The decommissioning of aging offshore units and related assets is increasing dramatically. According to market analysis, more than 600 projects are expected to be disposed of in the next five years. Following this trend, decommissioning costs are expected to increase by over 540% when compared to current costs, reaching $13 billion per year by 2040 and totalling $200 billion between 2020 and 2040.
The considerable number of units which will cease production in the next few years, along with stricter regulatory and environmental requirements and greater complexity of the structures to be decommissioned, may turn the disposal of units and subsea equipment into one of the greater challenges for exploration and production operators.
The North Sea should see most of the decommissioning activity in the next few years; however, Brazil is likely to concentrate on Central and South American countries.
Brazil's exploration and production industry was rejuvenated following Petrobras's discovery and subsequent exploitation of large deep-water oil fields in the 1970s and 1980s. Now, these offshore platforms and subsea equipment are reaching the end of their lives.
According to the National Agency of Petroleum, Natural Gas and Biofuels (ANP), there are 40 offshore units in Brazil which have already ceased production and are ready for decommissioning. In total, 42% of the 158 platforms currently operating in Brazil are scheduled to stop operating in the next five years. The ANP has also stated that another 19% of the units are between 15 and 25 years old.
As the decommissioning of offshore platforms in Brazil is recent, regulation in this regard is still maturing. For example, the abandonment of the Cacao Field in Espirito Santo, which involved three offshore production platforms and 13 oil fields, took three years to be approved by the ANP (between 2014 and 2017).
The ANP, the Environment and Renewable Natural Resources (IBAMA), the navy and the Department of Federal Revenue currently regulate decommissioning activity in Brazil. However, the regulatory framework is evolving to handle the rapidly increasing demand for decommissioning.
To address these issues, the authorities have established a study group and the ANP is currently revising Resolutions 27/2006 and 28/2006.
These resolutions set out the procedures for:
- selling and reversing facilities included in production systems;
- deactivating installations; and
- devolving areas in the production phase.
The resolutions aim to assure the safety of and minimise risk to the environment and human life. The ANP, IBAMA and the navy have jurisdiction over the performance of these activities.
Concessionaires' payment obligations will cease once they submit a final facilities decommission report to the ANP. However, is it still unclear when environmental liability over the decommissioned facilities will end.
The new regulations should be based on an in-depth ANP study of the decommissioning process. The new regulations should:
- help to foster good market practices;
- welcome new technology; and
- provide options for operators (ie, in terms of removing subsea structures), which will be determined based on the technical, economic, environmental and safety criteria in each case.
The cost of decommissioning projects is also a pressing factor in Brazil, since the equipment needed for the decommissioning process does not enjoy the special tax regime which exempts import duties for the oil and gas sector.
Decommissioning is clearly a challenge for the oil and gas industry – not only in Brazil, but also worldwide. The players involved in decommissioning projects – including the authorities, operators and subcontractors (eg, those involved in waste removal, heavy lifting, wreck removal, tug or barge operations or engineering or yard work) – should keep up to date with the relevant requirements and best practices in order to transform potential market crises into opportunities.
For further information on this topic please contact Godofredo Mendes Vianna or Juliana Pizzolato Furtado Senna at Kincaid | Mendes Vianna Advogados by telephone (+55 21 2276 6200) or email ([email protected] or [email protected]). The Kincaid | Mendes Vianna Advogados website can be accessed at www.kincaid.com.br.
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