Decommissioning—decommissioning security agreement

Produced in partnership with Isla Stewart of Matheson

The following Energy practice note Produced in partnership with Isla Stewart of Matheson provides comprehensive and up to date legal information covering:

Decommissioning—decommissioning security agreement
Decommissioning security agreements
Types of DSA
Bi-laterial or field-wide?
Pre-tax or Post-tax
PRT or Non-PRT
Key terms of a DSA
Parties
The Proposed Plan
The Trust

More...

The Provision Amount
Alternative Provision
Default
Payments out of the Trust
Adverse Tax Events
PRT specific terms

Decommissioning security agreements

Oil and gas companies are expected to return the seabed to its original state (subject to certain exceptions) by permanently removing installations and/or infrastructure from the seabed and securing wells. As decommissioning occurs when the asset no longer produces revenues, the companies primarily responsible for decommissioning provide funds in a trust in advance so that those funds are available when decommissioning occurs, whether or not the company providing those funds still exists at the time. Such trusts are created by a decommissioning security agreement (DSA), a contract between two (or more) parties that obliges a party to create a trust in favour of another party (or parties) for the future cost of decommissioning. The trust will either hold cash or security and, usually, will be administered by an independent trustee.

For more information on Decommissioning, see Practice Notes:

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Decommissioning—International Law and UK Government Policy
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Decommissioning—legislative background
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Decommissioning—planning for decommissioning
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Decommissioning—types of decommissioning contracts

Types of DSA

Bi-laterial or field-wide?

A bi-laterial DSA is usually put in place when a company sells its interest in a developed field and there is no field-wide DSA in place. This provides the out-going company with a direct security relationship in respect of their previous interest, but no other licensee’s interest. The bi-lateral DSA will often automatically terminate if a field-wide DSA is established.

A field-wide DSA is entered into by all

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