Significant demand expected for Australian decommissioning work

According to a 2020 industry outlook report (23-page / 1545KB PDF) by energy consultants Wood MacKenzie, roughly 65 offshore platforms and seven floating facilities in Australian waters need to be decommissioned by 2026. In addition, the cost of decommissioning is estimated to be more than US$39 billion (AU$58 billion) over the next 30 years. According to the Centre of Decommissioning Australia (CODA), the current inventory of assets that need to be decommissioned in that time include 1,000 wells that need to be plugged and abandoned, 57 fixed facility platforms and 5,000km of export and inter-field pipelines - with these assets located in Western Australia and Victoria.

To date, limited decommissioning work has occurred in Australia. This may be due to a range of factors, including a shortage of appropriately skilled personnel in key areas, the complexity and onerousness of required statutory approvals, high costs and liability risks, as well as more practical considerations such as limited vessel availability and supply chain issues.

In its Decommissioning Compliance Strategy 2024 - 2029 (13-page / 2.7MB PDF), Australia’s offshore decommissioning industry regulator, the National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA), has outlined targets for decommissioning all petroleum wells, structures, equipment and property in Commonwealth waters.

For assets or production systems no longer producing, the targets are:

• floating infrastructure must be removed as soon as practicable and within 12 months of permanently ceasing production;
• all wells must be plugged and abandoned within three years of the production system ceasing production;
• all structures, equipment and property - including pipelines, platforms and all other subsea infrastructure - that forms part of a production system must be decommissioned to approved end-state as soon as reasonably practicable and no later than five years from that production system permanently ceasing production.

For redundant (non-producing) wells and infrastructure within a producing asset or production system, the targets are:

• redundant wells must be suspended with downhole barriers within 12 months of loss of real-time monitoring wherever practicable. Any wells that cannot be monitored in real time and are not suspended must be monitored at least annually until downhole barriers can be installed;
• regardless of other work being carried out in the field, each well must be plugged and abandoned as soon as practicable. If a rig is contracted to undertake infill drilling or workovers within a field, it is NOPSEMA’s expectation that suspended wells within the field are abandoned. Wells that have been suspended within a larger active production system, must be abandoned no later than ten years from when it was suspended;
• subsea structures, equipment and property must be decommissioned progressively as it ceases to be used, over the operating life of the project to approved end state, as soon as practicable or otherwise, as agreed by NOPSEMA.

With these ambitious targets in place, the industry is bracing for a surge in demand, and operators should ensure they have a thorough understanding of the existing regulatory framework and the challenges involved with undertaking decommissioning work.

Regulatory framework for decommissioning projects

Australia’s offshore decommissioning industry is regulated by NOPSEMA under the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth) (OPGGSA). 

NOPSEMA regulates all offshore areas in Australian waters which is comprised of the areas beyond the first three nautical miles - approximately 5.5 kilometres - of the territorial sea. NOPSEMA also regulates all offshore areas in coastal waters where a state or the Northern Territory has conferred regulatory powers and functions. In jurisdictions where powers to regulate are not conferred, regulatory responsibilities remain with the relevant state or territory.

There are two main sections of OPGGSA that deal with decommissioning: section 270 and section 572.

Section 270 requires submittal - and approval by NOPSEMA - of ‘permissioning documents’, including environmental plans, safety cases and Well Operation Management Plans to undertake petroleum activities in relation to a OPGGSA title such as bringing in and installing equipment and infrastructure. This extends to decommissioning activities and, in line with s270, NOPSEMA must be satisfied that a titleholder’s decommissioning obligations have been met in full before the surrender of the title.

In the context of decommissioning, s572 provides the ‘base case’ obligation that all equipment and infrastructure be removed unless NOPSEMA has approved an alternative environmental plan – such as an alternative end state or deviation - in relation to a titleholder’s obligations.

Applicable legislation in Victoria

In Victoria’s territorial waters, the state’s Department of Energy, Environment and Climate Action is responsible for titles administration, resource management, data management and environmental regulation – under the Offshore Petroleum and Greenhouse Gas Storage Act 2010 (Vic) and associated regulations - but has conferred responsibility to NOPSEMA for administration of safety and facility, structure and installation integrity regulation.

