HS096 OP106 Guidelines On Well Abandonment Cost Estimation Issue 2 July 2015

Guidelines on Well Abandonment Cost Estimation

First edition published in Great Britain in 2011.
Issue 2, 2015
THE UK OIL AND GAS INDUSTRY ASSOCIATION LIMITED (trading as Oil & Gas UK), 2015
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The information contained herein is given for guidance only. These guidelines are not intended to
replace professional advice and are not deemed to be exhaustive or prescriptive in nature.
Although the authors have used all reasonable endeavours to ensure the accuracy of these
guidelines neither Oil & Gas UK nor any of its members assume liability for any use made thereof.
In addition, these guidelines have been prepared on the basis of practice within the UKCS and no
guarantee is provided that these guidelines will be applicable for other jurisdictions.
While the provision of data and information has been greatly appreciated, where reference is made
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ISBN: 1 903 004 51 9

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Issue 2, July 2015
Contents
1
2
3
Introduction .................................................................................................. 6
Objective of the Guideline ........................................................................... 7
Regulatory Requirements ............................................................................ 8
3.1
3.2
Design & Construction Regulations .......................................................................... 8

Accounting Standards / Protocols ............................................................................. 9
Well abandonment Cost Estimation ......................................................... 10
4.1
4.2
4.2.1
4.2.2
4.2.3
4.3
4.3.1
4.3.2
4.3.3
4.3.4
4.3.5
Introduction to the Estimation Process .................................................................... 10

Reasons for Cost Estimate Preparation .................................................................. 11
During Field Operation............................................................................................ 11
Asset Sale or Transfer ............................................................................................ 12
End of Well Life or Cessation of Production ............................................................ 12
Cost Estimate Accuracy in Relation to Abandonment Proximity .............................. 12
Greater than 10 Years to COP................................................................................ 13
Between 5 and 10 Years before COP ..................................................................... 13
Less Than 5 Years before COP .............................................................................. 14
Well Abandonment Imminent .................................................................................. 14
Cost Estimate Process Flow ................................................................................... 15
Classifying Wells for Abandonment Cost Estimation ............................. 17
5.1
5.2
5.3
5.3.1
5.3.2
5.3.3
5.4
5.4.1
5.4.2
5.4.3
5.5
5.5.1
Use of a P&A Code................................................................................................. 17

Well Abandonment Location ................................................................................... 18
Well Abandonment Phases..................................................................................... 18
Phase 1 - Reservoir Abandonment ......................................................................... 18
Phase 2 - Intermediate Abandonment .................................................................... 18
Phase 3 - Wellhead and Conductor Removal ......................................................... 18
Well Abandonment Complexity / Work Type ........................................................... 18
Well Abandonment Classification Example 1 .......................................................... 20
Determining Well Abandonment Complexity ........................................................... 21
Using Tables 3.1, 3.2 and 3.3 ................................................................................. 21
Well abandonment Duration Estimation ................................................... 25
6.1
6.2
6.3
Benchmarking of Durations .................................................................................... 25

Duration of Operations............................................................................................ 25
Contingency & Extreme Event Allowance............................................................... 26
Determining Well Abandonment Phase Costs ......................................... 27
7.1
7.2
7.3
Cost Assumptions .................................................................................................. 27

Equipment Spread Costs ........................................................................................ 27
Operational Support & Ancillary Costs .................................................................... 29
Determining Field Well Abandonment Cost ............................................. 30
8.1
8.2
8.3
Integrating durations, spread rates for a well across phases................................... 30

Campaign and Additional Project Costs .................................................................. 30
Determining Field or Platform Well Abandonment Costs ........................................ 31
9
10
References .................................................................................................. 32
Appendix 1 .................................................................................................. 33
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11
12
13
Appendix 2 .................................................................................................. 35
Appendix 3 .................................................................................................. 36
Appendix 4 .................................................................................................. 39
Issue 2, July 2015
Abbreviations
AFE
ARO
ASV
COP
CT
DCR
DECC
DSV
E&A
HDWIV
HLV
HWU
LWIV
NPT
NORM
O&GUK
P&A
PM
SCP
UKCS
WBS
WDG
WOW
Authorisation for Expenditure

