A. Short introduction on decommissioning
Decommissioning is a process consisting of the removal of industrial installations and any relevant structures that have come to the end of their productive life in a certain industry and the subsequent restoration of the industrial site to its previous status.
The decommissioning process consists of several stages. In the oil & gas industry and particularly in the offshore industry, wells securing operations are firstly started and afterwards the structures and pipes connecting the platform to the treatment ground centers are removed. Such operations must be performed with extreme care and require both specialized personnel and sophisticated techniques with the aim at avoiding environmental impacts. The removal stage is followed by the identification of adequate sites for the storage of non-usable materials and the final processing of potentially polluting product, such as metallic and plastic wrecks, combustible oils, etc.
The decommissioning costs are very difficult to establish as they depend on a number of variable factors such as the installation typology, the site geomorphology, the choice whether to remove partially or entirely the installation, the market conditions, the presence of key personnel and so on.
With regard to installation, a major role is played by the status of the working area as broadly considered, with special focus on the weather conditions. For instance, decommissioning in the United Kingdom North Area is very much affected by the remoteness and harshness of the environment where it takes place. This is why removal activities are normally performed during the summer. Moreover, removal sometimes proves more complicated than the very installation, as the latter may have been the outcome of a constant overlaying process throughout the years.
Hence, sophisticated resources and adequate planning are paramount to tackle the main decommissioning elements considered from the business and environmental points of view, meaning costs and safety.
B. The international regulatory framework of the decommissioning process
In the oil & gas sector, the decommissioning process is legally governed by a wide array of international, national and regional legal sources, which are sometimes in contrast with each other and are under a continuous forging and development process.
On the decommission dealt with at international level, the main legal international principles (meaning principles not covering decommissioning within the States’ territorial waters, where it is entirely regulated by national laws) are contained in the following legal sources:
- 1958 Geneva Convention on the Continental Shelf;
- 1982 United Nations Convention on the Law of the Sea (UNCLOS);
- Non-binding International Maritime Organization Guidelines and Standards of the Removal of Offshore Installations and Structures on the Continental Shelf and in the Exclusive Economic Zone;
- The OSPAR Convention (coupled with the OSCOM Guidelines, as adopted).
The common feature to the above sources is the still ongoing, intense debate on whether any installations and structures which are abandoned or disused must be entirely removed (Art. 5.5 of the Geneva Convention and the OSPAR Convention) or also a partial removal is allowed (Art. 60.3 of the UNCLOS Convention).
Setting aside the different opinions on the interpretation of the wording of the articles mentioned above, the reason why no clear position has been adopted yet is due to the fact that the not all States which are signatories to the Geneva Convention have ratified the UNCLOS.
Such stance has sparked a harsh controversy on whether such last convention has acquired the status of customary international law, meaning “a clear and unequivocal practice, reflecting a sense of legal obligation, by the majority of ratifying states”.
Should this be the case, the Geneva Convention would be considered as superseded and full implementation of the principle of the partial removal would be ensured, meaning, on one side, that part of the not removed installations might be reused for other purposes and, on the other side, that interests listed under Art. 60.3 of the UNCLOS Convention (safety of navigation, fishing, protection of the marine environment) would be finally fully and actively pursued.
The debate above has reached international dimension since decommissioning mostly concerns off-shore installations located in the continental shelf. Such lack of clearness undermines the predictability that should instead be ensured in order to attract investments and thus fully exploiting the current buoyant trend the decommissioning industry is experiencing.
C. General framework of the decommissioning in the United Kingdom
Decommissioning in the United Kingdom loomed on the horizon in the 1960s. Looking back today to that time, it is undoubtable that there have been substantial breakthroughs under several standpoints (technical, legal, regulatory, business).
Today, decommissioning accounts for a large share of the future business opportunities for contractors and consulting companies in the United Kingdom; however, it goes without saying such an activity involves large responsibilities and consequently huge costs.
Up to some years ago, “decommissioning in the United Kingdom has been comparatively infrequent”. The potentially growing decommissioning industry as we know it today is the outcome of the United Kingdom Continental Shelf becoming a mature hydrocarbons area and oil and gas fields increasingly approaching the end of their operational life. This is therefore leading oil & gas operators to start making substantial efforts in order to pick up new business opportunities.
According to the Oil & Gas UK’s Decommissioning Report issued in 2013, the costs necessary to meet decommissioning liabilities in the United Kingdom Continental Shelf from 2013 to 2040 will be around £31.5n, with £10.4bn being the total forecast expenditure from 2013 to 2022. In fact, around as many as 475 productive facilities, 10.000 km of gas and oil pipelines, 15 oil terminals and 5000 wells are said to be decommissioned in the next 30 years.
