A New Approach to Decommissioning Cost Estimation Using Settled Liability Data
Cost data in the oil and gas industry are proprietary and obtaining them is challenging; in addition, unless collected across a large and diverse sample, summary statistics are unlikely to be representative of the activity or process it is trying to inform. The purpose of this article is to apply settled liability data to infer private information on the cost of decommissioning in the Gulf of Mexico. The procedure avoids most of the traditional problems associated with cost studies but requires careful normalization and a clear understanding of the limitations of analysis. Using settled liability data from 17 public companies with operations primarily in the Gulf of Mexico, decommissioning cost is evaluated on a regional basis and by operator from 2008 to 2012. The average cost to decommission a structure between 2008 and 2012 is estimated to be $6.4 million in water depth less than 200 ft and $15.6 million in water depth greater than 200 ft. Average cost statistics are suggested as a market index for Gulf of Mexico decommissioning activity.
Decommissioning cost estimation for deepwater floating structures in the US Gulf of Mexico
Floating structures are expensive to fabricate and install, and, at the end of their useful life, will also be expensive to decommission. Industry experience decommissioning deepwater structures in the Gulf of Mexico is extremely limited, and to date, only four floating platforms in water deeper than 1000 ft have been removed from service. The purpose of this paper is to apply work decomposition algorithms developed by ProServ Offshore to estimate the cost for well plugging and abandonment, pipeline decommissioning, umbilical and flowline removal, and deck and hull removal for the 42 floating structures that reside in the Gulf of Mexico circa 2013. Mars is expected to have the largest decommissioning exposure at $336 million, followed by Ursa ($222 million), Auger ($205 million), and Hoover/Diana ($201 million). Nineteen structures are expected to have decommissioning cost exceeding $100 million. Total undiscounted decommissioning cost for the 2013 floater inventory is estimated at $4.3 billion. Deepwater decommissioning cost estimates will change with changing technologies, regulations and market conditions.
Offshore Decommissioning Cost Estimation in the Gulf of Mexico
Decommissioning offshore structures represents the end of the production life cycle, when wells are plugged and abandoned, infrastructure is removed, and the site is remediated and cleared of debris. Decommissioning operations are generally routine, involving standard, low-technology methods, over distinct stages and relatively short time horizons. Offshore operations are more uncertain and costly than onshore, however, due to the hostile ocean environment. Cost estimation is an important aspect of the business since engineers, project managers, and financial accountants frequently perform cost estimates in support of evaluating decommissioning alternatives, divestiture opportunities, and liability assessment. The purpose of this paper is to provide an overview of the factors that impact the primary stages of decommissioning and to describe a general methodology to estimate cost functions. A description of the regulatory requirements is presented along with the empirical construction of cost functionals for shallow-water developments in the Gulf of Mexico.