Asset Retirement Obligation
Annulus Safety Valve
Cessation of Production of field
Coil Tubing
The Offshore Installations and Wells (Design & Construction, etc)
Regulations 1996 (SI 1996/913)
Department of Energy and Climate Change
Diving Support Vessel
Exploration & Appraisal Wells
Heavy Duty Well Intervention Vessel
Heavy Lift Vessel, used for topside, jacket removal
Hydraulic Work-over Unit
Light Well Intervention Vessel
Non Productive Time
Naturally Occurring Radioactive Material
Oil and Gas UK
Plug and Abandon Wells
Project Management
Sustained Casing Pressure
United Kingdom Continental Shelf
Work Breakdown Structure
Well Decommissioning Group
Waiting on Weather
Usage of the term decommissioning usually relates to the broader project for the
decommissioning of an installation or facilities that may include wells.
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1.
Introduction
Oil & Gas UK has recognised that decommissioning of facilities and the associated
abandonment of wells in the UKCS is becoming a major part of the industry and
needs coordination in order to provide timely advice to the Government and provide a
consistent voice from the Industry on decommissioning matters.
2.
The Decommissioning Cost Estimating Guidelines first published in 2006, defined

typical work breakdown structures based on the collective experience of the
represented companies. The updates in 2010 and 2013 reflected Guideline usage,
project experience in UK and Norway, and changes in legislation and government
and industry bodies.
3.
The Guidelines on Well Abandonment Cost Estimation were developed by the Well
Decommissioning Group (WDG) to provide specific guidance on generating Well
Abandonment Cost Estimates as a subset of the overall estimates that follow the
Decommissioning Guidelines.
4.
The Guidelines on Well
Abandonment Cost Estimation, first issued in 2011, are
applicable throughout the development life-cycle of wells, for example:
5.
initial field economics,
calculation of the abandonment provision / asset retirement obligation

(ARO), during the field life, as used for annual financial reports,
abandonment security agreements related to Asset transfer to a new owner,
planning the cessation

decommissioning plan,
high-level decommissioning cost estimation for decommissioning projects.
of
production
and the
preparation
of
the
Additionally, a benchmarking service for well abandonment has been developed,

which uses the coding described in these Guidelines.
6.
Well abandonment should comply with the Guidelines for the Abandonment of
Wells, also prepared by WDG and issued by Oil & Gas UK.
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7.
Objective of the Guideline
The principles and practices described in this Guideline provide a common approach
to estimating field-wide well abandonment costs. This Guideline outlines best practice
based on industry experience. Whilst not prescriptive, their application will aid UK
Operators of offshore and onshore oil and gas wells to generate estimates by
providing:
8.
a template or common framework against which Operators can prepare their

well abandonment cost estimates.
a checklist of activities in order that an estimate can be built that is both

consistent and complete.
a methodology which requires that market rates and activity durations are
clearly understood and stated in the cost estimate.
recognition that more detailed estimates will be required as Cessation of

Production (COP) approaches.
assistance in establishing a greater level of confidence in determining

decommissioning costs for asset acquisition or divestment (Security
Agreements, etc.).
a means of both comparing estimates from different sources (third parties

e.g. partners, contractors, etc.) and capturing Operators experience.
a framework for benchmarking.
Cost (non-defined currency) and duration (days) include merely illustrative

comparisons of the relative cost / duration of different types / complexity of methods
of well abandonment and should not be interpreted as benchmark data.
9.
This Guideline does not describe the process for preparation of detailed, fullyengineered estimates to support Authorisation for Expenditure (AFE) preparation for
individual well abandonments, e.g. slot recovery side-tracks or abandonment that are
part of a drilling operation.
10.
This Guideline does not consider costs that may be incurred post COP, e.g. platform
removal or platform running cost.
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11.
Regulatory Requirements
The offshore oil and gas sector is regulated by the Petroleum Act 1998, which allows
the obligation for decommissioning offshore infrastructure to be placed on the owners
and includes protection against default on decommissioning.
12.
Companies have to formally assess their decommissioning liabilities (Asset

