Decommissioning is the removal of oil and gas (O&G) assets at the end of their economic life and the restoration of the environment to its prior state. Whether the O&G project is onshore or offshore, decommissioning is an essential phase in the project lifecycle, and poses significant technical, economic, social and environmental risks if executed poorly or not at all. 

Decommissioning goes by many names.  In the US, when it is noted as a balance sheet liability it is called an "asset retirement obligation" or "ARO" for short.  In the UK and Australia, these are referred to as balance sheet "provisions".  Generally, these refer to the entire process of mobilizing equipment on site, plugging the well, removing topside infrastructure, remediating contamination, and reclaiming the site.  

The total cost of clean up is estimated to be between $4-5 trillion globally,¹ an expense that should be factored into project cost and resource allocation. 

Generally, yes, there are requirements that owners/operators decommission assets at the end of their useful lives.  These are typically set at the national level, though some are set at state or provincial level. Nearly all countries require owners or operators be responsible for decommissioning, though some states share costs through tax credits.  Some countries also make prior owners or operators responsible if current owners or operators default on their obligations.

Typically, oil and gas operators are responsible for decommissioning.  However, there are few financial incentives to do so, and financial advantages to delay.  For the most part, industry is incentivized to avoid these costs for as long as possible through three principal means:

1. Divestment: selling assets (often to smaller companies that are unable to pay to clean up);

2. Delay: delaying decommissioning for as long as possible (sometimes on the basis of potential future re-use for CCS); and

3. Dumping: seeking permission to abandon infrastructure (for example, in “rigs-to-reefs” schemes), or simply abandoning the asset and its toxic legacy.

With over 95 countries producing O&G, relatively limited decommissioning activity to date, increasing risks of stranded assets, and weak regulatory frameworks, decommissioning is set to become a critical issue – for the industry, governments and taxpayers.²

Even after the oil and gas stops flowing, oil and gas wells left idle or improperly plugged can seep toxins into the surrounding water, air, and soil and leak significant quantities of greenhouse gases, such as methane, into the atmosphere.³ 

Improper planning, management, and/or execution of decommissioning O&G projects can have huge impacts that can be grouped into three major categories:⁴

1. Severe environmental damage including contamination, pollution and habitat destruction

2. Major health and safety risks including worker accidents and fatalities and significant public health and safety hazards

3. Financial and regulatory catastrophes including escalating costs and liabilities, often passed on to the local taxpayers, as well as regulatory penalties and reputational harm to the responsible party

The IEA’s Global Methane Tracker 2025 finds that abandoned facilities emit more methane than some of the largest fossil fuel producers and estimates that abandoned wells released just over 3 Mt of methane in 2024. The report also found that offshore operations are a significant source of methane emissions, a source that has been largely overlooked to date.⁵

Onshore, inactive oil and gas wells can contaminate nearby air and groundwater with benzene, PAH’s, radioactive brine, among other known carcinogens.⁶ Offshore wells also produce significant quantities of hazardous waste including naturally occurring radioactive materials and heavy metals which pose dangers for coastal communities and marine life, if decommissioning is delayed or avoided. Both onshore and offshore, unplugged or poorly plugged wells emit methane, a highly potent greenhouse gas that contributes significantly to climate change.

The global decommissioning of existing O&G infrastructure is projected to cost trillions of dollars and, due to the energy transition, these costs will likely hit sooner than anticipated. While oil and gas companies are legally obligated to “retire” O&G assets like wells, drilling rigs, pipelines and other infrastructure, few are required to set aside or otherwise make assurances that money will be available when it’s time to close up and clean up. For example, the estimated cost to plug the 2.6 million documented US onshore wells is $280 billion. States, on average, have secured less than 1% of this amount in surety bonds, leaving them exposed to hundreds of billions of dollars in default and liability risk.⁷

The conventional industry (and regulator) assumption that future revenues will cover the cost of clean up becomes less credible as basins deplete and countries and companies move to take climate action and set net zero targets.⁸

The financial risk of un- or underfunded Asset Retirement Obligation (ARO) liabilities is obscured because companies systematically underreport AROs and rarely disclose the material assumptions underlying their closure and cleanup cost estimates. This lack of transparency undermines market integrity, preventing analysts, investors, and regulators from accurately assessing the true financial position and value of oil and gas companies. Risks to investors include balance sheet erosion, cash flow and dividend pressure, and increased default risk.⁹

