of measure to help extend late-life operations and asset-trading, promote exploration and boost investment,” it said, adding the recommendation of a further permanent cut in the headline tax rate.
Collaboration the key, survey finds
Collaboration between operators offers the best chance for reducing the cost of well abandonment, a market survey by Claxton Engineering has found.
Some 72% of respondents agreed with the statement that working collaboratively with operators would bring down costs. A further 63% backed improvements in rigless technology but less than half had faith in new downhole technology, negotiation of better deals, or reduction of human interactions to bring about savings.
The survey polled employees from across the oil and gas industry, including operators, rig owners, consultants, engineers and manufacturers. Forty-two percent of the respondents were based in the UK, a further 8% in the US, and the remainder spread across the globe.
Almost 49% of respondents said there was not enough finance in the decommissioning industry to carry out the work, compared to 28% who believed there were sufficient funds and 23% who neither agreed nor disagreed. But 57% expressed strong confidence in the future of the business in the decommissioning industry, compared to just 14% who were strongly pessimistic.