coal Decommissioning

Global extractive industries facing a big financial headache.

Nicholas Newman
Copyright: <a href='http://www.123rf.com/profile_qiujusong'>qiujusong / 123RF Stock Photo</a>
the oil pump

For extractive industries, including oil and gas fields, gold mines, coal mines and landfill sites, the prospect of closure is becoming a major problem, which is likely to cost billions of dollars for both operators and regulators worldwide. In South Africa, there are some 6,150 abandoned mines and around 1,400 abandoned wells in Alberta to be sorted out.

Increasingly, policymakers and the public are insisting the industry foots the bill for decommissioning oil & gas fields, rehabilitating of mines and landfill sites. It is expected to cost around £30 billion to decommission the North Sea oil fields alone. In many countries, it is becoming increasingly difficult for operators to just walk away and leave often-hazardous installations to rot and often damage the environment.

Traditional options

However, there are several solutions facing such operators in resolving such matters, including:

  1. Set up a system of bank guarantees or bonds to pay for the expected cost of such rehabilitation, In both Australia and South Africa, rehabilitation costs are secured by such methods. However, industry insiders suggest that the money put aside will be insufficient, leaving the countries respective governments to foot the bill.
  2. Sell to another company, just like the oil majors are currently doing in the North Sea.In Australia, for instance, mining companies have been selling their assets to unknown small groups, in order to avoid mine rehabilitation costs.
  3. Just walk away and abandon, as has been the case in Alberta and Texas oil and gas wells. Leaving regulators in respective countries to foot the bill. Already, regulators are negotiating with technically bankrupt coal operators to set aside enough funds to clean up Appalachia’s polluted rivers and mountains so that taxpayers are not stuck with a $1 billion bill.
  4. Ask for tax relief, so the taxpayer has to pay a contribution to the cost.

New Solutions offered

However, there is another solution, provided by a new company called Quatre Ltd, they have created a series of new set of financial solutions that are designed to be cost effective to oil field operators, mine owners and the taxpayer. Amongst the options, they offer the industry and regulators include the setting up of a Special Purpose Trust, designed to protect the public purse from decommissioning liabilities and ensure that economic recovery is maximized. Also, provide post-decommissioning liability insurance to address the risk of failure of any decommissioning work.

 

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