Decommissioning Costs Can Be Reduced
- Chris Carpenter (JPT Technology Editor)
- Document ID
- Society of Petroleum Engineers
- Journal of Petroleum Technology
- Publication Date
- January 2015
- Document Type
- Journal Paper
- 113 - 116
- 2014. Offshore Technology Conference
- 1 in the last 30 days
- 236 since 2007
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This article, written by JPT Technology Editor Chris Carpenter, contains highlights of paper OTC 25247, "Decommissioning Costs Can Be Reduced," by Alan William Stokes, SPE, WorleyParsons, prepared for the 2014 Offshore Technology Conference, Houston, 5-8 May. The paper has not been peer reviewed. Reproduced by permission.
Many offshore decommissioning costs are higher than necessary because of decisions made during the initial engineering and construction for an oil or gas field. Economics for a 60,000-BOPD oil field show that a reduction in decommissioning costs of 50% can increase the project net present value (NPV) by 13%. A 5-year range of decommissioning data collected from throughout the world has been studied. Key areas have been identified in which decisions made during design affected the eventual decommissioning costs.
Decommissioning/removal of an offshore platform in 100 m of water is a complex project. Decommissioning of a platform in a severe environment can cost hundreds of millions of GBP. New-development project teams need to spend as much effort preparing for decommissioning in the design stage as they do preparing for the maintenance of the platform.
Costs can be reduced during the actual decommissioning work by application of a contracting strategy and the use of previous experience and new technology. However, many costs are fixed because of the design features of the fixed platform or compliant structure. This paper provides guidance on how to engineer for decommissioning during the design stage of a new project.
The cost of decommissioning has to be included in the cash flow of the development because the late-life production rate is included. A typical North Sea platform in 80 m of water for a throughput of 65,000 BOPD with a 15-year field life has a cash flow that starts negative, turns positive, and then ends negative with decommissioning (Fig. 1). The final decommissioning cost before tax refund was estimated to be GBP 800 million.
If the decommissioning cost can be reduced, the NPV of the project will be increased. Results of four NPV calculations as the decommissioning cost was reduced from GBP 800 million to 200 million are shown in Fig. 2. In halving the decommissioning cost from GBP 800 million to 400 million, the NPV of the project increases by 13%. These calculations assume a major short-term cash expenditure with the facilities being decommissioned using cash-intensive methodologies over 1 year. Other operators might want to design their new facilities to be decommissioned over a 4-year period at reduced cash flow, with consideration given to the knock-on effects of keeping utilities and the accommodation operable for the 4-year period.
Significantly, the extended decommissioning project has an increase on the NPV of 30% because of the discount rate being applied to the decommissioning costs over 4 years rather than 1 year. When this 30% is added to the 15% increase resulting from cost reduction, the project NPV improves dramatically.
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