The Decommissioning Of Oil and Gas Fields in Egypt: Legal Aspects

The Decommissioning Of Oil and Gas Fields in Egypt: Legal Aspects

The oil and sector does not concentrate only on exploration and production (E&P) activities, but also post-E&P activities. Decommissioning of oil and gas fields means the activities related to the abandonment of petroleum production wells and the removal of onshore and offshore installations. “During the decommissioning phase, the sites should be restored to their original condition, berms flattened, excavations filled, and all equipment, fencing, wires, cables, and debris should be collected,” Fakhry Abdelkhalik, Green Plus Environmental Solutions CEO, said.

Decommissioning is considered a non-profit activity, yet it inevitably needs to be performed by the concessionaire, either international oil companies (IOCs) or national oil companies (NOCs). “When a field comes to the end of its life, it is essential [to ensure] that the wells are plugged and abandoned in a safe manner. This will stop the accidental discharge of hydrocarbons into the environment,” Paul Main, Upstream Analyst at Wood Mackenzie said, clarifying that “If an offshore structure is just left, the physical integrity of the structure can degrade to a point in which hydrocarbons or other production related chemicals may be discharged to the environment.”

For such reasons, decommissioning of oil and gas fields must be carried out in an efficient manner, “it should be planned as the field enters its end of life phase as the Cessation of Production approaches,” Main said, adding that “as Cessation of Production approaches, wells can be plugged and abandoned in phased yet safe manner. Once the wells are abandoned, then the removal of offshore facilities can commence.”

Thus, the concessionaire is obliged to carryout decommissioning under the terms of the concession and/or the applicable regulations. However, “the lack of commitment by companies to implement proper decommissioning by removing all pollutants in the site and restoring everything to its origin, leads to the deterioration of the environment in the project area and prevents any future investments in it,” Abdelkhalik commented. Hence, there is an essential need for a comprehensive legislation system to clarify the scope, procedures, and financing methods of decommissioning to perform it efficiently and smoothly.

Decommissioning in Egypt

According to the paper ‘The Decommissioning of Oil and Gas Fields: Egyptian Law and Policy’ published in the Journal of World Energy Law and Business, Oxford Academic in 2019, Egypt controls its oil and gas resources through Production Sharing Agreements (PSAs). The PSAs are inked by the Ministry of Petroleum and Mineral Resources (MoP),
a relevant IOC as a contractor, and a relevant NOC which could be the Egyptian General Petroleum Corporation (EGPC) or the Egyptian Natural Gas Holding Company (EGAS) or the Ganoub El Wadi Petroleum Holding Company (Ganope). According to the terms of the PSA, the contractor has the right to exclusively explore for oil and gas in the rewarded concession, as well as decommissioning the field after the end of the project’s life. However, when reaching the decommissioning phase, there is a need to have a regulatory framework to ensure efficient performance.

With an eye on decommissioning in Egypt, “there is no clear regulations related to the soil and the underground pollution, even there is no limits for the pollutants measurements,” Abdelkhalik commented, illustrating that “the competent authorities have the right to inspect the site at any phase, in addition to enforcing [concessionaires] to remove any source of pollution at the site and restore the site to its origin.”

In Egypt, the Mines and Quarries Law No. 66 of 1953, along with its executive regulations; the Petroleum Law and the Environment Law No. 4 of 1994 are applied to upstream projects, with no contradiction with the terms of the signed PSAs. However,
neither the Petroleum Law nor the Environment Law includes any specific rules for controlling the decommissioning process. “I think that we need in Egypt to get a great attention to the soil and underground pollution and update the environmental regulations to include comprehensive articles related to that issue,” Abdelkhalik noted. Accordingly, the terms of the PSAs are used as a regulator to not only control the E&P activities, but also regulate the decommissioning process. It is worth noting that the mechanism followed to implement and control decommissioning varies, according to the NOC’s PSA.

Different Mechanisms

EGPC did not implement a specific mechanism for the implementation of decommissioning of oil and gas fields since the agreements signed in the early 1960s. Under these agreements, the IOCs were mandated to submit a decommissioning program only in the case of permanent abandonment of oil wells in their operating fields. Consequently, such agreements formed a limited reference for decommissioning, with no clear regulatory framework.

