Letters of credit (L/Cs) to meet decommissioning liabilities are expected to be invoked as more oil and gas companies are at risk of being left to pick up a defunct partners' liabilities.

Analysis by the Boston Consulting Group (BCG) concluded that last year's oil price collapse caused the number of bankrupt operators to rise to 60 from 25 globally in the previous year.

Massive exposure

BCG identified 32 companies with relatively high financial exposure, compared to 12 in the year before.

The combined decommissioning liabilities of operators either bankrupt or facing high financial stress increased from just US$2 billion to US$25 billion over the year.

Default risk

Should these operators default, several companies or in some cases countries that have put up L/Cs guaranteeing decommissioning costs could each be at risk of absorbing more than US$1 billion of spend as a result of liabilities flowing back to them.

Depending on local regulations, either equity partners, past owners or states may be named as guarantors of decommissioning costs.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.