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Market Insight In Association with:
Business Intelligence for the Offshore Oil & Gas Industry
Decommissioning Analysis
Low Oil Prices, High Decom Costs & Expert Insight
With continued oil price uncertainty, the advent of deepwater decommissioning and
escalating abandonment costs, it has never been a more important time for the industry to
demystify one of the most overlooked parts of the offshore asset life-cycle: decommissioning
Philip Chadney, Project Director, DecomWorld
Latest Industry Controlling Rising New Industry

Trends Impacting Decommissioning Challenges Ahead
Decommissioning Costs
1,000ft
This exclusive decommissioning analysis has been created in conjunction with the 7th Annual
Decommissioning & Abandonment Summit (March 17-19, 2015 Houston, USA). The 7th Annual
Decommissioning & Abandonment Summit is the industry's largest and most influential business
conference & exhibition for the decommissioning industry. The 2015 Summit will bring together over 800
decommissioning, abandonment and offshore executives for 3 days of intensive decommissioning and
abandonment (D&A) insight, project case studies, networking and business development.
DecomWorld has compiled the following analysis in light of over 100 in-depth research calls with industry
executives from around the world.
2014 FC Business Intelligence

The information of this document was prepared by DecomWorld (part of FC Business Intelligence) and its partners. DecomWorld has no obligation to tell you when information in
this document changes. DecomWorld makes every effort to use reliable, comprehensible information, but we make no representation that it is accurate or complete. In no event
shall DecomWorld and its partners be liable for any damages, losses, expenses, loss of data or profit caused by the use of the material or contents of this document.
DecomWorld grants you a licence to make one free copy of the information contained herein for personal or non-commercial use only. Accordingly, no part of this document may
be copied, performed in public, broadcast or adapted without DecomWorlds prior written permission. Please contact Phil Chadney at pchadney@decomworld.com to request
permission.
When comparing global decommissioning and abandonment (D&A) progress, its undeniable that the Gulf of
Mexico has the most established track record in the industry. Extensive platform removal and well plugging
and abandonment activity has created a thriving supply chain for decommissioning in the region, ever since
the introduction of the 2010 Idle Iron NTL regulation.
Outside the Gulf of Mexico, less mature decommissioning regions are beginning to come to terms with the
emerging reality of decommissioning. National oil companies in the Asia-Pacific region are developing the
guidelines and regulation required to kick-start D&A programs, whilst the North Sea is on the cusp of a flourish
in activity.
The overarching D&A landscape is undergoing a shift, though, in light of several key industry developments
this, in turn, will impact decommissioning strategy in 2015 and beyond.
Three of the Biggest Unknowns Impacting Decommissioning in 2015 and Beyond:
1. OIL PRICE
UNCERTAINTY
$ 2. COST OF DECOMMISSIONING
COST ESTIMATION VS. ACTUAL COST
3. DEEPWATER
ABANDONMENT:
THE INEVITABLE RISE
Structures active in the Gulf of
Mexico in water depth greater
than 400ft (1978 c2013)
Source: Data from BOEM/BSEE, January 2014

Oil Price Uncertainty:

How will low oil prices impact the decommissioning market? To what
extent will low oil prices provide uncertainty for contractors relying on
abandonment revenue from operators? What strategy will operators
take in an emerging era of low oil prices? Weve already seen significant
consolidation in the market with key players like Halliburton, one of the
largest US oilfield service companies, acquiring Baker Hughes. Superior
Energy Services recent exit from the Gulf of Mexico decommissioning
market also highlights the challenging market environment for
contractors looking to maintain margins and differentiate their portfolio
of services.

