Over the next five years, the number of offshore development wells reaching the end of their production life in Australia will more than double, creating a US$40Bn plugging and abandonment (P&A) opportunity, according to Rystad Energy
A report by the Norwegian energy research consultant shows that the number of Australian offshore development wells that will need to be decommissioned will jump from 160 today to more than 440 by 2026, with a further 172 offshore exploration wells waiting in the queue, resulting in substantial opportunities for P&A suppliers, marine contractors and offshore support vessel owners.
As a result of Australia’s sizeable offshore P&A liabilities and its non-producing onshore assets, Rystad said the size and dollar amount decommissioning figure could even double, depending on how many decommissioning projects materialise.
“Recent developments have made it more difficult for operators to sidestep decommissioning obligations by selling ageing assets, as the market appetite for such assets is drying up,” said Rystad Energy upstream team senior analyst Jimmy Zeng. “Many producers will have to deal with the issue in coming years, with ExxonMobil having the lion’s share of liabilities in Australia,” he said.
Rystad Energy’s analysis of the P&A potential takes into account the production status of each operator’s offshore wells, the likelihood of producing fields ceasing output in the coming five years, wells that have been already suspended but not yet abandoned, along with partially abandoned wells. While development wells make up the bulk of the total, exploration wells are also in need of P&A to a lesser extent even though strong exploration growth in Australia is not expected in coming years.
Development wells for P&A activity
Turning its attention to development wells, Rystad estimates 890 offshore wells in total were drilled in Australia before 2015, of which 108 have been permanently abandoned. Of the 782 wells not yet abandoned, Rystad identified a group of wells it considers good candidates for P&A activity in the years ahead.
Filtering out wells that are more likely to be identified for upcoming P&A, the report identifies 440 wells that are P&A candidates, the majority of which are in the Gippsland Basin which has been a key source of domestic gas supplies going back to 1964, will see a decline in production over the next decade.
Offshore development in the region has been driven by ExxonMobil and BHP’s Gippsland Basin joint venture. With new resource developments in the Gippsland Basin becoming more capital intensive, the outlook for P&A opportunities in the area should prove attractive to service suppliers, said Rystad.
In the North Carnarvon Basin group, Rystad sees an age distribution that shows non-producing wells are relatively ‘younger’ than those in the Gippsland Basin, with most no more than 20 years old. Even so, various measures intended to ensure operators fully decommission facilities and wells are likely to provide a tailwind for service suppliers seeking P&A mandates in the North Carnarvon basin as well – spurred by the industry controversy over Northern Oil & Gas’s inability to fund its decommissioning of the Northern Endeavour FPSO and associated wells.
With its large legacy position in Gippsland, ExxonMobil leads the way in its decommissioning liabilities, with a rapid increase in the number of wells likely to cease production over the next five years. Rystad noted that most of these wells are platform-based, where per-well abandonment costs are likely to be significantly lower than for subsea wells. ExxonMobil is facing increased regulatory pressure to decommission these wells.
Besides ExxonMobil, operators Santos, Woodside, BHP and Vermillion Energy will experience growing decommissioning obligations in the next five years, measured by the increase in wells within Rystad’s ‘potential for P&A’ grouping. Woodside and BHP have mostly subsea wells in this category, which could mean their decommissioning bills will be higher on a per-well basis. Woodside recently communicated its intention of starting abandonment of up to 18 subsea wells on the Enfield field from 2022 to 2024, said Rystad.
Riviera Maritime Media’s Offshore Energy Webinar Week is being held 14 June 2021 – use this link for more details and to register