Like any other signatory and ratifying state, the United Kingdom is bound by the principles set out in the international treaties it has decided to be part of. Some of such principles have been transposed and implemented into the UK national legislation (Petroleum Act 1998) and are therefore fully applicable to the oil & gas companies which undertake decommissioning activities in the UK Continental Shelf, making both the UK Government and the relevant companies liable in case of unfulfillment of their respective obligations deriving from the observation of the international conventions and the national law.
The UK Government’s stance is to impose joint and several liability for decommissioning on oil and gas companies and to ensure that those companies have the financial means to meet their obligations, which undoubtedly represents a major challenge for the small oil & gas companies because of their difficulty in attracting funding and thus competing with larger operators.
As a result of the above, templates of decommissioning security agreements have been issued and promoted by the oil & gas industry-related associations.
A decommissioning security agreement is a different agreement than a joint operating agreement in that it mainly focuses on the security raised by parties in order to counter the costs of the decommissioning activities. However appreciable the intention of the industry has been, the issuance of such forms has turned out to be a major obstacle when coming to their execution. In fact, it is observed that, due to their concern about their exposure to liability deriving from decommissioning activities, large oil and gas operators are transferring their interests to small oil and gas companies whose creditworthiness is weak and their ability to get security is therefore limited. This results in a complicated apportionment of liabilities and in the subsequent risk by the Government to take on part of the costs (let alone the damages should part of the activities prove harmful).
In the light of the above, in order to sooth the burden of the huge decommissioning costs on development projects and consequently prevent private profits from being heavily affected, in 2013 a tax relief program was started by the UK Government with the aim at persuading operators to invest in the UK North Sea area.
In this respect, the Finance Act 2013 opened the way to the Decommissioning Relief Deeds, meaning contracts entered into by the UK Treasury and oil & gas operators having as purpose the grant of certain tax reliefs at the time of decommissioning. Such legislative measure has very positively been welcomed by both national and international operators in that it provides certainty on decommissioning tax regime (and therefore its costs), thus either allowing the sale of mature yields or boosting new investments aimed at lengthening their productive life. Such certainty is also guaranteed by certain protections against unexpected consequences, such as the protection from potential changes of law as granted by the European Convention on Human Rights as well as from the UK Human Rights Act; furthermore, other contractual safeguards apply, such as the mitigation of the risk of default of a co-operator in favor of the operator which has to undertake the works in its place.
Statistics indicate that by mid-2015, as many as 72 decommissioning relief deeds had already been signed and more that £3.5bn of capital had therefore been unlocked.
Recently, in approving the 2016 Budget, the UK government has even further added certainty to the oil & gas industry by announcing some innovative measures aiming at attracting even more investments. Such measures are for instance the chance by new operators to access tax relief when they retain decommissioning liabilities for an asset following their purchase and the commitment to further assist the Oil and Gas Authority and the oil and gas industry in order to reduce overall decommissioning costs.
Since costs and liability are keys in the decommissioning sector, the first measure is aimed at attracting new investors willing to purchase mature assets for which they take on liability.
In fact, according to the OSPAR Convention, operators owning an installation are liable in perpetuity for both the installation and any residues following the decommissioning. When an installation is sold, the seller and the purchaser may agree about the transfer of the liability. Although some cases have been observed when liability has remained with the seller, liability is normally transferred to the purchaser. In such cases, purchaser may be granted tax relief as “compensation” for purchasing late-life assets without apparently no big yield expectancy.
The decommissioning of offshore oil and gas installations and pipelines in the United Kingdom is regulated by the Department for Energy and Climate Change (DEEC) under the Petroleum Act 1998.
A decommissioning programme, as proposed and further approved by the DEEC, contains the modalities concerning the decommissioning of installations and pipelines by the operators involved, which may have to perform both main activities (the very removal) and secondary activities, such as the removal of debris or the handling of radioactive material.
As to the main activities, the following is an indicative list of what an operator may do:
- Complete removal and transportation to ground for scrapping;
- Complete removal and storage in sites destined to become artificial cliffs;
- Removal of the top structure and storage in a site close to the down section left on site (toppling);
- Complete removal and sinking in high sea bottoms;
- Complete removal and reutilization in another place;
- Reutilization on site for different purpose than hydrocarbons production.
In order to pursue the highest transparency, the DEEC seeks comments from other governmental and non-governmental agencies, departments, organizations, as well as other bodies on the proposals set out in a programme.