Industry Perspectives
Low Oil Prices: Rise or Fall in Decommissioning?
If low prices remain in place for the foreseeable future

the economic life of aging and low producing assets will
be brought forward. This, in turn, may accelerate close of
production (CoP), and decommissioning - but there will
be a drive to delay removal

Whether or not low oil prices will speed up
decommissioning depends on an operators ability to
remain economic when producing from aging facilities
or marginal fields. What may be non-economic for
one operator, for example a major, may not be for the
likes of another operator, for example an independent
operator. The recent trend for operators to offload their
aging assets onto the smaller independents already
demonstrates the variation in production economics
the big question is whether further reductions in oil
prices will cause an increase in CoP or just a production

slow down.
I think if the lower prices continue for some time it will

inevitably delay some decommissioning projects. I recall
seeing many years ago a graph of GoM decommissioning
activity versus oil price and when there was an oil price
slump there was significant drop in decommissioning
Join 800 top decommissining projects. At first a delay in decommissioning may seem
execs from Anadarko, counterintuitive but I again come back to the difference
BHP Billiton, BP, Chevron, between capital project thinking and decommissioning
ExxonMobil, Shell, Stone Energy thinking. Decommissioning is a drain on cash with
and many more! absolutely no income at the end of it. If oil prices drop
7th Annual Decommissioning

companies are more likely to be short of cash and hence
will, if at all possible, delay decommissioning and use

whatever cash they have to keep their ongoing capital
& Abandonment Summit 2015
projects alive.
March 17-19, Houston, Texas
Former Head of UK Decommissioning, Shell
According to Reuters, global oil and gas exploration

projects worth more than $150 billion are likely to
be put on hold next year. With low oil prices stopping
new projects from progressing, the price of marine
vessels will drop. Will this reduction in price provide the
incentive for operators to kick-start decommissioning
at a lower cost? In other words, could this mean that
decommissioning
Shift from Shallow to Deepwater in the

Gulf of Mexico:
Whilst the Gulf of Mexico has been working intensely to reduce
offshore liability over the last 5+ years, almost all of the activity has
been within the shallow water shelf area. As such, the arrival of
deepwater decommissioning prompts an entirely new set of challenges,
methodologies, technologies and strategies. With the skyrocketing
cost of subsea well P&A and deepwater structural abandonment,
its now a crucial time to develop cost estimation methodologies,
best practices and apply lessons learned from the limited number of
deepwater projects already completed. Anadarko set a benchmark for
deepwater decommissioning in mid-2014 with the deepest floating
production platform to date being successfully decommissioned the
Red Hawk Spar facility. Other regions, including Asia-Pacific, Northern
North Sea and South America have a significant portfolio of deepwater
decommissioning activity how will this impact the development of
rigless abandonment technologies and heavy lift vessels?
Deepwater fixed platorms in the Gulf of Mexico (2013)

Floater structures in the Gulf of Mexico (2013
Spiralling Decommissioning Costs:

Decommissioning cost estimation methodologies have come a long way
in the last few years, however, actual costs and timelines have almost
always exceeded original estimates. This has significant ramifications
for not only the operators but also contactors, too, who have struggled
to maintain margins due to unpredictability of decommissioning
programs. As such, its never been a more important time to minimize
the unknowns through rigorous planning and strategy.
Offshore Liability Changing Hands:

Independent operators are taking on ownership of aging facilities in the
Gulf of Mexico how will this impact decommissioning methodologies
and the funding of decommissioning programs? With independent
Join 800 top decommissining operators dedicating significantly fewer resources to decommissioning,
execs from Anadarko, it could mark a shift in the level of pre-engineering undergone and could
certainly set an industry benchmark for a more cost-effective approach
BHP Billiton, BP, Chevron,
to decommissioning.
ExxonMobil, Shell, Stone Energy
and many more!

