A broad overview on the decommissioning process in oil and gas, the role of consultants and what the future holds.

Short introduction on decommissioning

Decommissioning is a process consisting of the Elimination of industrial installations and
any Applicable structures that have come to the end of their productive life in a Particular
industry and the subsequent restoration of This industrial site to its previous status.

The decommissioning procedure consists of several stages. In the oil & gas industry and
particularly in the offshore industry, wells securing surgeries are firstly started and
later the structures and pipes connecting the stage to the treatment floor
centers are eliminated. Such operations should be performed with extreme care and need
both technical employees and sophisticated techniques with the aim in preventing
environmental impacts. The elimination stage is followed by the identification of adequate
sites for the storage of non-usable materials as well as the final processing of potentially
polluting merchandise, such as plastic and metallic wrecks, combustible oils, etc..
The decommissioning costs are very hard to establish as they depend on lots of
variable elements like the installation typology, the site geomorphology, the option
if to remove partially or completely the setup, the market requirements, the
existence of key personnel and so forth.

With regard to installation, a significant role is played with the status of their operating area as
broadly considered, with particular focus on the weather conditions. For instance,
decommissioning at the United Kingdom North Area is quite much influenced by the
remoteness and harshness of the environment where it happens. That is the reason elimination
actions are typically performed during the summertime. Moreover, removal occasionally
proves more complicated than the very installation, since the latter might have been the
result of a continuous overlaying process during the years. Hence, sophisticated tools and decent preparation are paramount to attack the principal
decommissioning components considered from the company and environmental factors of
view, significance costs and security.

The international regulatory framework of the decommissioning process

In the oil & gas industry, the decommissioning procedure is legally governed by a large variety
of international, national and regional legal sources, which are sometimes compared
with one another and therefore are under a constant irrigation and development procedure.

On the decommission dealt with at international level, the Key legal Global fundamentals (meaning principles not covering decommissioning within the States’ territorial waters, where it is entirely regulated by national laws) are contained in the
following legal sources:

1. 1958 Geneva Convention on the Continental Shelf;
2. 1982 United Nations Convention on the Law of the Sea (UNCLOS);
3. Non-binding International Maritime Organization Guidelines and Standards of the Removal of Offshore Installations and Structures on the Continental Shelf and in the Exclusive Economic Zone;
4. The OSPAR Convention (coupled with the OSCOM Guidelines, as adopted). Setting aside the different opinions on the interpretation of the wording of the articles mentioned above, the reason why no clear position has been adopted yet is due to the fact that the not all States which are signatories to the Geneva Convention have ratified the UNCLOS.

Such stance has sparked a harsh controversy on whether such last convention has
acquired the status of customary international law, meaning”a clear and unequivocal practice,
representing a sense of legal obligation, by the vast majority of all ratifying states.

Should this be the case, the Geneva Convention would be considered as superseded
and full implementation of the principle of the partial removal would be ensured,
meaning, on one side, that part of the not removed installations might be reused for
other purposes and, on the other side, that interests listed under Art. 60.3 of the
UNCLOS Convention (safety of navigation, fishing, protection of the marine
environment) would be finally fully and actively pursued. Such lack of clearness
undermines the predictability that should instead be ensured in order to attract
investments and thus fully exploiting the current buoyant trend the decommissioning
industry is experiencing.

General framework of the decommissioning in the United Kingdom

Decommissioning in the United Kingdom loomed on the horizon in the 1960s. Today, decommissioning accounts for a large share of the future business opportunities for contractors and consulting companies in the United Kingdom; however, it goes
without saying such an activity involves large responsibilities and consequently huge
costs. Up to some years ago, “decommissioning in the United Kingdom has been comparatively
infrequent”

The potentially growing decommissioning industry as we know it today is
the outcome of the United Kingdom Continental Shelf becoming a mature
hydrocarbons area and oil and gas fields increasingly approaching the end of their
operational life.

The UK Government’s stance is to impose joint and several liability for
decommissioning on oil and gas companies and to ensure that those companies have the
financial means to meet their obligations, which undoubtedly represents a major
challenge for the small oil & gas companies because of their difficulty in attracting
funding and thus competing with larger operators.

