Treat waste disposal offers with care
Decommissioning of assets from the
The relevant programme must consider the possibility for reuse and/or recycling and the operator must ensure that any subsequent buyer has a programme for the proper recycling and disposal of any materials. This is important in view of the fact that offshore installations, in particular, FPSOs (floating, production storage offloading units), often contain large quantities of hazardous substances such as trapped gas, asbestos, residual oils and fuels, mercury and Naturally Occurring Radioactive Material ("NORM"). Wwithout careful disposal and recycling with proper equipment and safety protection, such disused materials can give rise to significant health and environmental risks.
As a result of these risks, the improper disposal of materials can cause significant reputational damage. In particular, there have been some recent well publicised examples of operators selling FPSOs to cash buyers who dispose of them unsafely, such as the North Sea Producer FPSO ending up in
Perpetual liability considerations
Whilst all trace of offshore assets must be removed from the seabed, it is not always possible to achieve full removal and certain derogations can be granted by Offshore Petroleum Regulator for Environment and Decommissioning ("OPRED") on a case by case basis. Such derogations, which are not considered permanent, are typically only granted in respect of the concrete footings of platforms which arguably would cause more environmental disruption were they to be removed than if they were left in situ.
However, any property left in situ gives rise to the ongoing risk of potential third -party damage, pollution and possible maintenance obligations. The most obvious example of the risk of future liabilities is in respect of wells which have been plugged and abandoned (P&A). Whilst the P&A methods used in the UKCS are traditionally robust, the possible failure of barriers with resulting pollution liability and control of well costs is a perpetual risk.
Insurance solutions are not obvious
The spectrum of liabilities covered in this article may not be the typical risks which spring to mind first in the context of offshore decommissioning. However, they are very real risks which require careful assessment by underwriters. Fines and penalties that might be levied under the regulations highlighted above would not be covered under traditional liability coverages, but there is scope for there to be a liability to pay damages, which could potentially be recoverable.
An additional concern for energy insurers is the long -tail nature of these liabilities. Oil and gas operators buy insurance to protect their balance sheet, which extends to protecting against liabilities that can arise during and after the decommissioning of their offshore assets. But, there are tangible difficulties inherent in continuing to declare and pay premium in respect of assets which have long since been decommissioned, where the operator may have no ongoing interest in a particular field or, perhaps, even the jurisdiction.
There are no easy answers, but the risks of disposal of hazardous waste and other perpetual liability exposures are significant risks which should not be underestimated either by operators, contractors or their insurers.
A similar article was previously published in Insurance Day.
Originally published
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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