Recent M&A Activity Includes:
$200 m Stone Energy Corp has an agreement to sell its non-core Gulf of Mexico (GOM)
conventional shelf properties to Talos Energy Offshore LLC for $200 million
in cash and assumed future undiscounted abandonment liabilities
estimated at $117 million.
SandRidge Energy Inc. sold its Gulf of Mexico properties to Riverstone

$1.1 n
2b
Holdings LLC-backed Fieldwood Energy LLC of Houston for

$1.12 billion, less than what it paid for them just two years ago.
Total SA is looking to sell its 17 percent stake in the Gulf of

.5 - 2 b n
Mexico's Tahiti oil field, which could fetch between

$1.5 billion and $2 billion in a deal, according to people
familiar with the matter.
$1
$2bn
Energy XXI (4th largest liability in GOM)

buys EPL Oil & Gas (5th largest liability) for
$2 billion. Significant new liability for
$16bn
Plains Exploration & Production is bought by Freeport-

McMoRan Copper & Gold Inc. for $16 billion
Integrating Decommissioning as Part of the Lifecycle:

Theres no denying that convincing the ExCo (Executive Committee)
level of any oil and gas operator of the significance of decommissioning
is a major industry hurdle. Individuals representing the ExCo level
are typically interested in pursuing the most cutting-edge new
development programs. How can we raise awareness for the significance
of decommissioning cost and convince those at the top of the chain to
Join 800 top decommissining devote resources to decommissioning at an earlier stage in consideration
execs from Anadarko, of long-term lifecycle goals? If we consider decommissioning at an
BHP Billiton, BP, Chevron, operations phase, and even address decommissioning at a design
ExxonMobil, Shell, Stone Energy phase, we can positively impact end-of-life costs.
and many more!

Industry Collaboration:
Signs of industry collaboration are certainly on the horizon which
could mark a renaissance in the decommissioning market. Industry
discussions are progressing between operators and contractors which
would significantly reduce cost through multi-operator and multi-asset
campaigns (vs. standalone projects). The elephant in the room remains,
though: will operators work together to reduce cost or will successful
operators hold a tight grip on their finely tuned decommissioning
process to maintain competitive advantage?
Interview with Eric Faulds, Former Shell UK

Decommissioning Manager
Eric Faulds has had an extensive career in North

Sea projects commencing in the late 60s with the
installation of the first platforms for Shell in the
Southern North Sea through to Project Manager
of Brent Spar in the late 90s. During this period he
gained experience in project management, design,
underwater engineering, onshore and offshore
construction of both steel and concrete installations
as well as offshore decommissioning. After taking
early retirement from Shell in 1999 he set up Eric
Faulds Associates Ltd. to provide independent
advice on offshore decommissioning. The bulk of
his work has involved the generation or review of
decommissioning cost estimates.
Decommissioning activity in the North Sea is about to become an

altogether more serious proposition than it ever has been before,
according to one of the most experienced and knowledgeable observers
of the industry. What is less certain, however, is how well the industry
has organised its business practices to deal with the coming wave of
activity.
Eric Faulds, the Aberdeen-based founder of decommissioning
consultancy EFA, has worked in the North Sea offshore oil and gas
industry since the first production platforms were installed in the late
sixties. Faulds says that up to now, there has not been a great deal of
activity. Its been bumbling along at a low level for the past 10 years,
Join 800 top decommissining
with everyone anticipating a wave of projects, but Ive detected a big
execs from Anadarko, increase in activity in the past two years or so, and more project teams
BHP Billiton, BP, Chevron, are starting to be put together. I think well see a lot more activity in
ExxonMobil, Shell, Stone Energy the next five-to-seven years, particularly in the southern sector. There
and many more! are half a dozen significant projects being prepared in Aberdeen that I
know of.
7th Annual Decommissioning This is promising news for expert and specialists in the decommissioning
& Abandonment Summit 2015 industry, but Faulds says there still seems to be uncertainty among
March 17-19, Houston, Texas operators about what they need to do, how they need to do it and
what its going to cost them.
Whats the damage?

