With hundreds of Australian wells stopping production soon, a multi-billion P&A market emerges

Source: press release, 9 June 2021

Australian wells with potential for P&A, by operator, 2021 versus 2016 (source: Rystad Energy WellCube, research and analysis)
Australian wells with potential for P&A, by operator, 2021 versus 2016 (source: Rystad Energy WellCube, research and analysis)

Australia is about to see its largest-ever wave of offshore development wells that reach the end of their producing life and need to be for decommissioned. This task is both adding headaches for producers and creating a multibillion-dollar opportunity for plugging and abandonment (P&A) suppliers. A Rystad Energy report shows that Australia’s number of such wells will jump from 160 today to more than 440 by 2026, with a further 172 offshore exploration wells waiting in the queue.

The Australian decommissioning market may exceed a total of USD 40 billion due to the country’s sizeable offshore P&A liabilities and its non-producing onshore assets. The figure could even double, depending on how many decommissioning projects materialise.

“Recent developments have made it more difficult for operators to sidestep decommissioning obligations by selling ageing assets, as the market appetite for such assets is drying up. Many producers will have to deal with the issue in coming years, with ExxonMobil having the lion’s share of liabilities in Australia,” says Jimmy Zeng, senior analyst at Rystad Energy’s upstream team.

Rystad Energy’s analysis of the P&A potential takes into account the production status of each operator’s offshore wells, the likelihood of producing fields ceasing output in the coming 5 years, wells that have been already suspended but not yet abandoned, along with partially abandoned wells. While development wells make up the bulk of the total, exploration wells are also in need of P&A to a lesser extent even though strong exploration growth is not expected in Australia in coming years.

Turning its attention to development wells, Rystad Energy estimates 890 offshore wells in total were drilled in Australia before 2015, of which 108 have been permanently abandoned. Of the 782 wells not yet abandoned, wells have been identified that are considered good candidates for P&A activity in the years ahead. Rystad Energy defines a well as a collection of one or more wellbores with the same top-hole location.

Filtering out wells that are more likely to be identified for upcoming P&A, Rystad Energy ends up with 440 wells that are P&A candidates, the majority of which are in the Gippsland Basin.

The dominance of the Gippsland basin is to be expected given the legacy of offshore development in the region, driven by ExxonMobil and BHP’s Gippsland Basin Joint Venture (GBJV). The area has been a key source of domestic gas supplies going back to 1964, and output is expected to go into long-term decline over the next decade.

Within the Gippsland group, most wells are located on fixed platform facilities, while in other basins the distribution of facility types is more mixed. New resource developments in the Gippsland Basin are becoming more capital intensive, but the outlook for P&A opportunities in the area should prove attractive to service suppliers.

In the North Carnarvon Basin group, Rystad Energy sees an age distribution that shows non-producing wells are relatively “younger” than those in the Gippsland, with the majority being no more than 20 years old. Even so, various measures intended to ensure operators fully decommission facilities and wells are likely to provide a tailwind for service suppliers seeking P&A mandates in the North Carnarvon basin as well – spurred by the industry controversy over Northern Oil & Gas’s inability to fund its decommissioning of the Northern Endeavour FPSO and associated wells.

Given its large legacy position in the Gippsland, it is no surprise that ExxonMobil leads the way in its decommissioning liabilities, with a rapid increase in the number of wells likely to cease production over the next 5 years. While this is indubitably a high-cost endeavour, Rystad Energy notes that most of these wells are platform-based, where per-well abandonment costs are likely to be significantly lower than for subsea wells. Furthermore, regulatory pressure on ExxonMobil to decommission these wells has increased significantly lately.

Outside of ExxonMobil’s high well burden, operators Santos, Woodside, BHP and Vermillion Energy will also experience growing decommissioning obligations in the next 5 years, measured by the increase in wells within Rystad Energy’s “potential for P&A” grouping. Woodside and BHP have mostly subsea wells in this category, which could mean their decommissioning bills will be higher on a per-well basis. Woodside recently communicated its intention of starting abandonment of up to 18 subsea wells on the Enfield field from 2022 to 2024.

Learn more in Rystad Energy’s WellCube.