As a result of the above, templates of decommissioning security agreements have been
issued and promoted by the oil & gas industry-related associations.

In the light of the above, in order to sooth the burden of the huge decommissioning
costs on development projects and consequently prevent private profits from being
heavily affected, in 2013 a tax relief program was started by the UK Government with
the aim at persuading operators to invest in the UK North Sea area.

In this respect, the Finance Act 2013 opened the way to the Decommissioning Relief
Deeds, meaning contracts entered into by the UK Treasury and oil & gas operators
having as purpose the grant of certain tax reliefs at the time of decommissioning. Such
legislative measure has very positively been welcomed by both national and international
operators in that it provides certainty on decommissioning tax regime (and therefore its
costs), thus either allowing the sale of mature yields or boosting new investments aimed
at lengthening their productive life. Such certainty is also guaranteed by certain
protections against unexpected consequences, such as the protection from potential
changes of law as granted by the European Convention on Human Rights as well as
from the UK Human Rights Act; furthermore, other contractual safeguards apply, such
as the mitigation of the risk of default of a co-operator in favor of the operator which
has to undertake the works in its place.

Statistics indicate that by mid-2015, as many as 72 decommissioning relief deeds had
already been signed and more that $3.5bn of capital had therefore been unlocked.
Recently, in approving the 2016 Budget, the UK government has even further added
certainty to the oil & gas industry by announcing some innovative measures aiming at
attracting even more investments. Such measures are for instance the chance by new
operators to access tax relief when they retain decommissioning liabilities for an asset
following their purchase and the commitment to further assist the Oil and Gas
Authority and the oil and gas industry in order to reduce overall decommissioning costs.
Since costs and liability are keys in the decommissioning sector, the first measure is
aimed at attracting new investors willing to purchase mature assets for which they take
on liability.

In fact, according to the OSPAR Convention, operators owning an installation are liable
in perpetuity for both the installation and any residues following the decommissioning.

When an installation is sold, the seller and the purchaser may agree about the transfer of
the liability. Although some cases have been observed when liability has remained with
the seller, liability is normally transferred to the purchaser. In such cases, purchaser may
be granted tax relief as”compensation” for purchasing late-life assets without apparently
no big yield expectancy.

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The decommissioning of offshore oil and gas installations and pipelines in the United
Kingdom is regulated by the Department for Energy and Climate Change (DEEC)
under the Petroleum Act 1998.

A decommissioning programme, as proposed and further approved by the DEEC,
contains the modalities concerning the decommissioning of installations and pipelines by
the operators involved, which may have to perform both main activities (the very
removal) and secondary activities, such as the removal of debris or the handling of
radioactive material.

As to the main activities, the following is an indicative list of what an operator may do:

1. Complete removal and transportation to ground for scrapping;
2. Complete removal and storage in sites destined to become artificial cliffs;
3. Removal of the top structure and storage in a site close to the down section left
4. on site (toppling);
5. Complete removal and sinking in high sea bottoms;
6. Complete removal and reutilization in another place;
7. Reutilization on site for a different purpose than hydrocarbons production.

In order to pursue the highest transparency, the DEEC seeks comments from other
governmental and non-governmental agencies, departments, organizations, as well as
other bodies on the proposals set out in a programme.

The first approved decommissioning programme dates back to 1998, when the operator
Occidental Petroleum (Caledonia) Ltd. was allowed to decommission by toppling the
Piper Alpha oil fixed steel platform located in the North Sea at around 200 km from
Aberdeen. Such decommission is sadly famous for having turned into one of the worst
disasters ever in the oil field, which caused the death of more than the half of the
employees working on the platform.

Since 1998, as many as 97 decommissioning programs have been approved, whilst to
date there are four programs under scrutiny.

Human rights in the decommissioning process

Setting apart any obvious consideration on the dangerous nature of their activities and
on the care by which any relevant information is handled, IOCs and NOCs (and
broadly speaking oil & gas operators) somewhat show also in their decommissioning
activities limited sensitiveness in disclosing the extent of their commitment in reducing
the impact of their activities on the environment and human life. Such circumstance may
be attributed to these companies always struggling in order to try and balance their
environmental responsibilities with their shareholders’ (at times, States) appetite for
gain.

