The approximate contribution of these activities to the total decommissioning cost is based on decommissioning costs over a ten-year period from 1995 through 2004. The results are based on 46 individual projects involving approximately 100 structures and 200 associated wells. (Courtesy of Proserv.)

Proserv Decommissioning Contractors & Engineers Inc. (formerly Twachtman Snyder & Byrd Inc.) has specialized in offshore oil and gas facility decommissioning since 1987. During that period we have decommissioned hundreds of platforms with associated pipelines and wells. This article attempts to share some of our experience with respect to estimating the cost of this type of work. In particular, we examine the level of accuracy that can be expected when estimating the cost of offshore facility decommissioning.

Offshore facility decommissioning involves all of the activities required to safely remove a facility from its offshore location and, in most cases, remove any evidence that it ever existed. In areas like the US Gulf of Mexico, the exceptions would be platforms that are reefed in-place through the various state marine conservation programs in cooperation with the Mineral Management Service (MMS).

The major activities for offshore platform decommissioning are shown in Figure 1 with the approximate contribution of each activity to the total decommissioning cost.

These are based on Proserv decommissioning cost experience over a 10-year period from 1995 through 2004. The total cost of these projects was approximately US $75 million, not adjusted for inflation. The results shown below are based on 46 individual projects involving approximately 100 structures and 200 associated wells. They are based on projects in which detailed estimates and comparably detailed actual costs are available.

The question arises as to the relevance of these project results in light of the dramatic cost increases experienced in decommissioning since 2005. We believe that the relationship between the estimated cost and actual project cost has not changed; i.e., the risk factor for normal decommissioning projects has not changed. We do not suggest that these results relate to the cost experienced in hurricane-damaged structures.

The major cost element is platform removal services, which involves all of the cost related to removal for the deck and jacket, including pile severing and in most cases conductor severing and removal. The largest single contributor to platform removal is the cost related to derrick barge services. These may also be referred to as heavy-lift vessel services. The next most important activity is well plugging and abandonment (P&A). It is important to note that the balance of cost contribution is very much dependent on the specific project. Well P&A cost can quickly become the major issue in facilities in relatively shallow water. Platform removal costs increase dramatically as water depth and, therefore, jacket weight increases.

Looking at the other cost categories, project management and inspection as considered here involves all of the planning, engineering, permitting, onsite inspection, and final reporting services required in a decommissioning project. These costs are generally in the range of 6 to 10% of overall cost, with smaller projects requiring the higher percentage cost in most cases.

Platform preparations costs are those related to cleaning a facility, e.g., flushing piping and vessels and removing any material which might be hazardous during the decommissioning process. They also include making repairs necessary for safe operations such as well P&A and preparing equipment and production modules for lifting. These costs will depend on the size and type of facility but generally are not difficult to estimate accurately.

Overall, offshore facility decommissioning costs are far more difficult to predict accurately compared to new construction costs. The reasons for this are very straight-forward: age of the facilities and lack of accurate information. The latter issue particularly impacts the areas that can not be readily inspected: downhole well conditions and pipelines. These are the areas that have the greatest potential for cost variation when comparing estimated and actual project cost.

Figures 2 and 3 show the statistical results for estimated versus actual costs for platform removal and well P&A in offshore facility decommissioning. Figure 4 shows similar results for total cost excluding well P&A. The results are presented in the form of a probability distribution function (PDF) for each activity. The x-axis shows the ratio of the actual cost of the activity or project. The y-axis is the probability density. The vertical bars represent the probability of a result in each band, i.e., in the range of actual to estimated between .75 and 1.25. Also shown in each figure is a “best fit” continuous PDF and the statistical mean, mode, and median values of input data.

The “mean” is the numerical average value of the data. The “mode” is the highest probability or most frequently occurring value. The “median” is the value at which half the results are higher and half lower, also called the P50 value. The figures also show the estimated P10 and P90 values for the data. These are the values where 10% of the results are expected to be lower and higher, respectively.

There are a number of interesting things to note about these results. The most significant is the fact that these distributions are all skewed in the wrong direction, i.e., toward costs being higher than originally estimated. In fact, this is generally true of all forms of construction or destruction. There are always more opportunities for cost increases than for cost savings.

Close review of these results shows that the median (P50) results show better than +/- 10% accuracy for estimated versus actual cost in all cases. This is reassuring, but the scatter should provide a heads-up notice to anyone involved in offshore facility decommissioning. The well P&A results show actual-to-estimated costs as high as 8 to 1, even though the mode (most likely) and median (P50) ratios are less than 1 (good!).

What are the lessons learned?
• The negative scatter in decommissioning cost (increases over estimated) occurs primarily in the areas that are most difficult to inspect or observe.
• Cost increases generally result from a lack of information.
• Most of the time we can get it right, i.e., within +/- 10%.
• The downside risk should be appreciated and understood.
• Operators should try hard to preserve information about their facilities and wells to reduce the uncertainty in decommissioning.

Offshore facility decommissioning is a necessary part of the oil and gas industry. It can be and is performed in a safe and environmentally appropriate manner, without exception. The variability is in the cost of the decommissioning process. This article attempts to shed some light on the nature of cost risk in decommissioning.