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123 comments on North Sea Petroleum Reserves
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123 comments on North Sea Petroleum Reserves
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Right - in the offshore environment, keeping giant platforms operating, that are just producing a trickle of oil, eventually becomes uneconomic and they are eventually shut down. But this just removes a trickle from the production stack. However, the cost of decommissioning is so high that operators tend to do everything possible to delay this and will keep going with uneconomic production simply to delay the day they need to spend $10s millions to dismantle platforms and pipelines.
What kind of funding is in place to pay for the decommissioning? I could imagine an operator selling out to a thinly financed operator, that really doesn't have funds for decommissioning. Oil prices drop from current levels. The operator goes bankrupt, with few barrels extracted and little revenue per barrel. Who would pay for the decommissioning in this case?
Most of the Oil Majors have sold on their rights to the Remaning fields In the North Sea. Shell, BP, Occidental(Piper Alpha disaster)to smaller players. Far as I remember BP sold Forties for £1. New owners have to remove everything including rigs,under sea pipe lines, cap wells And dispose off every ashore. Anyone remember the BRENT SPAR Debacle.
http://en.wikipedia.org/wiki/Brent_Spar
Courts will probaly decide who picks up the final bill when t the Minors go bust.
There is a lot of selling and reselling of assets. Sometimes the responsibility for decommissioning stays with the original consortium of operators, some times it is sold on. Nearly all licenses are operated by consortia, so the cost does not fall on a single company. I think they will also have to allocate funds (in their accounts at least) over the life of the field to pay for decommissioning.
I've not heard of any company as yet unable to pay. The service companies that own big cranes are salivating at all the business that will go their way. CCS and decommissioning are the big growth areas in the UK energy economy.
Euan -- One clever bit the MMS has on its US OCS leases. Even if an Exxon sells an offshore property to Company A Exxon is perpetually responsible for decommissioning etc. So if Comapny A goes belly up the Feds still have someone to hammer. Do the UK regulators have a similar hook?
I think this is the case in the UK also. Decommissioning responsibility can be passed on to a third party as part of a deal, but if they go belly up, the responsibility reverts to the companies that built the installations in the first place - but I'm not 100% sure.
Gail -- On Federal leases all operators are required to carry bonds which cover abandonment costs and environmental liabilities to a degree. Additionally most operations are insured although that cost has skyrocketed since the recent hurricanes. With new insurance limits in place there's an unknown amount of uninsured liability out in the water now.
Insurance companies operate in the financial market place. As the financial crisis gets worse, more and more of them will go under, and it will be up to governments to bail them out. The timing on all of this, relative to the timing of the abandonments, is an unknown. The governments aren't getting in any better financial condition, either.
It's actually worse then that Gail. As a result of the huge claims after the last two blows the insurance companies not only raised the rates but also limited max damages. In some areas of the GOM once they hit a max exposure they'll write no more policies. I can't guess the scale but as a result the is a pretty big uninsured liability of the industry out there. Since it's a "what if" liablity I'm not sure the public companies are even required to carry it on their books.