Decommissioning Escrow

Decommissioning Escrow is an arrangement used to set aside money for future decommissioning obligations. The funds are placed into an independent escrow account and held until they are needed for decommissioning works.

The escrow arrangement is governed by an escrow agreement. This agreement explains why the funds are being held, when they can be released and how they may be used.

Decommissioning Escrow is commonly used where there is a legal, contractual or regulatory obligation to remove, dismantle or remediate assets at the end of their life. This includes energy assets, industrial facilities and other long-term infrastructure.

Decommissioning Escrow is suitable for asset owners, operators and investors who are required to plan for end-of-life obligations.

It is often used by energy companies, including offshore and onshore operators, where decommissioning obligations may arise many years in the future. It is also used in industrial and infrastructure settings, such as manufacturing plants, processing facilities and large-scale installations.

Advisors commonly recommend Decommissioning Escrow where parties need to demonstrate that funds will be available in the future, without relying solely on balance sheet provisions or guarantees.

Decommissioning Escrow is usually put in place during the operational life of an asset, well before decommissioning work begins.

It may be required at the outset of a project, as part of a licence or consent, or introduced later as part of a transaction, refinancing or regulatory review. In some cases, contributions are made to the escrow account over time, rather than as a single upfront payment.

By putting an escrow arrangement in place early, parties can spread the financial impact of decommissioning and reduce uncertainty about how future obligations will be funded.

‍

Escrow involves holding real money, independently and in advance, so that payment does not depend on a future claim being accepted.

Bonds and insurance rely on a third party promising to pay later, subject to conditions, exclusions and their own financial capacity at the time of claim.

Decommissioning obligations often arise many years after an asset is built or acquired. By that point, ownership, financial position or market conditions may have changed.

Operators and asset owners may be required to show that funds will be available in the future, even though the work itself is not yet needed. Regulators and counterparties may be concerned about reliance on balance sheets, guarantees or future cashflows.

Decommissioning Escrow addresses these issues by setting aside money in advance, in an independent account, specifically for decommissioning. This reduces uncertainty and removes reliance on future financial strength alone.

The main benefit of Decommissioning Escrow is certainty. Funds are earmarked for decommissioning and cannot be used for other purposes.

This provides comfort to regulators, counterparties and investors that decommissioning obligations are being taken seriously and planned for properly. It also allows asset owners to demonstrate compliance without having to provide open-ended guarantees.

By contributing to escrow over time, parties can spread the cost of decommissioning and reduce the financial impact at the end of an asset’s life.

Benefits for asset owners and operators

For asset owners and operators, Decommissioning Escrow provides a structured way to manage long-term obligations.

It allows funds to be set aside gradually, rather than relying on a large payment when decommissioning begins. This can help with budgeting, forecasting and financial planning.

Escrow can also support transactions. Buyers, sellers and lenders often take comfort from knowing that decommissioning funds are already ring-fenced and independently held.

Benefits for regulators, investors and counterparties

For regulators, Decommissioning Escrow provides visibility and assurance that decommissioning obligations will be funded. It reduces the risk that remediation costs fall to the public or to other parties.

Investors and counterparties may also benefit from greater transparency. Escrow arrangements make it easier to understand how decommissioning liabilities are being managed and funded over time.

Advisors often view escrow as a practical alternative to guarantees or bonds, particularly where obligations extend over long periods or where ownership may change.

Decommissioning Escrow can be structured in different ways, depending on the nature of the asset and the obligation. There is no single standard model.

In some cases, a single escrow account is funded upfront with the full expected decommissioning amount. In other cases, contributions are made over time, either on a fixed schedule or by reference to production, revenue or other agreed metrics.

Escrow arrangements may be used for full decommissioning, partial removal, site remediation or environmental restoration. The structure is designed to reflect what the obligation actually requires.

Yes. Decommissioning Escrow arrangements are commonly tailored to fit regulatory requirements, commercial agreements and the expected lifecycle of the asset.

For example, contributions may increase as an asset approaches the end of its life, or change following a transfer of ownership. Different escrow accounts may be used for different assets, phases or jurisdictions.

Escrow can also be combined with other forms of security, such as guarantees or insurance, where regulations or counterparties require multiple layers of protection. Advisors often recommend this where obligations are large or long-term.

All escrow arrangements are administered through the dospay digital escrow portal.

The portal provides a single place where authorised parties can view account balances, payment history and escrow status. It also supports the submission and tracking of information required for payments or releases, in line with the escrow agreement.

Using a digital portal reduces reliance on email chains and manual reconciliation. It improves transparency and creates a clear audit trail for payments and releases. Advisors often find this helpful when reviewing payment history or responding to queries during the life of the project.

In practice, Decommissioning Escrow works by separating the funding of future obligations from day-to-day operations.

Agreed contributions are paid into the escrow account over time, in line with the escrow agreement. The funds remain held independently and cannot be used for any purpose other than decommissioning.

During the operational life of the asset, the escrow account may remain dormant apart from scheduled contributions and reporting. When decommissioning activities begin, funds are released from escrow in line with the agreed process, based on evidence or confirmations set out in the escrow agreement.

This approach allows long-term obligations to be managed in a structured and predictable way, without relying on future balance sheet strength alone.

Decommissioning Escrow does not replace regulatory or contractual obligations. Those obligations continue to apply.

Regulatory and contractual requirements define what must be decommissioned and when. Decommissioning Escrow does not change those obligations.

The escrow agreement deals only with how funds are set aside and released to meet those obligations. It relies on confirmations or evidence specified in advance, such as regulatory approvals, contractor invoices or completion milestones.

