Taking on Decommissioning Liability: ATaking on Decommissioning Liability: A different approach to project contracting

P d hPresented to the

6th North Sea Decommissioning SummitNovember 2009November 2009

Presented by

Robert C. Byrd, PhD, PE

Presentation OutlinePresentation Outline

• The Gulf of Mexico Some• The Gulf of Mexico – Some Facts & Historyy

• Decommissioning Experience

• The Project

U.S. Gulf of MexicoU.S. Gulf of Mexico

• 42 million Acres42 million Acres

• 33,600 miles of pipelines1 700 il f i li / t 51,700 miles of new pipelines/year past 5 years

• ~ 4,000 producing platforms1,962 Major, 954 manned

• 30% of US Oil Supply – 1.5 MM BOPD

• 21% of US Natural Gas – 10 BFPD

Active Platforms by Water Depth

34803500

2500

3000

Plat

form

s

1500

2000

of A

ctiv

e P

442500

1000

Num

ber o

47 4 25

0

500N

0 to 200 201 to 400 401 to 800 801 to 1000 Above 1000Water Depth (Meters)

Number of Gulf Of Mexico OCS Platform Installed vs Removed (1942-2008)

225

250

150

175

200

f Pla

tfor

ms

100

125

150

Num

ber o

f

25

50

75

0

25

1940 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Year

Installed Removed

Number of Gulf Of Mexico OCS Platform Installed vs Removed (2000-2008)

200

225

150

175

f Pla

tfor

ms

75

100

125

Num

ber o

f

25

50

75

02000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Year

Installed Removed

NEWS RELEASE:F R l M 14 2009For Release: May 14, 2009

Proserv Energy Awarded Turnkey GoM Project

Client: St Mary Land & Exploration

Location: Gulf of Mexico, Vermillion Area

Scope of Work: Abandonment and removal ofScope of Work: Abandonment and removal of platform, pipelines and wells destroyed during Hurricane Ike.

Contract Type: Fixed Price – Turnkey

Contract Characteristics:

•Proserv offered asset ownership, however the lease had expired. Therefore, the Operator retained ownership.

•Proserv has risk and responsibilities for planning, project management, and all costs,

•Project execution within MMS approved timelines.

•No recourse except for non-disclosed information.

Objective: Give the operator a risk-free alternative forObjective: Give the operator a risk free alternative for removing non-producing assets, freeing up capital and credit.

A C ?Are we Crazy?

The Answer depends on whether or not we know what we’re doing.

Our Experience:Our Experience:•More than 20 years in

the Gulf of Mexico

•Over 400 Decommissioning Projects Completed

•Strive for fit-for-purpose decommissioning solutions

Decommissioning Cost Estimating:Estimating: 

How good are we?

Probability Distribution Function (PDF)

Platform Removal Cost ExperienceActual vs. Estimated

X <= 0.48710.0%

X <= 2.10390.0%

0.7

0.8

Actual vs. Estimated

D t Ch t i ti

0.5

0.6Data CharacteristicsMean = 1.23Mode = 0.924Median = 1.12

0.3

0.4 Function=ExtValue(0.92392, 0.52399)

0 1

0.2Note: PDF based on approximately 40 projects involving approximately 120 structures over a10 year period.

0

0.1

0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5

Actual / Estimated Cost

1 4

PDF of Well P&A Cost Experience

Actual vs. EstimatedX <= 0.765

10.0%X <= 2.600

90.0%

1.2

1.4

Data Characteristics

0 8

1Mean: 1.394Mode: 0.998Median: 1.234

0.6

0.8InvGauss(0.89492, 1.86797) Shift=+0.49924

Note: PDF based on approximately 40 projects

0.2

0.4

Note: PDF based on approximately 40 projects involving approximately 200 wells over a10 year period.