On the other side it’s true that the inadequate performance of decommissioning activities
possibly represents a huge risk for the life of the companies involved and for the
whole oil & gas business, both in terms of direct and indirect economic losses (in fact
listed companies’ shares may suffer sudden, substantial drops and the damages to their
reputation may jeopardize present and future orders in their pipelines).

For such reasons, in recent years oil & gas companies have become increasingly active in
paying proper attention to the international legislation addressing the care and protection
of human rights. Legal sources such as the International Bill of Human Rights (with the
Universal Declaration of Human Rights), the International Labour Organization’s (ILO)
1998 Declaration on Fundamental Rights and Principles at Work, the UN Guiding
Principles on Business and Human Rights, the UN Global Compact Principles and
Voluntary Principles on Security and Human Rights are constantly mentioned on their
web pages as inspiring sources and are normally introduced as clauses in contracts they
enter into with their commercial counterparts.

International institutions keep on playing an active role in fostering awareness on an
issue of such paramount importance. In this respect, it is worth to mention the 2013 Oil
and Gas Sector Guide on Implementing the UN Guiding Principle on Business and
Human Rights. This guide, as issued by EU, aims at identifying a set of human rights
affected by the activities in the oil and gas sector as well as at providing guidance on how
to spread knowledge about their existence with a view at promoting their protection
through proper risk management activities.

In such interdependent world as the oil & gas world is, oil & gas operators adopt
principles, policies and processes by taking into account the context they operate in and
the practices of the partners operating in that context. It then emerges that, on one
hand, their approach towards the protection of the human rights depends on how much
they stick to their missions and visions despite unfavorable external circumstances and,
on the other hand, on the sensitiveness degree of the governments they deal with and
the coercive power of the legislative framework they are surrounded by.

It must not be forgotten that the declarations and principles above mentioned are
characterized by a strong persuasion power only; in fact their enforcement is not
automatic and is only possible through domestic measures offered by domestic law
systems where a certain violation is intended to be enforced. It is therefore evident that
the more legal certainty is ensured through the existence of proper legal tools, the
stronger the rule of law is and so the higher protection human rights can receive in a
certain State.

In the current globalized world, it is a fact that the traditional doctrine of the
international law proves inadequate to ensure an effective protection of the fundamental
rights from the violations perpetrated by multinationals as well as to tackle the new
challenges as arising from the intermingling of several interests worldwide connected
with the rampant globalization.

A broad debate has been on for years concerning the existence of transnational legal
tools and their effectiveness. Strong focus still exists on the effectiveness of the
protection granted by the Alien Tort Act, a U.S. law originally dating back to 1789,
which application to lawsuits having as object the violation of human rights started being
strongly involved in the ’80s.

Pursuant to case law originating in 19807 (if a New York established civil court decided to
interpret it very differently from its original significance ), the Alien Tort Act enabled foreign
citizens to request reimbursement for damages prior to U.S. courts for breaches of human
rights perpetrated outside the United States land as a result of breach of
international customary law rules. In fact, the Alien Tort Act opened the way to the
idea that the reimbursement for damages arising out of acute criminal conducts may
prove more effective than any criminal treatment.

In principle, the Alien Tort Act didn’t apply to disputes among overseas parties. It was
below the case Filartiga v. Pena-Irala when a dispute between a foreign claimant and a
foreign defendant was dealt with in the Act. Since that time, the Act was invoked
in numerous instances of breach of international customary law both for lawsuits against
people and corporations.

For years the Alien Tort Act has represented something special in the spectrum of legal
treatments against criminal conduct performed worldwide, making the United States a
magnet forum. But, its program as U.S. legal tool to extraterritorial disputes
sparked harsh opinions and attracted fierce criticism in the very beginning. In reality, if
on one side the Act paved the way to the recognition of this global corporate
accountability, on the opposite side it had been clear that its indiscriminate application could lead to awkward and destabilizing effects both internally and about the relationships with other countries.

