A candid look at cost risk issues in "turn-key" contracting for hurricane damaged and downed structure removal and well P&A. Provides some review of the history of offshore decommissioning and huricane damage in the Gulf of Mexico. Developed and presentated by Robert C. Byrd, Ph.D., P.E.

1. Taking on Decommissioning Liability: A
different approach to project contracting
Presented to the
P d h
6th North Sea Decommissioning Summit
November 2009
Presented by
Robert C. Byrd, PhD, PE

2. Presentation Outline
• The Gulf of Mexico Some
The Gulf of Mexico – Some
Facts & History
y
• Decommissioning Experience
• The Project

4. U.S. Gulf of Mexico
• 42 million Acres
42 million Acres
• 33,600 miles of pipelines
1,700 miles of new pipelines/year past 5 years
1 700 il f i li / t5
• ~ 4,000 producing platforms
1,962 Major, 954 manned
• 30% of US Oil Supply – 1.5 MM BOPD
• 21% of US Natural Gas – 10 BFPD

5. Active Platforms by Water Depth
3500 3480
Number of Active Platforms
3000
2500
P
2000
1500
o
1000
442
500
N
47 4 25
0
0 to 200 201 to 400 401 to 800 801 to 1000 Above 1000
Water Depth (Meters)

6. Number of Gulf Of Mexico OCS Platform
Installed vs Removed (1942-2008)
250
225
200
Number of Platforms
175
150
f
125
100
75
50
25
0
1940 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Installed Removed

7. Number of Gulf Of Mexico OCS Platform
Installed vs Removed (2000-2008)
225
200
175
Number of Platforms
150
f
125
100
75
50
25
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Year
Installed Removed

8. NEWS RELEASE:
For R l
F Release: M 14 2009
May 14,
Proserv Energy Awarded Turnkey GoM Project
Client: St Mary Land & Exploration
Location: Gulf of Mexico, Vermillion Area
Scope of Work: Abandonment and removal of
platform, pipelines and wells destroyed during
Hurricane Ike.
Contract Type: Fixed Price – Turnkey

9. 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 for
risk free
removing non-producing assets, freeing up capital and
credit.

10. Are
A we C
Crazy?
?
The Answer depends on whether or not we
know what we’re doing.

11. Our Experience:
•More than 20 years in
the Gulf of Mexico
•Over 400 Decommissioning
Projects Completed
•Strive for fit-for-purpose
decommissioning solutions

12. Decommissioning Cost
Estimating:
Estimating:
How good are we?

13. Probability Distribution Function (PDF)
Platform Removal Cost Experience
Actual vs. Estimated
0.8
X <= 0.487 X <= 2.103
10.0% 90.0%
0.7
Data Characteristics
D t Ch t i ti
0.6 Mean = 1.23
Mode = 0.924
0.5 Median = 1.12
0.4 Function=ExtValue(0.92392, 0.52399)
0.3
Note: PDF based on approximately 40 projects
0.2
involving approximately 120 structures over a
10 year period.
0.1
01
0
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5
Actual / Estimated Cost

14. PDF of
Well P&A Cost Experience
Actual vs. Estimated
1.4
14
X <= 0.765 X <= 2.600
10.0% 90.0%
1.2
Data Characteristics
Mean: 1.394
1 Mode: 0.998
Median: 1.234
0.8
08
InvGauss(0.89492, 1.86797) Shift=+0.49924
0.6
Note: PDF based on approximately 40 projects
PDF based on approximately 40 projects
involving approximately 200 wells over a
0.4 10 year period.
0.2
0
0.5 1 1.5 2 2.5 3 3.5
Actual Cost / Estimated Cost

15. Historical Offshore Platform Decommissioning Cost in the
Gulf of Mexico
1800
1600
1400
1200
ost($)/Gross Ton
1000
s
800
600 Decom Cost
Co
Polynomial Trend Line
400
200
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Year

16. What b t H i
Wh t about Hurricane
Damage?
We’ve h d lot f
W ’ had a l t of practice.
ti

17. Hurricane Damage Summary
Year Hurricane # Platforms Effected / Pipeline
#Damaged / #Destroyed Incidents
1992 Andrew 700 /65 / 22 480
2002 Lily 800 /17 / 2 120
2004 Ivan 150 / 31 / 7 168
2005 Katrina & 3,050 / 52 /115 542
Rita
2008 Gustav
G t & 2,127
2 127 /135 /54 9
Ike

18. What Changes After Hurricane
Damage?
D ?
Answer: Everything, except
the Regulations (maybe?)
g ( y )

19. Typical Hurricane Katrina Damage

20. Hurricane Katrina Damage (cont.)

21. 2008 Hurricane Ike Damaged Platforms

22. 2008 Hurricane Ike Damaged Platforms

23. Why give a firm price for a
Hurricane Damage (Insurance)
Project?
Because we can!

24. Vermilion 281 A– Before
A

25. The Platform – After

33. 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 from
the MMS
p gg g, pp
• In‐lieu of pigging, the pipeline will be flushed with
seawater only
• The two pipelines will be abandoned in place
• The deck and equipment will be recovered to the
surface, sent to shore and recycled.

34. Well P&A Ensco 87
Well P&A – Ensco 87

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

36. Deliverable
• Completion Reports as required by MMS
Completion Reports as required by MMS
‐Pipeline Abandonment
‐Well APM
Well APM
‐Platform Removal
‐Site Clearance and Verification
Sit Cl d V ifi ti
• Well access and debris removal will be
completed once the trees are on the wells.
l d h h ll

37. 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 –
Deck / Jacket Removal – November
• Site Clearance & Verification ‐ December

38. Cost
• Turnkey
• Milestone payments
• Exclusions
l i
‐ Well Control Issues
(pollution)
( ll i )

39. Cumulative Distribution Function of Total Project Cost
1
P90 = 1.08 Contract $
0.8
P60 = Contract $
0.6
P50 = 0.98 Contract $
0.4
0.2
P10 = 0.92 Contract $
P10 = 0 92 Contract $
0

40. St. Mary’s Project Summary
Mary s
• Fairly distributes Risk/Reward.
Fairly distributes Risk/Reward
• Offers the Operator financial certainty.
• Contract is at a competitive price.
C i ii i
• Offers the Contractor an opportunity to
improve returns for a job well done.
• A Win – Win Contract.

41. Conclusions
• C t t
Contractors and Operators benefit from years
dO t b fit f
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

42. Questions?