The first approved decommissioning programme dates back to 1998, when the operator Occidental Petroleum (Caledonia) Ltd. was allowed to decommission by toppling the Piper Alpha oil fixed steel platform located in the North Sea at around 200 km from Aberdeen. Such decommission is sadly famous for having turned into one of the worst disasters ever in the oil field, which caused the death of more than the half of the employees working on the platform.
Since 1998, as many as 97 decommissioning programs have been approved, whilst to date there are four programs under scrutiny.
D. Human rights in the decommissioning process
Setting apart any obvious consideration on the dangerous nature of their activities and on the care by which any relevant information is handled, IOCs and NOCs (and broadly speaking oil & gas operators) somewhat show also in their decommissioning activities limited sensitiveness in disclosing the extent of their commitment in reducing the impact of their activities on the environment and human life. Such circumstance may be attributed to these companies always struggling in order to try and balance their environmental responsibilities with their shareholders’ (at times, States) hunger for profit.
On the other side it is true that the poor performance of decommissioning activities potentially represents a huge risk for the life of the companies involved as well as for the whole oil & gas industry, both in terms of direct and indirect economic losses (in fact listed companies’ shares may suffer sudden substantial drops and the damages to their reputation may jeopardize present and future orders in their pipelines).
For such reasons, in recent years oil & gas companies have become increasingly active in paying proper attention to the international legislation addressing the care and protection of human rights. Legal sources such as the International Bill of Human Rights (with the Universal Declaration of Human Rights), the International Labour Organization’s (ILO) 1998 Declaration on Fundamental Rights and Principles at Work, the UN Guiding Principles on Business and Human Rights, the UN Global Compact Principles and Voluntary Principles on Security and Human Rights are constantly mentioned on their web pages as inspiring sources and are normally introduced as clauses in contracts they enter into with their commercial counterparts.
International institutions keep on playing an active role in fostering awareness on an issue of such paramount importance. In this respect, it is worth to mention the 2013 Oil and Gas Sector Guide on Implementing the UN Guiding Principle on Business and Human Rights. This guide, as issued by EU, aims at identifying a set of human rights affected by the activities in the oil and gas sector as well as at providing guidance on how to spread knowledge about their existence with a view at promoting their protection through proper risk management activities.
In such interdependent world as the oil & gas world is, oil & gas operators adopt principles, policies and processes by taking into account the context they operate in and the practices of the partners operating in that context. It then emerges that, on one hand, their approach towards the protection of the human rights depends on how much they stick to their missions and visions despite unfavorable external circumstances and, on the other hand, on the sensitiveness degree of the governments they deal with and the coercive power of the legislative framework they are surrounded by.
It must not be forgotten that the declarations and principles above mentioned are characterized by a strong persuasion power only; in fact their enforcement is not automatic and is only possible through domestic measures offered by domestic law systems where a certain violation is intended to be enforced. It is therefore evident that the more legal certainty is ensured through the existence of proper legal tools, the stronger the rule of law is and so the higher protection human rights can receive in a certain State.
In the current globalized world, it is a fact that the traditional doctrine of the international law proves inadequate to ensure an effective protection of the fundamental rights from the violations perpetrated by multinationals as well as to tackle the new challenges as arising from the intermingling of several interests worldwide connected with the rampant globalization.
A broad debate has been on for years concerning the existence of transnational legal tools and their effectiveness. Strong focus still exists on the effectiveness of the protection granted by the Alien Tort Act, a U.S. law originally dating back to 1789, which application to lawsuits having as object the violation of human rights started being strongly invoked in the ‘80s.
Pursuant to case law originating in 1980 (when a New York based civil court decided to interpret it very differently from its original meaning), the Alien Tort Act enabled foreign citizens to ask for compensation for damages before U.S. courts for breaches of human rights committed outside the United States territory as a result of violation of international customary law principles. In fact, the Alien Tort Act opened the way to the idea that the compensation for damages arising out of severe criminal conducts could prove more effective than any criminal remedy.
In principle, the Alien Tort Act did not apply to disputes among foreign parties. It was under the case Filartiga v. Pena-Irala when a dispute between a foreign claimant and a foreign defendant was firstly dealt with in the Act. Since then, the Act has been invoked in numerous cases of violation of international customary law both for lawsuits against individuals and corporations.