Take the issue of costs. There has been a huge growth in the notional
cost of decommissioning an offshore facility. Faulds says a well-plugging
estimate that came to 1.4m 10 years ago now comes to 30m. And
the cost of decommissioning a large North Sea platform that was put at
75m in 2004 comes to 300m today. There is some evidence that these
increases are starting to level out, but this may be more the result of the
increased sharing of bottom-ine numbers among companies.
Faulds knows whereof he speaks. He has worked in the offshore North
Sea industry since the first production platforms were installed in
the late sixties. He has spent most of his career with Shell, first in the
southern North Sea, and eventually as project manager of Brent Spar
in the late nineties. During this period he was involved with project
management, design, underwater engineering and the onshore and
offshore construction of steel and concrete installations.
After taking early retirement from Shell in 1999 he set up Eric Faulds
Associates to provide independent advice on offshore decommissioning.
As part of that process he has generated or reviewed hundreds of
operators estimates of the costs of decommissioning, which firms have
to compile to comply with regulatory and accounting rules. Indeed, over
the past five years, this has made up about 90% of his workload, and
enabled him to build up a formidable cost database.
Although the industry is perhaps coming to a consensus about what
the bottom line ought be on a pound per tonne basis something
around 7,000 probably isnt too wide of the mark for a large platform.
However, there are wide and sometimes wild variations in the
costs that different companies attach to the same items in the bill. For
example he says some bills for onshore disposal are as low as 80 a
tonne, not including the value of scrap, but he has also seen estimates
that put the price at more than 1,300 a tonne for the same work. To give
another example, one estimator put the price of hiring a heavy lifting
vessel at a not-unrealistic 600,000 a day, but another said it would be
only 375,000. Estimates can also include technical nonsense such as
the pulling up of piles when those piles are grouted into sleeves on the
Join 800 top decommissining jacket, or unrealistic lifting schemes, yet despite this doesnt stop the
execs from Anadarko, bottom lines conforming to general industry norms.
BHP Billiton, BP, Chevron,
and many more!

The suspicion is, of course, that the estimator began with the final cost
and worked backwards to reach it, stretching and squeezing the figure
to get them to fit. One reason that this is possible is the lack of reliable
datasets based on real-life projects. There has been limited work carried
out in the North Sea, and most of that has involved the smaller, lighter
steel structures in the southern quadrant. There have been a few high-
profile schemes, such as BPs dismantling of the NW Hutton platform,
but generally speaking there is a lack of precedents. And although
companies have a fair idea of the state of their kit above the water line,
what lurks beneath, particularly down the holes, is largely unknown.
A lack of experience?
Another part of the problem is that operators take an overly credulous
attitude to what they are told by some consultants. According to Faulds,
the lack of field experience means there can be a lack of expertise in
the oil companies, and as a result they dont challenge so-called expert
consultants. When theyre told something is a requirement, they need to
say But is it? Show me where it says that.
For example, operators may be advised that they must trace every
element of a decommissioned facility through to its final destination,
both hazardous and non-hazardous. The fact is that you dont, at least
not the non-hazardous materials, although you may choose to do so for
company reputation issues or they are advised that they must carry out
meticulous inventory studies which is not necessarily the case.
Another issue is the natural tendency for companies to apply to
decommissioning schemes the lessons theyve learned on capital
projects, even though the two belong to different categories.
Decommissioning project teams can get bogged down trying to fit in
with the fixed gates set out in company procedures, but there are major
differences between decommissioning and capital projects, says Faulds.
A couple of weeks ago at the Decom World conference in Aberdeen, I
saw slides being presented with a traditional capital project process of
front-end engineering design and then concept selection. But in most
cases the concept is selected before the project starts its total removal.
Join 800 top decommissining I dont understand why some companies seem to have a wish to then
execs from Anadarko, attempt to preselect the removal method. In most cases the removal
BHP Billiton, BP, Chevron, work should be tendered to a selection of contractors offering different
ExxonMobil, Shell, Stone Energy methods, because this will encourage innovative solutions.
and many more!