Victoria’s Petroleum Act 1998 (Vic) provides the regulatory framework for onshore oil and gas exploration and development activities, excluding transmission pipelines. The Act addresses licensing, approvals and other issues including compensation, rehabilitation, access to Victoria’s petroleum geological information and royalties within Victoria’s territorial waters.

Under Victoria’s Climate Change Act 2017 (Vic), the relevant minister must consider climate change impacts in deciding whether to grant or refuse authorities.

Applicable legislation in Western Australia

In WA’s territorial sea, the state’s Department of Energy, Mines, Industry Regulation, and Safety (DEMIRS) serves the same function as NOPSEMA under mirror legislation – the Petroleum (Submerged Lands) Act 1982 (WA) (PSLA) and associated regulations. The PSLA and associated regulations apply to petroleum resources located within WA’s territorial sea, including the territorial sea around state islands, and covers related pipelines. DEMIRS also has jurisdiction over WA internal waters and onshore projects.

WA legislation covering internal waters and onshore projects includes the Petroleum and Geothermal Energy Resources Act 1967 (WA) (PGERA) and the Petroleum Pipelines Act 1969 (WA) (PPA). PGERA applies to all onshore areas in WA including its islands and, in certain circumstances, areas of submerged lands considered part of the state. The PPA applies to the construction, operation and maintenance of pipelines for the conveyance of petroleum on land within the state.

Challenges for the decommissioning industry

Untested pathway for title relinquishment

Australia’s decommissioning industry needs certainty around what is considered an acceptable end-state so that it can properly plan and cost upcoming decommissioning projects.  This includes ensuring appropriate levels of community and stakeholder consultation at the outset to avoid surprises.

The impact of the recently introduced ‘trailing liability’, which allows NOPSEMA or the appropriate federal minister to call back former titleholders or ‘related persons’ to undertake remedial works, further adds to this uncertainty.

Given the immensity of the costs and liability involved, companies planning decommissioning campaigns must carefully consider how to best manage the risk of future decommissioning liability after title surrender, including whether implementing initiatives like recycling and repurposing might impact that risk. The inability to fully contract out of future decommissioning liability is also likely to impact the contracting strategy, as well as how and to what extent risk is sought to be allocated through the decommissioning supply chain.

Lack of experienced personnel

A shortage of skilled decommissioning personnel is also impacting the roll-out of decommissioning projects. While the decommissioning industry needs the existing oil and gas workforce to transition their skills to decommissioning, ongoing investment in traditional oil and gas projects as well the emerging renewable energy industry makes this challenging.

CODA’s recent skills review of Australia’s oil and gas decommissioning industry (54-page / 2.7MB PDF) found major skilled resource shortfalls in several areas, including recycling and waste management, regulatory compliance management, decommissioning planning and reporting and stakeholder management and consultation.

It has become increasingly important for government at a state level to proactively take steps to fill these gaps, both to resolve the backlog in decommissioning and to ensure the project work and revenue remains in Australia.

Supply chain issues

Currently, there are limited onshore facilities that are equipped to dismantle, recycle and dispose of decommissioned oil and gas equipment while meeting regulatory and ESG requirements. There are also limited ports capable of handling large topside and substructure load in for dismantling – it is likely these will need to be built for purpose.

Given the distances involved and the cost of chartering vessels, the location of port facilities can have a dramatic impact on the time and cost of decommissioning programmes. Uncertainty surrounding the location, capability and availability of port facilities creates further challenges.

A recent CODA study of decommissioning hub locations in Western Australia (30-page / 1195KB PDF) found existing hubs in Ashburton and Onslow will require substantial investment to be able to meet anticipated demand.

Limited vessel availability

The availability of appropriate vessels to undertake Australia's decommissioning backlog - which is exacerbated by competition in the form of further ongoing investment oil and gas, as well as the emerging offshore wind projects industry - is a further challenge for planning decommissioning projects.

Transparency around the upcoming decommissioning workload is essential in order to give the industry - including vessel operators based in other locations - more clarity around the viability of transitioning vessels to Australian projects. This would allow titleholders to plan their decommissioning programmes with more certainty and potentially collaborate with other titleholders.

To that end, CODA’s recently released Forward Outlook Tool which intends to provide transparency around upcoming oil and gas decommissioning projects in Australia, is a ‘live’ online database based on publicly available information, and includes plans and proposals submitted for approval to offshore regulators.

Co-written by Florence Riviere and Cormac Mercer of Pinsent Masons.