Experts identified Indonesia, Thailand and Malaysia as key decommissioning markets. (Image credit: stock_art)

South-east Asia has about 1,700 oil and gas installations, half of which are more than 20 years old, but almost none of them have been decommissioned. The region therefore presents the industry with a large, virgin market – and a unique combination of technical, financial and regulatory risks.

Decom World has conducted in-depth interviews with more than 30 experts engaged in the oil and gas industry to illustrate how the industry sees the future for decommissioning in Southeast Asia.

We spoke to operators, contractors, specialist consultants, scientists and state regulators on the prospects for the market and the physical and regulatory challenges facing companies working in the sector. From these we identified some of the region’s specific challenges and the emerging regulatory regimes that companies will have to comply with.

Target countries

The main market for topside decommissioning activity is Indonesia, followed by Thailand, the experts said.

Indonesia has 200 platforms, of which about three quarters are nearing end of life.

In Thailand, there are around 200 platforms that will have to be decommissioned with the next 15 years, and this activity is expected to begin in 2020.

In Malaysia, state-owned oil and gas firm Petronas now plans some small decommissioning projects for next year. Until recently, Petronas had focused on production enhancement, even for fields producing at a loss.
Almost half of Petronas’ Malaysian platforms are nearing the end of their life.

In Indonesia, Plugging and Abandonment (P&A) activity is high, where around 300 wells are expected to be plugged. One major operator in the region is plugging about 200 wells this year and 250 next, and will begin taking up pipelines in two or three years’ time. One multinational contractor has succeeded in establishing itself as a “provider of an integrated P&A service – planning, execution and securing third-party vendors”.

China and Vietnam are seen as difficult markets for outside contractors to gain a foothold because of those countries’ preference for national firms.

Regional challenges

There was a broad agreement among engineers that the dismantling process presents particular challenges in the region. Environmental hazards include sudden typhoons and marine life growth that can make it difficult to inspect structures or assess their weight.

Added to this is a historical failure to collect and record data, or archive key drawings such as well schematics. This means that engineers have little idea how long a P&A campaign will take – and uncertainty is compounded by the poor condition of the casing in many wells.

As one drilling engineer with a US major said: “Most of the wells were drilled in 1980s when they didn’t know what was important to capture, and didn’t have the computers to capture it. And it’s hard to disassemble something if you don’t know what you’re disassembling.”

Added to this is a general lack of capacity among vendors and specialist contractors. There is a general shortage of semisubmersible, heavy lift vessels, derrick barges and well intervention vessels in the region. Mobilisation costs can make up more than half of the total price of a three-day job, one expert said.

One Malaysian engineer also warned operators to beware of contractors who bid for jobs they do not have the experience to carry out; he added that there were only “two or three” local companies that were able to carry out decommissioning.

Another factor is the lack of onshore yards for receiving and cleaning topsides and jackets: for example, there are no onshore decontamination facilities in Thailand at present.

The result of this general lack of experience and capacity is that operators find it difficult to benchmark prices, even for P&A work. One US operator found that its estimate for a future campaign was out by many tens of millions because it failed to take into account the lack of onshore facilities. And in schemes that have gone ahead, there have been large cost overruns – by up to 700% in those undertaken off the Malaysian state of Sarawak.

Regulation risk

Regulation in South East Asia is complicated by the many overlapping legal jurisdictions and the lack of established regulatory principles or detailed requirements. One industry expert described the general picture as “a mess”, and a US contractor said his company had “grand intentions” of working in South-East Asia, but was unwilling to put them into practice until it had gained an understanding of the regulatory challenges.

Broadly speaking, national regulators are developing regimes based on rules established in the Gulf of Mexico or those in the North Sea, with operators favouring the former and regulators the latter.

One consequence of this is that it is often unclear how the costs of decommissioning are going to be apportioned between owners and nation states.

Specific project challenges also impact the regulatory process. As one lawyer put it, “every decommissioning activity, from wells to topside removal, is on a case-by-case basis, because the legislation is never straightforward.”