Retirement Obligations, ARO) as part of normal accounting process.
The accuracy
of estimating the liability is expected to increase as the decommissioning date

approaches.
13.
Under the Petroleum Act 1998, the Department of Energy & Climate Change (DECC)
requires financial securities in certain situations to ensure decommissioning is carried
out.
14.
15.
Petroleum Act 1998, section 29 (4); an abandonment programme
shall contain an estimate of the cost of the measures proposed in it;
shall either specify the times at or within which the measures proposed in it
are to be taken or make provision as to how those times are to be
determined;
The Petroleum Act 1998 was amended by the Energy Act 2008. This has not
substantially changed the requirements of the original act with respect to
abandonment programmes, however, it has given the Secretary of State further
powers to review financial arrangements and enforce removal activities.
3.1 Design & Construction Regulations

16.
The requirements under Design and Construction Regulation (DCR) 13 are for
Operators to ensure that a well is so ..... suspended and abandoned that: a) so far
as reasonably practicable, there shall be no unplanned escape of fluid from the well.
17.
In addition DCR Regulation 15 requires Operators to ensure that a well is so

designed and constructed that, so far as is reasonably practicable:
a) it can be suspended or abandoned in a safe manner; and
b) after its suspension or abandonment there can be no unplanned escape
from it or the reservoir to which it led.
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3.2 Accounting Standards / Protocols

18.
The likely cost of decommissioning should be in accordance with the accounting

protocols or standards in use, in the country of registration of the Company.
19.
A number of accounting protocols or standards are in use, the most common are;
FAS 143 (US-based), FRS 12 (UK-based) and IAS 37. These are relatively similar,
although policies for the updating of discount rates may differ. The cost estimate
should equal to what a third party will charge to accept the liability for performing the
well abandonments, based on the best estimate for future costs of performing the
decommissioning. Extracts from the accounting standards are contained in Appendix
3.
20.
Future events that may affect the amount required to settle an obligation should be
reflected in the amount of a provision where there is sufficient objective evidence that
they will occur.
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Well abandonment Cost Estimation
4.1 Introduction to the Estimation Process

21.
This Well abandonment guideline provides; guidance on what needs to be considered

when generating estimates for abandonment of wells, a description of the
recommended process and tables which illustrate the information and data used to
prepare estimates.
22.
The estimation process addresses the requirement that the accuracy / certainty of
generated estimates need to be enhanced during the later life of an asset.
23.
The Well abandonment estimation process is not fully integrated with the Guidelines
on Decommissioning Cost Estimation, but can be used to feed into the
comprehensive Work Breakdown Structure (WBS) checklist in the Guidelines on
Decommissioning Cost Estimation.
24.
Appendix 1 provides background to the interface between Well Abandonment

estimates and the broader asset decommissioning estimates and where costs are
allocated for activities that support well abandonment and asset decommissioning.
25.
For an estimate to be regarded as representative of good practice the following

features or assumptions should be included:
Assumptions all assumptions made in building the estimate should be

clearly stated, e.g.:
I.
II.
III.
IV.
V.
VI.
Regulatory assumptions, compliance with appropriate Guidelines. State

the issue of the relevant Regulation.
Number of platform & subsea wells included (and excluded) from the
estimate, e.g. wells expected to have been abandoned during earlier
campaigns.
Execution Methodology equipment and practice assumptions behind the
estimate (e.g. rig or workover vessel selection, lifting and removal
techniques).
Key market rate and escalation assumptions (rig rates, well abandonment
equipment rates, exchange rates).
Key activity duration assumptions (rig days, spread durations) including
allowances for waiting on weather (WOW), non- productive time (NPT),
extreme events.
Campaign strategy, e.g. preparation
mobilisation and demobilisation.
cost,
re-instatement
of
rig,
High Level Method Statement A description of the overall methodology

adopted for the Well Abandonment Project.
Scope of the Estimate The intended coverage of the estimate, i.e. which
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wells are included, which facilities require maintenance / upgrade for well
abandonment activities, (cranes, rig, accommodation, helideck, power and life
support).
Accuracy A statement of accuracy levels represented by the cost estimates

is important for clarity and interpretation purposes, given that accuracy should
increase as COP approaches (see Section 4.3).
Risk Assessment understanding of key risks that could contribute to the

range variation should be clearly identified.
Documentation Cost Estimates evolve over time. It is recommended that

the document, together with its key documents and assumptions are
maintained securely for future update, review, audit feedback into other cost
models and compliance with the appropriate Regulatory Regime (Appendix
3).
Ownership The estimate may need to be split to allow for different equity
ownership of individual wells or wells in each field.
4.2 Reasons for Cost Estimate Preparation

