Decommissioning and rehabilitation: funding models

Abstract

Decommissioning oil and gas facilities and rehabilitating a petroleum operation area involve complex, lengthy and costly processes. Funding the liability for the decommissioning and rehabilitation phase of a petroleum project is determined by the juxtaposition of a matrix of three fundamental and closely interdependent policy decisions on: whose obligation it is (the proponent, the state or both) to carry out decommissioning, whose liability it is (the proponent, the state or both) to pay for decommissioning and which decommissioning funding model is appropriate for the proponent and/or the government (if there is state participation). Proponent models may include funding with or without security or contributions to a decommissioning fund. Government funding models are inextricably linked with the imposition, collection and appropriation of the fiscal take applying to the oil and gas sector. There are therefore many variants in the responses to, and stance taken, on the above policy issues. It is, however, universally accepted that the state should not be inadvertently left with the ultimate obligation and/or the liability for decommissioning and rehabilitation. The preferred policy choice involves finely balancing the interests of the state without disincentivising private sector investment in the development of the petroleum resource. This study will review the pros and cons of the main alternative funding models typically used internationally, the status of Australia’s decommissioning funding and associated fiscal policies, whether and to what extent the Australian government participates in the funding of decommissioning and rehabilitation undertakings and proposed improvements to the policy design settings.