I also think there will have to be a cultural change to accept that, in

large complex platforms, decommissioning cost estimates with the
same accuracy as capital projects will not be feasible. Management
needs to accept this and live with the uncertainty.
The next stage

Given Faulds impressive experience with the North Sea industry so far,
how does he see decommissioning developing in the future?
One thing he is not expecting is that the co-operative spirit that
the recent Wood Review called for will make much of a difference
in decommissioning, even though a collective approach to the all-
important issue of equipment hiring might reduce everyones cost
base. He says: Its been talked about for years, but although firms form
joint ventures, oil is a very competitive business. My experience is that
companies are reluctant to share and if they do they want it on their
own terms; there was a great debate about common conditions for
fabrication contracts many years ago, and it was agreed in principle, but
firms only wanted to do it if their contracts were used as the basis. Also,
the US operators tend to be sensitive to anti-trust laws.
Another issue is the present fall in the price of oil. Although some
have argued that this is making more fields uneconomical to run, and
therefore promoting their decommissioning, Faulds argues that this will
not happen if the low price is sustained: operators who are strapped for
cash spend what they have on schemes that will generating income. Its
counter-intuitive, I know. And firms are obliged to decommission when
they stop producing, but they can stall and stall, or go on producing at a
loss. I saw a graph of oil price versus decommission activity in the Gulf of
Mexico many years ago, and that showed the two rose and fell together.
Low oil price equals low income equals lack of cash equals delayed
decommissioning. Of course any cash-rich firms may consider that its a
buyers market and decommission at a better price.
If decommissioning activity does indeed pick up in the next seven years,
many of the problems that Faulds highlights will be solved, because
Join 800 top decommissining the industry will learn from experience. However, this can be a painful
execs from Anadarko, way to gain knowledge, and the better prepared that operators are, the
BHP Billiton, BP, Chevron, faster they can adapt to this new challenge.
and many more!

Addressing the Most Critical

Decommissioning Challenges:
To address all of these industry challenges and opportunities impacting
the decommissioning market, the 7th Annual Decommissioning &
Abandonment Summit exists to facilitate the most crucial D&A debates.
By bringing together industry pioneering thought-leaders from the
worlds most active decommissioning operators, contractors, service
providers and regulators, the Summit tackles your highest priority issues
and developments.
Leading experts from Anadarko, BHP Billiton, BP, Chevron, Shell, Stone
Energy, BSEE, BOEM, Versabar, Baker Hughes and many more share the
latest case studies, best practices and lessons learned.
GLOBAL DECOMMISSIONING PERSPECTIVES:

Assess the state of D&A across the globe, with
critical regulator and operator case studies from
Gulf of Mexico, North Sea, Asia-Pacific, South
America and Alaska to build a complete picture of
the size of the prize
STRATEGIES TAILORED TO WATER DEPTH &
FACILITY TYPE: Get cutting-edge approaches to
decommissioning TLPs, SPARs, FPSOs and fixed
structures in deepwater and address existing
complexities in shallower water
COST ESTIMATION & EFFICIENCY: Accurately
and reliably develop cost estimates for your
offshore portfolio that will reflect the true cost of
decommissioning by implementing robust cost
estimation methodologies and techniques
WELL PLUGGING & ABANDONMENT & SUBSEA
INFRASTRUCTURE DECOM: Check out the latest
technology to maximize well P&A efficiency and
ensure regulation is being met for your suspended
wells and subsea infrastructure
LIFECYCLE APPROACH TO D&A: Revolutionize
your D&A strategy by looking at it as part of an
Join 800 top decommissining all-encompassing approach to end of field life
execs from Anadarko, management to discover the tools, from design
BHP Billiton, BP, Chevron, to end of life, that can be used to improve cost
ExxonMobil, Shell, Stone Energy efficiency
and many more!

