Regulators reveal plans to spark first wave of decom in Asia
New rules are being introduced to accelerate decommissioning activity in Asia, national regulators revealed at the Decommissioning and Mature Wells Management Conference in Kuala Lumpur in December.
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Malaysia wants to see 50 wells decommissioned in 2016, with 20-25 firm candidates already slated for either partial decommissioning or suspension, Shahril Mokhtar, a team leader at Malaysia Petroleum Management (MPM), the regulatory body for the country’s oil and gas industry, told the conference.
“In 2014, when there was a high price of oil, the operators were saying they were too busy for abandonment. Now prices are so low, they say it is no longer economical to abandon,” Mokhtar, who is also in charge of completions and intervention at the state-owned oil producer Petronas, said.
“All operators will be reminded that they have to decommission.”
The establishment in October 2014 of a technical committee tasked with overseeing the improvement of well intervention and decommissioning is a sign of Malaysia’s efforts on decommissioning. With 65% of Malaysia’s 300-plus platforms aged 25 years of more, it is no surprise that Petronas and MPM will be pushing operators to begin the end of life-cycle process.
A regional trend
Malaysia is not alone in this drive to decommission Asia-Pacific assets. With prices of crude oil now falling below $40 per barrel (bbl), many operators around the region may consider immediate decommissioning a more attractive option than maintaining inactive facilities.
Asia is home to more than 1,750 oil and gas assets, according to Amila Zawawi, Senior Lecturer at the Universiti Teknologi Petronas, a private university and a subsidiary of the state oil company. Decommissioning these assets will cost anywhere from $30 billion to $60 billion, she said.
Some 85% of these assets are located in Indonesia or Malaysian waters, and more than half of them are at least 20 years old. Northwest Java for example, is home to 223 offshore platforms, 46% of which were built before 1985. Thailand, which is notorious for mercury contamination throughout its oil and gas production process, will soon be facing even greater challenges on its 619 platforms, 321 of which are aged 20 or more.
However, the process of decommissioning continues to be hampered by the lack of clear and specific regulations from national authorities, Robert Byrd, Vice President – Consulting at American consultancy TSB Offshore, told DecomWorld on the sidelines of the conference.
“The challenge is a regulatory challenge, the real need is to get a regulatory structure that is clear and puts the onus on the operators, all the operators, the NOCs [national oil companies] and the Western non-NOCs,” Byrd said.
“If they had a regulatory framework that was clear and forced it would happen. I’m skeptical that decom will ever happen if there isn’t a strong regulatory framework in place.”
Policy barriers
Red tape has proved one of the biggest barriers. In Thailand, for example, at least nine separate ministries and institutions across national, provincial, and district governments, are involved in the decommissioning process. Additionally, contractors are required to complete 15 separate planning documents before dismantling operations commence.
According to government authorities in Bangkok, there are plans to streamline approval processes and improve on resource-management oversight, specifically with updated subsurface review protocols and the release of an expedited infill drilling program. More stringent policy on a company’s financial security and creditworthiness to ensure that operators can cover the expected $3 to 5 billion cost of decommissioning in the Gulf of Thailand is to be announced in 2016, said Supat Napanoparatkaew, Senior Petroleum Engineer at Thailand’s Department of Mineral Fuels.
While Malaysia may not be alone in the race to decommission, it certainly faces the biggest hurdles. In 2010, when oil prices averaged $80/bbl, Petronas faced a decommissioning backlog of 32 platforms. But operators continued to avoid plugging and abandonment. With no governing legislation for decommissioning, Petronas, as the owner of all petroleum resources in Malaysia, remains fully accountable for decommissioning of platforms. This leaves little incentive for international operators to pay for decommissioning costs before their production-sharing agreements expire.
Fortunately, Petronas has saved about $750 million on anticipated decommissioning costs, according to its 2013 financial statement. Whether or not it is willing to spend this money with no end in sight to oil’s price slump is another question.
“Abandonment needs to be one of the key activities of the operatorship; currently it’s more like an option,” explained Mokhtar. “Partially this is because Petronas is giving them the option. I think one of the challenges is because there is no specific law asking for decommissioning. But things will change.”
By Lionel Mok