Rising risks linked to decommissioning liabilities for exploration and production companies in the offshore oil and gas sector in Australia present a new challenge for the industry and regulators. Here’s what to be aware of.
Last year the Department of Industry, Innovation and Science released guidelines on the regulatory framework surrounding decommissioning liabilities as several major offshore projects enter or are nearing their decommissioning stage.
Exploration and production companies should plan ahead, the department urged. The base guideline for decommissioning is complete removal, but exceptions may be possible in some circumstances.
“Questions are being asked about decommissioning liabilities,” says Ryan Mansom, National Practice Leader – Energy at Gallagher.
“The interesting part is, for the Australian oil and gas sector, because we are relatively new we haven’t really been exposed to any decommissioning to date but we are heading that way.”
Mansom says clients are seeking insurance cover to reduce the burden of decommissioning. A “reverse construction-type policy” can help clients but each decommission is different and requires input from an expert broker.
The need for foresight and planning
The current driving trends of energy mergers and acquisitions, and fields nearing end of life also create challenges surrounding decommissioning, he says.
“Smaller companies entering into these asset acquisitions have to provide some assurance to the sellers and regulators alike that they will be able to meet the decommissioning liabilities, because it could happen the day after they take control of the asset,” Mansom notes.
“If it happens early and unexpectedly, they have to make sure they are covered appropriately.”
While a relatively new area for Australian oil, gas and insurance industries, international markets have set precedents for placement of decommissioning risks.
The London market has developed established solutions to decommissioning liabilities in response to the needs of oil and gas fields in the North Sea, but Mansom says Gallagher is working on formulating new non-conventional products designed to meet the decommissioning liabilities needs of clients in Australia.
Get expert help
Mansom stresses that the role of a broker is vital throughout the decommissioning process and can help clients secure the best outcome. “We look to speak to clients frequently and during that process,” he says.
For oil and gas firms, it is important to contact a broker for advice about decommissioning sooner rather than later, he advises. “Clients trying to extend field’s life should be aware that if things don’t go correctly insurance can play a part.”