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Asian Oil Companies Face $100B Well Decommissioning Bill

offshore rig

Asian state-owned oil companies—and taxpayers in the Asia-Pacific—are facing a potential bill of up to US$100 billion for the decommissioning of tens of thousands of oil wells drilled during the oil boom in the 1970s and 1980s, Wood Mackenzie has warned as quoted by Bloomberg.

The numbers are staggering: 35,000 offshore wells, more than 2,500 platforms, and over 34,000 miles of pipelines across China, Thailand, Indonesia, Malaysia, and Australia. Wood Mac has estimated that this infrastructure amounts to 7.5 million tons of steel that have been exposed to petrochemical contaminants for decades.

But decommissioning in this part of the world is not as common a practice as it is in the North Sea or the Gulf of Mexico. Wood Mac’s analysts warn that if it is not done properly, decommissioning could cause environmental damages in a region where millions of people depend on the sea for their livelihood. At the same time, delaying the decommissioning because of lack of expertise could also lead to environmental damages resulting from breakdowns and equipment failures.

All this is easier said than done as the oil industry across the world still struggles with much lower oil prices than four years ago. What makes the Asia-Pacific well decommissioning problem even worse is the lack of adequate regulation. That’s true of all the countries in the region except Thailand and Australia.

Related: Big Oil Enters Growth Mode

Wood Mac’s analysts explained in their report that the best practice in this respect is for the driller to put money for decommissioning in an escrow account in the country that has leased the block. Yet this has not been done on a large enough scale in Asia-Pacific, and now companies may have to pay through the nose to plug the old wells.

As if this is not enough, the consultancy’s analysts note that even with proper planning and a stash of cash for well-plugging, the costs could end up being 10 times higher than initial calculations. This is what happened to BP when it had to decommission its Nile well: it cost it US$200 million, versus an initial estimate of US$20 million.

By Irina Slav for Oilprice.com

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