OT27043 - Abandonment and Decommissioning

Abandonment Guarantees

An "abandonment guarantee" is defined by FA91\s104 as a contract under which a person undertakes to make good any default by a participator in an oil field in meeting the whole or any part of those liabilities of the participator which

1. arise under a relevant agreement relating to that field; and
2. are liabilities to contribute to field abandonment costs.

An abandonment guarantee need not be expressed as a guarantee and may arise under a letter of credit, a performance bond or any other instrument.

There are four exclusions in FA91\s104(2), the first three of which are unlikely to affect normal commercial contracts. However, the fourth excludes a contract where the guarantor is connected with a participator unless, it is in the ordinary course of the guarantor’s main business to provide such guarantees.