Oil & Gas Decommissioning

What is decommissioning?

Decommissioning involves the safe plugging of the hole in the earth’s surface and disposal of the equipment used in offshore oil production. Decommissioning is a rapidly developing market sector in the petroleum business, with major potential and major risks. It is a source of major liability for countries, operators, contractors and the public and it must be understood if it is to be managed cost effectively.

Why is it important to get it right?

• Decommissioning costs are generally legally binding and represent a future legal obligation – they are not optional
• The provision is reflected on the balance sheet and as such subject to external audit
• Represents management’s best estimate of future decommissioning liabilities

Why does the decommission provision matter?

• They are material and significant to the industry and growing
• Realistic estimates enable early planning and efficient extinguishment of liabilities through divestment or decommissioning project execution

Why a global decommissioning provision cost model?

• Decommissioning is a significant future cost
  • Need to account for it (accounting provision)
  • Need to plan for it (long term business plan, cash flow forecasting)
  • Need to do this without developing ‘project quality’ estimates for every asset

• Business drivers for a common global provision model
  • Consistent definition of decommissioning scope and activity
  • Benchmarking, challenge & learning across the asset portfolio
  • ‘What if’ capability
  • Strategic planning, innovation & engagement with supply chain
  • Efficiency & reduced dependency on individual, region-specific models
  • Assurance of compliance policy & standards

Decommissioning Cost Estimating Model (DCEM) Underlying Model Structure

Pilbara Insights is the underlying modelling platform for DCEM.

DCEM is a cloud-based centralized estimating model using standard rates, norms, Work Breakdown Structure etc. and standard business rules for calculating and distributing cost through the model. The model can cover all assets globally. This is a significant improvement on the typical method of calculating these costs with multiple, distributed spreadsheets.

The DCEM model is primarily comprised of four key modules, Units, Resource, WBS and Project as described in the diagram below.

Figure 1 – DCEM Module Structure

Decommissioning involves the safe plugging of the hole in the earth’s surface and disposal of the equipment used in offshore oil production. Decommissioning is a rapidly developing market sector in the petroleum business, with major potential and major risks. It is a source of major liability for countries, operators, contractors and the public and it must be understood if it is to be managed cost effectively.

The project has been updated and enhanced over the last 12 years and is still in use today!