Decommissioning Liability at the End of Offshore Oil and Gas: A Review of International Obligations, National Laws, and Contractual Approaches in Ten Jurisdictions

Executive Summary

Offshore oil and gas infrastructure faces an existential threat: the increasing exigency of climate change. The Intergovernmental Panel on Climate Change projects that GHG emissions from existing and planned fossil fuel infrastructure will push global warming past the Paris Agreement’s 1.5°C threshold, and more detailed projections estimate that “nearly 60 per cent of oil and fossil methane gas . . . must remain unextracted to keep within a 1.5 °C carbon budget.” The growing urgency of climate action, coupled with the increasing adoption of renewable energy systems and energy-efficient technologies, may strand thousands of offshore oil and gas installations across the globe.

This paper provides an overview of the statutory, regulatory, and contractual regimes governing offshore oil and gas decommissioning in ten countries, and qualitatively identifies key financial and environmental risks that might arise in a “rapid phase-out” scenario presented by the energy transition. In doing so, it highlights areas in which these regimes may create risks in a rapid phase-out scenario involving the widespread cessation of offshore oil and gas activities. The first part of this paper provides a high-level overview of the legal and economic structures that govern offshore oil and gas decommissioning, highlights gaps and risks that are presented by a rapid phaseout scenario, and presents recommendations for policymakers, academics, and industry participants to reform decommissioning laws in the face of the climate-driven energy transition. The second part, Appendices 1 through 10, provides overviews of the laws, regulations, and contracts governing decommissioning in ten major oil- and gas-producing jurisdictions: Angola, Australia, Brazil, Indonesia, Malaysia, Mexico, Nigeria, Norway, the United Kingdom, and the United States.

The potential rapid decline in offshore oil and gas is a matter of public concern because governments often sit as the “decommissioner of last resort.” Most countries with significant offshore oil and gas resources have laws, regulations, and contracts that require private offshore oil and gas companies, contractors, or investors (for simplicity, “oil companies”) to bear the cost of decommissioning their facilities.7 A formal assignment of legal liability, however, does not guarantee that decommissioning will occur or that funds will be available when decommissioning obligations arise. Even jurisdictions with extensive decommissioning experience and well-tested decommissioning regulations may be unprepared for the industry-wide decline associated with a rapid phase-out of offshore oil and gas production.