However, by 2015, EGPC implemented a new mechanism for decommissioning. According to this mechanism, the contractor was committed to restore the contract area to its original state likewise the time of its awarding. But this language was criticized by IOCs because it entailed significant expenditure to carry out decommissioning relevant activities. In addition, this obligation might be imposed at the time of relinquishment, which means that the contractor might not obtain a full cost recovery.

To face these concerns, EGPC adopted another system through issuing Article 5 of the current model forming PSA and publishing it in conjunction with the 2018 bid round. This Article states that ‘By the time of such relinquishment [this means voluntary relinquishment] or the expiry date of the concession period, contractor shall ensure that all environmental regulations in the country have been followed, in accordance with accepted petroleum industry practices,’ according to the paper. Yet, this language did not reflect any real commitment by the contractor; the essence of which is to comply with relevant Egyptian environmental regulations. Consequently, decommissioning regulatory arrangement is still a grey area.

Thus, it has become apparent that there is a lack of legislation for decommissioning of oil and gas projects in the context of PSAs granted by EGPC. As a method to minimize possible distortions in awarded areas, Abdelkhalik suggested that “before carrying out any activity in the location, photos should be captured as an evidence for the current situation of the site, in addition to taking photos for the site after finalizing operations and after [completing] decommissioning as an evidence for the site’s state.”

For decommissioning of oil and gas fields under Ganope’s PSAs, Ganope PSA model stated that at the relinquishment time, contractor is committed to restore the concession area to its original state, in a condition demanded by Ganope upon relinquishment. However, this language of decommissioning is still generic and it imposes an uncapped liability on the contractor, as it would not be able to assess the decommissioning obligations that might be levied by Ganope at the time of relinquishment of the contract area.

When it comes to EGAS, its PSAs decommissioning model is more comprehensive because of some of its well-regulated elements. For example, the first element of a successful decommissioning model is that it is the contractor who is obliged to restore the original state of the contract area at the time of relinquishment of all or any part of the area, in accordance with good petroleum industry practices. The second element is that the contractor is committed to submit a decommissioning plan including intended decommissioning procedures and expected costs to be discussed and approved by EGAS. Thirdly, establishing a cost recovery mechanism to enable the contractor to recover decommissioning costs properly is crucial. It is important to have a bank account approved by EGAS and the contractor to manage the funds directed to the decommissioning program. Additionally, the contractor needs to submit estimated costs of decommissioning once signing the development lease. According to EGAS’s PSA model, the decommissioning of developed oil and gas fields will occur during the last five years prior to the end of the development lease, to be undertaken by the contractor and EGAS or by a third party as agreed to by EGAS and the contractor.

Regulatory Framework is the Way Out

Based on the above-mentioned details, Egypt has no comprehensive legislative tools to regulate the procedures of decommissioning of oil and gas fields. Instead, decommissioning procedures are controlled by different models implemented by the NOCs. As a result of implementing different models, conflicts might be created in the future between NOCs and IOCs. Thus, clear regulations are needed to cope with the expansion of the upstream sector in Egypt, as “having regulations such as [the Convention for the Protection of the Marine Environment of the North-East Atlantic] OSPAR will help all involved [structures] in the installation and the removal of offshore facilities to [meet] the expectations on them,” Main said.

Another point to consider is that whilst decommissioning represents a cost at the end of the field’s production life, “safe decommissioning of offshore facilities must be done in order that the structures do not become hazardous and hydrocarbons not discharged to the environment. That is why timely, planned and phased decommissioning programs should be put in place,” Main explained, noting that performing proper decommissioning can contribute to lowering the capital expenditure (CAPEX) of new projects that may be implemented in same areas of production in the future, “there are instances that topsides and jackets of platforms [might be] in a good state and could be re-used on new projects.” As an outcome, this will help create “a growing decommissioning market to build localized expertise. Both in offshore engineering and removal as well as onshore disposal in an environmentally safe manner,” Main pointed out.

In conclusion, decommissioning of oil and gas fields is crucial to complete the oil and gas production cycle efficiently. Thus, it is important to reinforce carrying out decommissioning through establishing an obvious regulatory framework, with clear rules directed to controlling decommissioning of oil and gas fields.


Welcome! Login in to your account

Remember me Lost your password?

Don't have account. Register

Lost Password