0

0.2

0.5 1 1.5 2 2.5 3 3.5

Actual Cost / Estimated Cost

1800

Historical Offshore Platform Decommissioning Cost in the Gulf of Mexico

1400

1600

1000

1200

s To

n

600

800

ost($

)/Gro

ss

Decom Cost

200

400

Co

Polynomial Trend Line

01990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Year

Wh t b t H iWhat about Hurricane Damage?Damage?

W ’ h d l t f tiWe’ve had a lot of practice.

Hurricane Damage SummaryYear Hurricane # Platforms Effected /

#Damaged / #DestroyedPipeline Incidents

1992 Andrew 700 /65 / 22 480

2002 Lily 800 /17 / 2 120

2004 Ivan 150 / 31 / 7 168

2005 Katrina & Rita

3,050 / 52 /115 542

2008 G t & 2 127 /135 /54 92008 Gustav & Ike

2,127 /135 /54 9

What Changes After Hurricane D ?Damage?

Answer:     Everything, except the Regulations (maybe?)g ( y )

Typical Hurricane Katrina DamageTypical Hurricane Katrina Damage

Hurricane Katrina Damage (cont.)Hurricane Katrina Damage (cont.)Hurricane Katrina Damage (cont.)Hurricane Katrina Damage (cont.)

2008 Hurricane Ike Damaged Platforms2008 Hurricane Ike Damaged Platforms

2008 Hurricane Ike Damaged Platforms2008 Hurricane Ike Damaged Platforms

Why give a firm price for a Hurricane Damage (Insurance)Hurricane Damage (Insurance)

Project?

Because we can!

Vermilion 281 A– BeforeVermilion 281 A Before

The Platform – AfterThe Platform After

Scope of Work• The 4 wells will be P&A’ed using rig‐less techniques.

• A waiver not to Pig the pipelines was received from A waiver not to Pig the pipelines was received fromthe MMS

• In‐lieu of pigging, the pipeline will be flushed with p gg g, p pseawater only

• The two pipelines will be abandoned in place

• The deck and equipment will be recovered to the surface, sent to shore and recycled.

Well P&A – Ensco 87Well P&A  Ensco 87

Scope of Work• Proserv is pursuing donating the jacket to an established artificial reef site with the Louisiana A tifi i l R f P (LARP)Artificial Reef Program (LARP).

• If the reef plan is not pursued or accepted by the LARP then:LARP then: ‐The jacket will be recovered to the surface, sent to shore and recycled.y

‐A 1,320 radius from the center of the platform will be cleared of debris

DeliverableDeliverable

• Completion Reports as required by MMSCompletion Reports as required by MMS‐Pipeline Abandonment

Well APM‐Well APM

‐Platform Removal

Sit Cl d V ifi ti‐Site Clearance and Verification

• Well access and debris removal will be l d h h llcompleted once the trees are on the wells.

Schedule• Planning – May

• Permitting – May / June• Permitting – May / June

• Equipment & Materials – May / June

• Pipeline Abandonment – July

• Debris Removal / Access to wells – August +

• Well P&A – September ‐ November

• Deck / Jacket Removal – November• Deck / Jacket Removal – November

• Site Clearance & Verification ‐ December

CostCost

• TurnkeyTurnkey

• Milestone payments

l i• Exclusions‐Well Control Issues ( ll i )(pollution)

1

Cumulative Distribution Function of Total Project Cost

0.8

1

P90 =  1.08 Contract $

0.6P60 =  Contract $

0.4

P50 =  0.98 Contract $

0.2

P10 = 0 92 Contract $

0

P10 =  0.92 Contract $

St. Mary’s Project SummarySt. Mary s Project Summary

• Fairly distributes Risk/RewardFairly distributes Risk/Reward.

• Offers the Operator financial certainty.

C i i i i• Contract is at a competitive price.

• Offers the Contractor an opportunity to improve returns for a job well done.

• A Win – Win Contract.

Conclusions

C t t d O t b fit f• Contractors and Operators benefit from years of experience.

• Gulf of Mexico conditions allow for accurate calculation of cost and risk.

• Labor and resource availability is predicable.

• Regulatory regime efficient and predicable.g y g p

Questions?