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.
Risk-adjusted supplemental bonding in the Gulf of Mexico
Leases in the Outer Continental Shelf that do not satisfy a minimum threshold financial capacity are required to post a supplemental bond to ensure that the US government is protected from incurring costs associated with lease abandonment. A bonding formula based upon the estimated cost to perform decommissioning was developed in 1991 by the federal government to implement the supplemental bond programme. The purpose of this article is to update and extend the legacy formula using a risk-adjusted mechanism. We review the objectives of the supplemental bond programme and provide a historical perspective of its development. The objectives of a bonding formula are described along with the trade-offs that occur in development. Factors that impact US government decommissioning exposure are highlighted and we present a risk-adjusted mechanism across the three main stages of decommissioning. We advocate the selection of bonding levels that balance the need of the government to minimize its decommissioning exposure at an acceptable level of risk without incurring an excessive financial burden on owners.
Decommissioning cost estimation in the deepwater U.S. Gulf of Mexico – Fixed platforms and compliant towers
Abstract Decommissioning is the final stage in the life cycle of an offshore structure, where all wells are plugged and abandoned, the platform and associated facilities are removed, and the seafloor cleared of all obstructions created by the operations. From 1989 to 2012, 15 structures in water depth greater than 400 ft were decommissioned in the U.S. Gulf of Mexico, but none of the project cost have been publicly released. The purpose of this paper is to apply work decomposition algorithms developed by ProServ Offshore to estimate cost for well plugging and abandonment, conductor severance and removal, pipeline abandonment, umbilical and flowline removal, and platform removal for the 53 deepwater fixed platforms and compliant towers in the Gulf of Mexico circa January 2013. Decommissioning cost estimates are presented by stage and operator. Bullwinkle and Pompano are expected to be the most expensive fixed platform decommissioning projects in the Gulf of Mexico estimated at $265 million and $203 million, respectively. Total undiscounted decommissioning liability for the asset class is estimated to be $2.4 billion.