The mobilisation of the decommissioning industry

As the Australian gas market moves through its primary production phase, it is estimated that over the next 50 years the industry can expect to invest US$21bn¹ in operational expenditure for decommissioning and abandonment works of both facilities and pipelines as projects reach the end of their productive life.

Decommissioning is a process of transformation (including dismantling, demolition, and rectification/remediation) that a productive asset or series of assets experiences upon the end of the productive/reasonable life cycle of that particular asset.

Decommissioning may include the repurposing of these assets or processes or, in certain circumstances, the abandonment of the assets – depending on the type of the particular asset, and its location. The repurposing of those same assets, processes and relationships can create a more resilient industry, and deepened community engagement.

Notwithstanding Australia’s significant capital investment in infrastructure of this nature, National Energy Resources Australia (NERA) rates Australia below the world median for the ‘abandonment’ phase of project lifecycles²– significantly below the world leaders in this field.³

Australia’s on and offshore petroleum exploratory, development and production activities are governed by Commonwealth, and State and Territory legislation and codes of practice, which specifically address the responsibilities of petroleum leaseholders and pipeline licence holders to decommission assets at end of their life. It is necessary for contractors and principals alike to ensure compliance with all relevant statutory regimes and codes of practice.

In a highly competitive domestic market, what will you need to consider to position your business at the forefront of this emerging area of opportunity? Both onshore and offshore operators and contractors must consider a host of issues to ensure all stakeholders are appropriately managed, legal obligations are met, opportunities are maximised and potential risks are mitigated. Some considerations include:

• Contractual: What obligations does your company have under existing supply/maintenance/operating contracts in relation to decommissioning or abandonment? What interfaces do you control between existing and new separate contractors/suppliers? What contracting/pricing model will best suit your business as it adheres to the potential risks arising from strict legislative requirements associated with decommissioning and abandonment works? Are there forms of payment to the network operator to recoup investment in connection assets? What mechanisms of dispute/alternative dispute resolution/litigation are preferred for your business for decommissioning style works?
• Environmental: How have you assessed the impact associated with remediation/rehabilitation works arising from the decommissioning of the asset? Will you abandon existing pipelines – if so, what methodology/practice will you adhere to in that process? Has your company provided or is it required to provide financial assurances associated with decommissioning/rehabilitation works?
• Community impact: What processes or procedures has your company considered in anticipation of the reduction (or alternatively, the ramp up) of its workforce in consideration of decommissioning phase works? How has your company interacted with local communities to engage a local workforce for the associated works?

To ensure you are prepared to mobilise and take advantage of this long term transition in your industry, it is crucial for all participants in the marketplace to be aware of, and develop, commercial strategies to appropriately manage all risks and obligations that are specific to your business.

Please contact Peter Lamont for further details.