Decommissioning of Oil and Gas Facilities: Assessment of Liabilities and Impact on the Financial System

Ibragim Arbievich Khalidov and Konstantin Nikolaevich Milovidov
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Ibragim Arbievich Khalidov: Russian State University of Oil and Gas (National Research University) named after I.M. Gubkin, Moscow, Russia
Konstantin Nikolaevich Milovidov: Russian State University of Oil and Gas (National Research University) named after I.M. Gubkin, Moscow, Russia

Russian Foreign Economic Journal, 2024, issue 8, 74-96

Abstract: Oil and gas decommissioning (OGD) represents a growing market. With the energy transition, the issues of economic, social and environmental regulation of assets at the late stage of the oil and gas cycle are of particular relevance. Multidimensional assessment of OGD international practices has not been the subject of serious research in the domestic literature so far. OGD obligations are enforced by laws and regulations of the relevant countries. Financial liabilities in the world amount to $4-6 trillion. OGD issues have become greater due to new geopolitical challenges: energy transformation, new climate agenda, consequences of production regulation within OPEC+. The decisive strategic factor for individual companies is their ability to manage the energy transition. This requires application of methods and tools from various fields of knowledge (geological-field, technological, economic-legal, financial and tax) and shifting from managing individual parts of the oil chain to managing cycles. Corporate strategy must ensure a linkage between the reuse of old assets and new business models that take into consideration the realities of the circular economy. Asset retirement obligations (ARO) of companies for oil and gas facilities and methods for their determination and use in OGD practices are considered. Outside the United States, legal requirements for decommissioning vary widely depending on the country’s regulatory regime and the terms of the contracts governing exploration and production. AROs are the largest single type of debt in the oil and gas industry. It accounts for up to 50 % of the reported debt. Many companies do not have suffi cient funds for OGD operations. As a result, their investors, creditors and, ultimately, oil-producing areas will be forced to settle the accounts.

Keywords: decommissioning of oil and gas facilities; OGD; cash flows; investments; taxes; risks; upstream; exploration and production; midstream; transportation; downstream; refining and sales. (search for similar items in EconPapers)
JEL-codes: Q43 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:alq:rufejo:rfej_2024_08_74-96

DOI: 10.24412/2072-8042-2024-8-74-96

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