The escrow agent does not assess compliance or determine scope. It follows the agreed documentation and process.

Only parties authorised under the escrow agreement can give instructions to the escrow agent. This is agreed at the outset and documented clearly.

Instructions are usually tied to specific events, such as the issue of a certificate, confirmation of a milestone or the occurrence of a payment default. The escrow agent checks that the instruction matches the agreed conditions before acting.

This approach ensures that payments are controlled, predictable and not dependent on informal requests or unilateral decisions by one party.

Only parties authorised in the escrow agreement can give instructions to the escrow agent. This is agreed upfront and documented clearly.

Instructions are usually linked to specific events, such as scheduled contributions, approved releases or confirmations from regulators or appointed professionals.

The escrow agent checks that instructions match the agreed conditions before acting. Informal requests are not accepted.

Below is a practical view of the steps that parties typically follow when using Decommissioning Escrow:

1. Agree the escrow structure and contribution model.
   The parties decide how much will be set aside, whether contributions will be upfront or staged, and what evidence triggers release. This is documented in the escrow agreement.
2. Open the escrow account and start funding.
   The escrow account is opened with us. Contributions are made into the account either as a single payment or over time as agreed.
3. Monitor the account during the asset’s operational life.
   Funds sit in escrow, segregated and ring-fenced, while the asset continues to operate. Regular reporting and balance updates are provided through our digital escrow portal.
4. Provide release evidence when decommissioning begins.
   When decommissioning activities start or when agreed milestones are reached, the party seeking release provides the required confirmation or documentation under the escrow agreement.
5. Escrow agent verifies and releases funds.
   We check that the release conditions are satisfied and releases funds from the escrow account in line with the agreed process.
6. Handle uncertainty or disputes if they arise.
   If evidence is unclear or there is disagreement about the conditions, the funds remain held. The parties follow the dispute resolution mechanism set out in the escrow agreement until the position is resolved.
7. Final closure of the escrow account.
   Once all decommissioning works are complete and all agreed conditions are met, the escrow account is closed in accordance with the agreement.

Setting up a Decommissioning Escrow account starts with understanding the decommissioning obligation and how it will be funded. This includes the expected scope of works, the timing of decommissioning and whether contributions will be made upfront or over time.

Once this is agreed in principle, an escrow agreement is prepared. This document sets out how the account will operate, how contributions are made, and what evidence is required to release funds.

At the same time, we begin the account opening and onboarding process. These steps run in parallel so that the account can be opened efficiently once the agreement is finalised.

The time needed to open a Decommissioning Escrow account depends on the complexity of the ownership structure and the number of parties involved.

For straightforward arrangements, account opening can usually be completed within a short period once the required information has been provided and the escrow agreement is agreed. More complex structures, such as those involving joint ventures, trusts or multiple jurisdictions, may take longer.

Most delays arise from incomplete information rather than from the escrow process itself.

To open a Decommissioning Escrow account, standard onboarding checks are required. These are similar to the checks required when opening a bank account or instructing a law firm.

This usually includes confirming the identity of individuals involved, the ownership and control of any companies, and details of the party or parties funding the escrow.

Where decommissioning obligations are linked to regulatory approvals or licences, we may also need basic information about the relevant asset and the nature of the obligation.

The following information is typically required to open a Decommissioning Escrow account:

• Details of the asset owner or operator
• Identification information for authorised individuals
• Corporate documents for any companies involved
• Details of any joint venture or co-ownership arrangements
• Bank account details for funding contributions
• Agreed contribution model and funding schedule
• Summary of the decommissioning obligation being secured

Providing this information clearly and early helps ensure the account can be opened without unnecessary delay.

A Decommissioning Escrow account is funded by the asset owner, operator or another agreed party.

Funding may be made as a single upfront payment, or through regular contributions over time. The contribution model is agreed at the outset and set out clearly in the escrow agreement.

Once paid in, the funds are held in the escrow account and cannot be used for any purpose other than the agreed decommissioning activities.

Payments from a Decommissioning Escrow account are made only when the agreed release conditions are met.

These conditions are set out in the escrow agreement and usually require specific evidence, such as regulatory approvals, contractor invoices or confirmation that decommissioning milestones have been reached.

When a release request is made, we check that the required conditions have been satisfied before releasing funds from the account in line with the agreed process.

If instructions are disputed or unclear, we will not release the funds.

Instead, the funds remain held safely in the escrow account while the parties follow the process set out in the escrow agreement. This may involve clarification, confirmation from an agreed third party, or the use of the dispute resolution process under the underlying contract.

This approach protects both parties. It ensures that money is not released prematurely and that funds remain available once the position is resolved.

If a party to the underyling contract becomes insolvent, we continue to operate under the escrow agreement.

Because the funds are held in escrow and not in the control of either party, they are protected from being used for other purposes. We will follow the agreed instructions and any applicable insolvency process, as set out in the escrow agreement.

In practice, this can provide greater certainty than relying on funds held directly by one of the parties, particularly where payment timing or entitlement is being considered as part of an insolvency situation.

‍

What happens if DOS & Co. becomes insolvent?

All escrow funds are segregated (kept separate from our own funds), safeguarded (protected by law from our own creditors) and kept liquid and unencumbered at the Bank of England. In the event of our insolvency, we have set aside regulatory capital that will be used by our administrators to 'unwind' our affairs - this will usually involve working with the parties to agree the identity of a new escrow agent who will 'step in' to carry out our obligations under the escrow agreement.