For years the Alien Tort Act has represented something unique in the spectrum of legal remedies against criminal conducts performed worldwide, making the United States a magnet forum. However, its application as U.S. legal tool to extraterritorial disputes sparked harsh opinions and attracted fierce criticism from the very beginning. In fact, if on one side the Act paved the way to the recognition of the international corporate liability, on the other side it was clear that its indiscriminate application could lead to embarrassing and destabilizing effects both internally and on the relationships with other countries.
Following the Filartiga v. Pena-Irala case, U.S. courts showed a certain reluctance in clearly marking boundaries of both corporate liability and extraterritorial application of the Alien Tort Act. Soon it became clear that the extension of jurisdiction to legal entities was justified under an arbitrary assumption: the existence of a national law which grants a forum for lawsuits against foreign companies would be a sign of acknowledgement of corporate liability for breach of human rights under the international law. The misunderstanding consists of mixing the concept of passive legitimation and jurisdiction. Indeed, a State could exercise its jurisdiction for human rights breaches by a company pursuant to its own laws applied abroad, but this would not imply the international acknowledgment of such principle. It is a fact that no claim for compensation for damages has been granted y U.S. courts pursuant to the Alien Tort Act so far.
In 2010 the human rights activists suffered a strong setback following the sentence by a U.S. Appellate Court on Kiobel v. Royal Dutch Petroleum case (and affirmed by the Supreme Court on April 17, 2013), when the Alien Tort Act was denied extraterritorial application for disputes among foreigners for facts occurred outside the territory of the United States.
Kiobel v. Royal Dutch Petroleum is a lawsuit for compensation for damages filed by twelve Nigerian citizens who accused English, Dutch and Nigerian oil companies to be accomplices with the Nigerian government in committing tortures and murders during the repression of protests against the drillings in the Ogoni region by the Niger River delta.
Such unexpected decision raised harsh criticism also within the same Supreme Court, where some judges maintained that the corporate liability could indeed find support within the international law.
The Supreme Court excluded that the Alien Tort Act could ground the corporate liability on the international law and that the corporate liability itself was a widely acknowledged principle under the international law. Moreover, the Court rejected the idea that the Alien Tort Act could discipline passive legitimation of corporations. Judges argued that since 1945 the international criminal practice – through the international criminal courts - has always focused on individuals rather than legal entities, hence confirming that international criminal law does not address to legal entities. Judges went on by rejecting the assumption that the existence of a number of international treaties addressing the liability of legal entities as arising from certain criminal facts meant the establishment of a general principle of corporate liability within the Alien Tort Act; instead, they highlighted that specific aspects of corporate liability as addressed by those treaties could not create a relevant overall system.
Be that as it may, the issue of the international corporate liability is still controverted and the oscillating jurisprudence in the United States courts following the Kiobel v. Royal Dutch Petroleum has not helped so far dispel all doubts about whether such liability can be affirmed by making reference to the law of United States, meaning the Alien Tort Statute.
Due to many oil & gas facilities approaching the end of their operational life, the decommissioning market is dramatically changing all over the world, being the North-sea currently one of the most bustling areas.
In it, for too long the decommissioning activity has been considered as an isolated activity, entirely separate from production. However, following the Wood Review , operators have started addressing a different strategy, which is basically based on maximizing resourcing and minimizing costs.
In this scenario, little help seems to be provided at the level of international law, whilst national lawmakers seem to be proactive and eager to cooperate with the surrounding business world and to help operators to take the highest advantage from this new and potentially highly profitable trend.
In this scenario, less focus exists on aspects which are considered less important (at least in the earliest stages), as for instance the care for the human rights.
Luckily, oil & gas operators’ awareness seem to have already reached a certain level and the adoption of human rights-friendly internal policies are no more the exception. However, as we have seen, judges have expressed no clear stance so far, which somewhat hamper the achievement of a full protection against the breach of such rights.
On the other hand, one cannot ignore that multinationals perform an important function of global governance, as their attitudes have a strong influence on the behavior of the international community on its whole.
Thus, excluding them from the subjects of the international law system means ignoring the high number of instruments that States and organizations have set and implemented on the matter, like for instance the OECD Guidelines to Multinational Enterprises, which outline an ideal path towards a world where multinational companies are more and more accountable through soft law instruments.
To sum up, as declared in 2010 by the Special Representative of the Secretary-General John Ruggie, States must protect human rights, ensure their respect also towards multinationals and put in place internal law remedies aimed at allowing individuals to face violations and achieving their end also through compensation for damages. If States and international institutions push hard, a new era will loom on the horizon soon for the worldwide population, an era where its economic development will finally go pari passu with its dignity, well-being and welfare.