Following the success of the 2014 D&A Summit in which 700 offshore
executives gathered for 3 days of ground breaking decommissioning
intelligence (not to mention the packed 60+ exhibition hall) the 2015
Summit will be pulling out all the stops to make it bigger and better
than ever before.
Exclusive Industry-First Case Studies: Anadarkos Red Hawk
Deepwater Spar Decommissioning project case study will be top
of the agenda providing a multi-stakeholder perspective with
InterMoor and Versabar presenting alongside the operator!
Brand New DecomWorld Gala Dinner on the Opening Night:
Cement your relationships with global D&A leaders over a 3 course
meal and entertainment whilst hearing from John Hofmeister,
Former President of Shell, during a not-to-miss keynote address.
Expanded track sessions, packed workshop agenda day,
plus regulator and operator super-panels: Youre guaranteed
to hone in on your biggest challenges and meet the specialists
during focused deepwater, cost estimation, well P&A, subsea
infrastructure, pipeline and rigs to reefs debates
Have your say in the biggest live polling event in the
decommissioning calendar: put forward your viewpoint
and get expert panel commentary on the findings to the most
controversial decommissioning topics
Put this alongside the leading-edge keynotes from the Bureau of
Safety & Environmental Enforcement (BSEE), Bureau of Ocean Energy
Management (BOEM), Anadarko, BHP Billiton, BP, Chevron and Shell
giving you all the latest strategies for you to tackle offshore liability in
2015 and beyond! Theres certainly no better place to secure your D&A
business and meet the entire global industry all under one roof!
Secure your place as early as possible to benefit from the advanced
booking savings, plus join the online networking suite to pre-arrange
Join 800 top decommissining all your meetings over the course of the Summit this is the only
execs from Anadarko, place to do D&A business! Simply complete and return the included
BHP Billiton, BP, Chevron, Registration form (found at the back of this brochure) or register online at
ExxonMobil, Shell, Stone Energy www.decomworld.com/decommissioning
and many more! With over 800 of the leading names expected in 2015 alongside over 60
exhibitors showcasing the latest D&A technologies and services, it has
7th Annual Decommissioning never been more important for you to maximize this unique opportunity.
& Abandonment Summit 2015 For that very reason we are pleased to announce that group discounts
March 17-19, Houston, Texas are now available so that your entire team can make the most of the
Summit. To learn more simply contact info@decomworld.com
As you have downloaded this whitepaper, save an extra $50 on your pass with discount code 2629WP50.
Just enter it here now: http://www.decomworld.com/decommissioning/register.php

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Market Insight In Association with:

Business Intelligence for the Offshore Oil & Gas Industry

Latest Industry Controlling Rising New Industry

2014 FC Business Intelligence

Three of the Biggest Unknowns Impacting Decommissioning in 2015 and Beyond:

Source: Data from BOEM/BSEE, January 2014

Oil Price Uncertainty:

If low prices remain in place for the foreseeable future

I think if the lower prices continue for some time it will

7th Annual Decommissioning

According to Reuters, global oil and gas exploration

Shift from Shallow to Deepwater in the

Deepwater fixed platorms in the Gulf of Mexico (2013)

Source: Data from BOEM/BSEE, January 2014

Floater structures in the Gulf of Mexico (2013

Source: Data from BOEM/BSEE, January 2014

Spiralling Decommissioning Costs:

Offshore Liability Changing Hands:

7th Annual Decommissioning

Recent M&A Activity Includes:

SandRidge Energy Inc. sold its Gulf of Mexico properties to Riverstone

Holdings LLC-backed Fieldwood Energy LLC of Houston for

Total SA is looking to sell its 17 percent stake in the Gulf of

Mexico's Tahiti oil field, which could fetch between

Energy XXI (4th largest liability in GOM)

Plains Exploration & Production is bought by Freeport-

Integrating Decommissioning as Part of the Lifecycle:

7th Annual Decommissioning

Interview with Eric Faulds, Former Shell UK

Eric Faulds has had an extensive career in North

Decommissioning activity in the North Sea is about to become an

Whats the damage?

7th Annual Decommissioning

7th Annual Decommissioning

I also think there will have to be a cultural change to accept that, in

The next stage

7th Annual Decommissioning

Addressing the Most Critical

GLOBAL DECOMMISSIONING PERSPECTIVES:

7th Annual Decommissioning

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