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Publication - Research Publication

Unconventional oil and gas: decommissioning, site restoration and aftercare – obligations and treatment of financial liabilities

Published: 8 Nov 2016

Research into decommissioning, site restoration and aftercare – obligations and treatment of financial liabilities.

137 page PDF


137 page PDF


Unconventional oil and gas: decommissioning, site restoration and aftercare – obligations and treatment of financial liabilities
1 Introduction

137 page PDF


1 Introduction

1.1 Aims

This study examines the decommissioning, restoration and aftercare of unconventional oil and gas ( UOG) developments in Scotland. This study is one of a number commissioned by the Scottish Government with the aim of improving the evidence base for informed decision-making in relation to potential UOG developments in Scotland. The studies follow the publication of the Independent Expert Scientific Panel report on Unconventional Oil and Gas in July 2014 (Independent Scientific Expert Panel, 2014) and the subsequent moratorium on environmental and planning consents for the development of all UOG extraction in Scotland in January 2015.

The broad aims of this research are to:

  • better understand the regulatory measures which are needed to ensure that decommissioning, site restoration and aftercare of UOG developments is undertaken in a way that minimises impacts on communities and the environment; and
  • identify and explore different models of financial guarantee that provide robust security against environmental liabilities and to improve understanding of associated costs.

For the purposes of this report, UOG includes developments which exploit shale oil, shale gas and coalbed methane. The report highlights any differences between them that are relevant to the aims of the study.

Although this report identifies options for the regulation of and financial guarantees for UOG development in Scotland, it does not make recommendations to the Scottish Government. The direction of future policy or potential changes to the regulatory framework is a decision for Scottish Ministers to take following public consultation on this report and the other evidence based research projects commissioned by the Scottish Government.

1.2 Background

Recent experience with the management of post-closure liabilities of opencast coal sites in Scotland has highlighted the importance of having a robust decommissioning and restoration regime in place before any future UOG development in Scotland takes place.

The regulatory regime for UOG development in Scotland should be designed to ensure that UOG operators comply with their obligations and that sites are decommissioned and restored to an acceptable standard. This should be the case even if the UOG operator is no longer in a position to fund these activities and the site is orphaned, i.e. there is no entity with legal responsibility for the site.

It is the responsibility of UOG operators to ensure that decommissioning and site restoration obligations are met. This includes ensuring appropriate financial securities are in place to deal with environmental issues and that these securities provide a safeguard against changes of company structure (including company failure or site ownership.

The key issues relating to decommissioning are set out in the Scottish Government's Independent Expert Scientific Panel Report (Independent Scientific Expert Panel, 2014) and the joint Royal Society and Royal Academy of Engineering Report on Shale Gas (The Royal Society and The Royal Academy of Engineering, 2012) including potential risks arising from well integrity failures.

The Independent Expert Scientific Panel Report highlighted potential gaps in aftercare and long-term monitoring requirements. In particular, once the operator has surrendered the relevant authorisations and met the Health and Safety Executive's well-abandonment requirements and, later, when the post-production requirements in the Petroleum Exploration and Development Licence have ceased, there are no statutorily required long-term monitoring and control requirements to ensure that well integrity is retained and pollution does not occur. This study examines the Independent Expert Scientific Panel's conclusions on monitoring and identifies whether the potential gap identified is significant or can be effectively managed.

This report explores these issues in more detail to ensure that, should the moratorium in Scotland be lifted, any future developments adhere to robust regulatory standards and that appropriate financial guarantees are in place to deal with any potential environmental risks and associated liabilities. In particular, in circumstances where the UOG operator lacks the financial means to manage such liabilities or cease to operate with the consequence that sites become effectively orphaned. This study therefore seeks to understand current good practice within the industry and identify what additional lessons can be learned from international examples.

Finally, this study also seeks to understand the relative advantages and disadvantages of the different financial guarantee mechanisms, and how these might affect the economic viability of any future projects. Difficulties in assessing costs can lead to under-provision for these liabilities. This was a key market failure in the opencast mining industry in Scotland, which prompted an Industry Taskforce to investigate restoration and aftercare guarantees (Scottish Government, 2015c). The work and recommendations of that Taskforce are a key consideration for this research project.

1.3 Scope

This study looks at the decommissioning of potential future UOG developments in Scotland; including shale gas, shale oil and coalbed methane developments. The brief also requires the study to look at both surface and sub-surface development.

Surface developments cover any surface infrastructure required by UOG developments, including the wellsite itself together with pipework connecting wellheads to the national grid. Planning permissions typically require that such surface developments be removed when sites are decommissioned and restored.

Subsurface developments are the wells themselves, which, minus the wellhead plugged with cement to prevent leaks, are left in-situ once the site is decommissioned and restored.

1.4 Approach

This study:

  • summarises the environmental issues that need to be addressed in effective decommissioning, site restoration and aftercare ( Chapter 2);
  • details the current regulatory framework that applies to the decommissioning of UOG developments in Scotland ( Chapter 3);
  • examines the lessons which can be drawn from the monitoring and regulatory frameworks of other countries and industries and how these lessons could be interpreted and applied in the context of regulation and monitoring in Scotland ( Chapter 4);
  • provides examples of how decommissioning and restoration can deliver innovative or positive community and/or environmental benefits ( Chapter 5); and
  • sets out are the current industry approaches and best practice for assessing decommissioning, restoration and aftercare costs and the advantages and disadvantages that different financial instruments present in terms of providing security against liabilities ( Chapter 6).

1.5 Consultation

The Scottish Government is committed to gathering evidence on the potential effects of UOG developments, and giving stakeholders and the public the opportunity to consider the issues and express their views.

The project has been informed by discussions with representatives of the community, environment and industry in Scotland. The objective of the consultation has been to enable stakeholders to provide sources of information and highlight issues of concern that fall within the scope of this research.

The following organisations were consulted:

  • Scottish Environment Link - The forum for Scotland's voluntary environment organisations, with over 35 member bodies representing a range of environmental interests with the common goal of contributing to a more environmentally sustainable society.
  • Broad Alliance - A coalition of Scottish communities opposed to onshore and near-shore unconventional oil and gas development.
  • The Convention of Scottish Local Authorities ( COSLA) - The representative voice of Scottish local government.
  • UK Onshore Oil and Gas ( UKOOG) - The representative body for the UK onshore oil and gas industry including exploration and production.

Engagement with the consultees was managed to ensure that all groups were given an equal opportunity to contribute. Consultation was via an information pack and questionnaire. All consultees were invited to an individual consultation event in Edinburgh in March 2016 and Scottish Environment Link, COSLA and UKOOG attended the event. All consultees responded in writing to the questionnaire (see Appendix A).