The Problem
An oil and gas regulatory agency in Asia is overseeing decommissioning liabilities of operators of hydrocarbon exploration and production assets in the country that exceed US$10 billion. The regulator approached Independent Project Analysis (IPA) with a request to validate its decommissioning estimates for well plug and abandonment (P&A), platforms, pipelines, and subsea infrastructure.
IPA’s Solution
IPA previously conducted two decommissioning studies with participation from oil and gas supermajors and independents. The first study was conducted in 2012 and focused on the Gulf of Mexico, while the second study was global and was performed in 2016.
IPA’s Asia-Pacific research team leveraged cost and schedule data collected from these studies, as well as new wells and facilities data that are routinely collected as part of our interactions with project organizations. After careful normalization of the data for currency and time, the group analyzed the data using statistical techniques (e.g., parametric models) to identify factors that drive decommissioning cost and schedule and subsequently obtained benchmarks for the assets in the country’s decommissioning portfolio.
In particular, IPA provided benchmarks such as P&A duration and cost per well for wells of varying P&A complexity, abandonment cost per ton for platforms, and abandonment cost per kilometer for pipelines. Individual benchmarks were then aggregated to provide a benchmark for the overall decommissioning portfolio.
Delivery and Future Work
The study identified that wells P&A costs are overestimated compared to historical expenditure as derived from IPA’s data. Following delivery of the benchmarks, IPA’s research team worked with the client to identify potential drivers of overestimation and areas for further investigation.
Interest in decommissioning has increased by both operators and regulators globally, as assets and facilities are approaching cessation of production and end of life. However, performance of decommissioning projects to date has been unpredictable. IPA data show an average cost growth of 25 percent for platforms and 60 percent for wells. The reasons for this performance vary by location and range from lack of basic data and existing conditions that were poorly assessed to regulatory uncertainty. Decommissioning estimating is further challenged by the fact that it is often starts a few years before the actual project with associated uncertainties about escalation as well as any cost-saving opportunities due to rapid advances in technologies and any new, cost-effective decommissioning methods.
IPA helps its clients navigate the offshore asset decommissioning space by:
- Assessing the extent of front-end planning (i.e., decommissioning Front-End Loading [FEL])
- Providing decommissioning benchmarks to validate estimates
- Conducting research on topics such as decommissioning estimating Best Practices
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