Offshore oil and gas decommissioning in Southeast Asia: Legal frameworks, challenges and dispute risks

Much has been reported about the scope of offshore decommissioning work in Southeast Asia. By 2030, 200 offshore fields are expected to cease production in the region, with projected decommissioning costs of approximately US$ 100 billion, concentrated across Indonesia, Thailand, Malaysia and Brunei.

As more offshore assets reach end of life, operators and regulators are confronting decommissioning as a live balance-sheet reality, no longer a problem for later down the road.

However, evolving legal frameworks, conflicting legacy contractual positions and the heavy financial burden of decommissioning (on the books precisely as projects become less profitable at end of life) create significant pressure and disputes risk.  Key sources of disputes are summarised below in this article. 

Our team has extensive experience in managing and avoiding disputes arising out of offshore decommissioning under both commercial contracts and treaties across key jurisdictions in Southeast Asia, including those arising out of 

• the estimation of decommissioning costs for asset sales or regulatory plan submissions 
• delays in State approvals for decommissioning plans, 
• attribution of environmental liability, 
• apportionment of responsibility for works offshore, 
• negotiation of unusable asset lists and usable asset transfer agreements, and 
• other technical decommissioning steps such as the in situ or onshore smelting of assets. 

Contact us to discuss how we can safeguard your projects from these high stakes risks. 

Evolving Regulations vs Legacy Contracts and the cost of mismatch 

Most Southeast Asian jurisdictions lacked detailed decommissioning regulations until the late 2000s, when aging assets forced the issue. The resulting regulatory gaps have created a mismatch between operators' earlier cost projections for decommissioning (if any) and current requirements. 

For example, regulators are imposing:

• earlier planning (initial decommissioning plans required 5–7 years before economic limits are reached);
• mandatory funding mechanisms; 
• more steps and stakeholders involved in review for approvals;
• mandatory "rigs-to-reefs" conversions or full removals (e.g., Indonesia's updated environmental mandates);
• higher financial assurance bonds (e.g. in Malaysia and Brunei); and 
• stricter well-plugging and abandonment protocols.

Legacy contracts were negotiated under different assumptions. Many are silent on environmental liability, carbon capture obligations or decommissioning costs. Operators now face questions around:

• whether and how new decommissioning regulations apply to the legacy contracts (and in that context, how stabilisation clauses operate to shift any economic burden of decommissioning); 
• how "international best practice" standards often mentioned in contracts should be interpreted today; 
• whether other clauses or treaty protections limit retrospective obligations;
• whether the State may require security exceeding what was contemplated at contract signature.

A further complication in the mix: the trend of operators divesting late-stage assets to NOCs. Host states have an interest in extending field life - at margins private parties would not sustain - and in retaining control over decommissioning. This means many legacy projects are also being sold to NOCs – and decommissioning estimates and post-divestment liabilities are being negotiated as part of that process, with NOCs and host governments seeking to pin historical and future environmental liability on the latest operator. 

All of the above generate multi-party arbitrations over abandonment security, execution timing, cost-sharing and residual liability. 

The best-known example of this in Southeast Asia: the introduction of decommissioning implementation regulations in Thailand in 2019 led to extended arbitration proceedings over the Erawan Block in the Gulf of Thailand and the total quantum and payment mechanisms for decommissioning costs. 

Legacy contracts also often have outdated or inconsistent dispute resolution provisions, which compound the problem and make dispute resolution of these issues (certainly in our experience) unnecessarily painful.

Click below for a table that describes regulations in Thailand and Indonesia at a high level, and which illustrates the range of different approaches that may apply. 

Difficulty of splitting liability

Offshore assets often change hands, raising disputes over whether liabilities stayed with original owners or transferred. Joint/several liability, funding shortfalls, and statutory duties expose former operators post-divestment or states to weak successors. Inaccurate historic cost estimates trigger indemnity claims.

Environmental liability complicates matters further under the "polluter pays" principle. Increasing ability to track and trace sources or causes of harm with certainty mean claims can emerge years later in connection with residual contamination, well integrity issues, or unforeseen environmental impacts discovered many years after site restoration.  

Naturally, outgoing operators are not willing to agree to indemnify or cover future environmental liability arising out of use of assets and/or in restoration and abandonment, given the difficulty in estimating scope of impact – but we see States are increasingly demanding such terms as a condition to operations. 

Technical and Physical Difficulty

Decommissioning also gives rise to disputes typical of large-scale offshore construction projects. These may include delays, variation claims from unforeseen structural or seabed conditions and cost escalation linked to specialised equipment shortage or other technical delays. 

These risks are compounded in the region for two reasons: limited local technical capacity and challenging geography. 

1. Limited technical capacity

Decommissioning demands advanced technical expertise and an ability to understand and track an evolving understanding of best practices (e.g. as to offshore abandonment or onshore disposal).  Regulators however often lack the in-house capacity to evaluate these standards when considering decommissioning plans and approvals.  At the same time, the consequences of approval can be extreme, leading to indecision or prolonged consultation periods or stalled approvals. Operators will want to engage regulators early to understand how best to manage stakeholders. See other considerations below. 

2. Challenging geography 

Southeast Asia's seabed is particularly shallow - often under 75-100 meters in key fields, which limit vessel manoeuvrability and access.  Tropical climates also accelerate marine growth and corrosion of platforms and assets. At the same time, monsoons and other extreme weather conditions disrupt schedules and heighten risk.  Each of these points amplify the risk of technical disputes in the region. 

Avoiding risk

The scale of anticipated decommissioning activity, regulatory reform, historic liabilities and technical complexity all make disputes risk for these projects significant. 

The following steps may however, applied in order of priority, help mitigate that risk for both operators and state parties:

1. Review dispute resolution clauses proactively 

   Operators and State parties must audit and update dispute resolution clauses in existing contracts (e.g., arbitration seats, governing law, and expert determination mechanisms) to ensure they align with current jurisdictional requirements and foreseeable conflicts.

2. Assess and strengthen contract terms 

   Conduct a thorough review of contract terms, focusing on stabilisation clauses, force majeure provisions, and variation mechanisms; ensure rigorous administration and enforcement. Where mismatches arise with evolving regulations (e.g., updated financial security rules), initiate early renegotiations to close gaps.

3. Engage regulators early 

   Early engagement with regulators will help manage expectations around financial security and deposits to be paid, cost estimates and approval processes before positions become entrenched.

4. Negotiate targeted remedies 

   In appropriate cases, consider negotiating remedies at an early stage to address funding gaps, escrow arrangements or liability allocation concerns. 

5. Engage regulators early 

   Early engagement with regulators will help manage expectations around financial security and deposits to be paid, cost estimates and approval processes before positions become entrenched.