Some governments are launching well-plugging programs funded by the public purse that, while presented as a "win-win" for workers and the environment, risk providing a windfall for polluters by letting companies off the hook for their environmental liabilities. These actions undermine the fundamental "polluter pays" principle and prolong the life of a declining industry, thereby exacerbating climate change. More effective solutions include policies that require greater or total upfront financial assurances to cover decommissioning costs, “trailing liability” provisions that revert ARO liabilities to previous owners in the case of insolvency, and orphan well programs that ensure that industry covers losses before the general public.

It is estimated that more than 50,000 offshore wells and 10,000 offshore structures will be decommissioned worldwide, along with hundreds of thousands of onshore wells, facilities and sites.¹⁰

As an illustration of the increasing activity, the offshore decommissioning market alone is expected to grow from US$8.25 billion in 2025 to US$16.73 billion by 2034.¹¹  

Delaying decommissioning also contributes to a warming world. Unabandoned or poorly monitored/maintained wells can leak potent greenhouse gasses like methane and carbon dioxide, oil, benzene and nitrous oxides. A study of the North Sea revealed that one-third of the region’s abandoned offshore wells could be releasing between 3,000 and 17,000 tons of methane into the ocean every year, which could reach the surface and contribute to climate change.¹² 

In recent years, there has been growing popularity globally of “rigs-to-reefs” (RtR) programs as an alternative to complete platform removal that involves converting platforms into artificial reefs. Unsurprisingly, industry players are proponents of RtR programs, which can save companies millions of dollars in decommissioning costs.¹³ 

However, marine scientists have confirmed the negative effects on the marine environment from allowing structures to degrade in the ocean.¹⁴ Over time, oil and gas pipelines and other structures including large steel jackets, or concrete bases, left on the seafloor will degrade and become more susceptible to damage from (ever-increasing) storms, corrosion, and fishing trawlers, and, if ruptured or as they decompose over time, may leak hydrocarbon products, radioactive compounds, heavy metals¹⁵ and other harmful chemicals¹⁶ into the ocean, potentially bio-accumulating¹⁷ in the food chain of the marine life that surrounds them.¹⁸ 

Many basins around the globe and in Australia are in decline, even if new fields are being developed. The energy transition threatens to either accelerate field closure or reduce future profits that, today, serve as the primary funding source for decommissioning.

Regulators need to reduce dependence on future profits to ensure that decommissioning commitments are met by industry. In practice this means obtaining liquid collateral sufficient to protect the state from operator defaults and incentivise good corporate stewardship of oil and gas assets.¹⁹

Specifically, any financial assurance regime should strive for three key objectives:

• Obtain full cost financial assurance: Acquire full cost financial assurance, preferably through pre-funding, before the time the asset is expected to be decommissioned.

• Mitigate risks from transfers: Ensure that asset transfers do not increase the default and counterparty credit risk to the state.

• Provide an industry-funded backstop: Provide an industry-funded backstop for defaults to ensure that those bills do not land with taxpayers.

In our experience, well-functioning regulatory regimes do these things: 

 1.  Generate and publish data to drive effective decision-making and explain the rationale for action.

2.  Provide brightline rules that can be easily enforced and which minimise discretionary changes that are susceptible to industry capture.

3.  Enhance transparency with the public, to reduce informational asymmetries and subject the regulatory process to scrutiny by all stakeholders. This can also benefit the local decommissioning industry.²⁰

While decommissioning can present risks, if well managed it can also provide economic benefits for workers and be an important part of a just energy transition.

This is because cleaning up old O&G infrastructure can generate thousands of jobs over decades²¹ and is associated with the highest levels of employment in the project lifecycle.²²

Data on decommissioning jobs is hard to find, but some studies have been completed at a regional level.²³ Decommissioning jobs are varied and include offshore and onshore roles in engineering, project and contract management, port and materials recycling infrastructure.

Unions in Australia have called for local decommissioning industries that create green jobs in steel recycling, as part of a circular economy.²⁴ There are also export opportunities for mature regions whose workers and supply chain companies can export their decommissioning skills and expertise abroad.²⁵