Following the Filartiga v. Pena-Irala case, U.S. courts revealed a particular reluctance in
clearly marking boundaries of the corporate liability and extraterritorial application of
that the Alien Tort Act. Soon it became evident that the expansion of jurisdiction to legal
entities had been justified under an abstract assumption: the presence of a federal law that
grants a discussion for lawsuits against overseas companies are a sign of
acknowledgement of corporate liability for breach of individual rights under the
law. The misunderstanding consists of mixing the notion of passive
legitimation and authority. Indeed, a State could exercise its jurisdiction for individual
rights breaches with a company pursuant to its own laws applied abroad, but this would
not imply the global acknowledgment of such principle. It’s a simple fact that no claim
for reimbursement for damages has been granted y U.S. courts pursuant to the Alien Tort
Act up to now.

In 2010 the individual rights activists suffered a strong setback after the sentence by a
U.S. Appellate Court on Kiobel v. Royal Dutch Petroleum case (and affirmed by the
Supreme Court on April 17, 2013), if the Alien Tort Act had been denied extraterritorial
application for disputes among seniors for facts happened outside the land of the
United States.

Kiobel v. Royal Dutch Petroleum is a lawsuit for compensation for damages filed by
twelve Nigerian citizens who detained English, Dutch and Nigerian oil companies to be
accomplices with the Nigerian government in committing tortures and murders during
the repression of protests from the drillings in the Ogoni region by the Niger River
delta.

Such unexpected decision increased harsh criticism also within the exact same Supreme Court,
where some judges claimed that the corporate liability may indeed find service
inside the global law.

The Supreme Court excluded that the Alien Tort Act could ground the corporate
liability on the international law and the corporate liability itself was a widely
acknowledged principle under the global law. Moreover, the Court refused the
idea that the Alien Tort Act could discipline passive legitimation of corporations. Judges
argued that since 1945 the global criminal practice — through the global
criminal courts – has consistently focused on people rather than legal entities, thus
confirming that criminal law does not address to legal issues. Judges went
on by rejecting the premise that the existence of a variety of international treaties
addressing the responsibility of legal entities as arising from particular criminal details supposed the
establishment of a general principle of corporate liability inside the Alien Tort Act;
rather, they emphasized that specific aspects of corporate liability as addressed by people
treaties couldn’t create a relevant overall system.

Be that as it might, the issue of the global corporate liability remains controverted and
the oscillating jurisprudence from the United States courts following the Kiobel v. Royal
Dutch Petroleum has not helped so far dispel all doubts about whether such accountability could
be confirmed by making reference to the law of United States, meaning that the Alien Tort
Statute.

Conclusion

Due to a lot of oil & gas facilities coming to the end of the usable life, the
decommissioning marketplace is dramatically changing all over the world, being the Northsea currently one of the most bustling areas.
In it, for too long the decommissioning action has been considered as an isolated
action, completely different from production. But, after the Wood Review,
operators have started addressing a different strategy, which is basically based on
maximizing resourcing and minimizing costs.

In this scenario, small help seems to be supplied in the level of global law, whilst
national lawmakers appear to be proactive and keen to collaborate with all the surrounding
industry world and also to assist operators to take the highest advantage from this fresh and
possibly highly profitable fashion.

In this scenario, less attention is based on aspects which are considered less important (at
in the first phases ), as for instance the care for your human rights. Luckily, petroleum & gas operators’ awareness appear to have already reached a certain degree and the adoption of human rights-friendly inner policies are no more the exception.
However, as we have observed, judges have voiced no clear stance up to now, which
marginally hamper the achievement of a complete protection against the violation of these rights.

On the flip side, one cannot ignore that multinationals perform a significant
function of global governance, as their approaches have a powerful influence on the behaviour
of this international community on its entire.

Thus, excluding them in the subjects of the global law system means dismissing
the large number of tools that States and associations have put and executed
on the topic, such as for example that the OECD Guidelines to Multinational Enterprises,
that summarize an perfect path towards an area where transnational companies are more
and much more answerable through soft law instruments.

To sum up, as announced in 2010 by the Special Representative of this Secretary-General
John Ruggie, States must protect human rights, ensure their respect additionally towards
multinationals and put in place internal legislation remedies directed at permitting people to
face violations and attaining their end also through compensation for damages. If States
and worldwide institutions push hard, a new age will loom on the horizon soon for the
worldwide population, an age where its economic growth will go pari passu
with its dignity, well-being and welfare.