Background
A leading oil and gas producer commissioned 2H to provide a cost estimate to decommission a platform located offshore California.
In 2017, two methods were used to generate separate cost estimates. 2H was tasked to provide an update to these original estimates.
Methodology
The first method used was the platform cost methodology; it is based on the latest Bureau of Safety and Environmental Enforcement (BSEE) Federal Offshore decommissioning report. Analysis shows that the platform removal task is the largest cost component. This is due to the high day rates associated with large heavy lift vessels capable of performing the work scope. Mobilisation/demobilisation, pipeline and power cable decommissioning, platform transportation and disposal, weather contingency factors are calculated based on several assumptions.
The second method used is the market-based approach. It is based on pricing and availability of vendors at the time of assessment. Accuracy of the cost estimate is required to be Class 4 as defined by the Association for the Advancement of Cost Engineering (AACE). The market-based method also reveals that the cost of platform removal is the most significant cost component due to higher vessel rates currently seen by the market.
Challenges
The platform removal methodology sustained a major change since the latest BSEE report, given that existing infrastructure to service decommissioning multiple platforms is lacking, especially suitable West Coast-based vessels and disposal locations. It has opted to remove topsides by either reverse installation or mechanically segmenting into manageable pieces. The anchoring requirement may pose challenges for the platform; therefore, the market-based method was chosen. It utilises a formulaic approach to estimate the number of topside modules based on dimensions and weight, as well as the number of jacket sections based on water depth and weight.
Results
The platform cost methodology approach came up to approximately $25 MM, while with the market-based method, the overall platform cost was approximately $33 MM. Per lease amendment, the higher cost of the two methods should be used, or if the market-based method is 10% or higher than the platform cost approach, the average of both estimates should be used. Therefore, the decommissioning cost amount was estimated at approximately $29 MM, the mean average of the two methods.