26.
Well abandonment cost estimates are normally prepared to support the preparation
of ARO. It must be recognised that the context for estimate generation may change
over time, ranging between:
Generic liability, during early field life (e.g. -30% to +50%)
In support of asset sale or transfer (e.g. -15% to +30%)
Detailed budget / expenditure, nearing the end of field life (e.g. -5% to +15%)
The most likely cost given by each estimate produced will be expected to be robust.
When detailed project planning commences, 3 5 years prior to Cessation of
Production (COP), the estimate accuracy will be within a smaller range. The level of
detail will also vary based on the contracting strategy.
4.2.1 During Field Operation

27.
An annual check is usually made to update well numbers and status of rig
facilities that may be required for well abandonment activities. If significant changes
are made to the asset a re-estimation may be appropriate.
Other issues that
may trigger a revision are changes to regulatory requirements, integrity status of

wells, industry expectations or significant changes to abandonment technology.
28.
Annual revisions to the estimate due to changes in market rates (e.g. HLV, rig rates)
may be considered unnecessary as rates are subject to cyclical variation. However, in
the last 5 years of field life, it is important that market conditions are more carefully
considered.
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4.2.2 Asset Sale or Transfer

29.
The level of cost estimate expected depends upon when, in the life cycle, the sale or
transfer is taking place and the terms and conditions of the financial transactions.
30.
This Guideline can be used to provide a common understanding and structured

enquiry into the Owners decommissioning estimate and the assumptions made in its
creation.
Use of the checklist and guideline can assist if the current estimate is
deemed not to be at the appropriate level of detail for the asset life, or the last update
is not recent.
4.2.3 End of Well Life or Cessation of Production

31.
In the last 5 years of development life, a much more detailed cost estimate becomes
necessary for budget and planning purposes, based on analysis of the
decommissioning requirements for the specific facility. In particular, the phasing of
the expenditure becomes more significant leading ultimately to a comprehensive cost
estimate (suited to the size of the abandonment project) which properly incorporates
schedule and project phasing, contract strategy, project engineering requirements
and the project approval process.
32.
Typically, discussion of the decommissioning proposals may commence with the

Department of Energy & Climate Change (DECC) 2-3 years in advance of anticipated
Cessation of Production (COP), leading to submission of the Decommissioning
Programme. For this the first planning may have to commence 5 years in advance of
COP.
33.
It should be noted that wells partially abandoned prior to the main COP approval,
would be classified as abandonment spend. However, consideration needs to be
given to determine which costs are eligible, under the accounting standards, to
be charged to the well abandonment.
4.3 Cost Estimate Accuracy in Relation to Abandonment

Proximity
34.
This guideline recognises that the detail and accuracy of estimates will need to be
enhanced as COP approaches.
35.
As the first step in the preparation of an estimate, it is necessary to determine the

appropriate number/proportion of wells within a field or asset that will be included in
the analysis of the prospective decommissioning activity.
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36.
Table 1 provides an overview of the proportion of wells and the expected detail of
analysis that should increase in relation to the decreasing duration before expected
COP. Table 1 also provides an indication of the expectation that the range of an
estimate will reduce with proximity to execution of abandonment.
Increasing level of accuracy required
Table 1: Level of accuracy and review relative to proximity to COP

Proportion of
Wells Required
for Review
Expected
Accuracy
Range
Well-by-well review of sample

to define Concept design
10-25%
-30% to +50%
< 5yrs
Detailed, full, well-by-well

review. Timing of
Abandonment Phases may
need to be considered.
All
-15% to +30%
Imminent
Detailed well by well review of

status, integrity, work units
required + services cost
All
Time To
COP
Approach recommended to
review wells
> 10 years
Field-wide review of
representative wells
5 to 10 yrs
-5% to +15%
For AFE
AFE estimates are out-with the

scope of these guidelines
All
4.3.1 Greater than 10 Years to COP

37.
For wells with a COP more than 10 years away, there is significantly less requirement
to be as accurate as for wells for which abandonment is imminent.
38.
This is because the financial discounting of cost estimates forward to the year of COP
diminishes the effect on the end result of current cost provision figures. Changes to
the well status as a result of workovers or integrity changes, addition of new wells, as
well as market rates are pronounced at a horizon of 10 years and beyond.
39.
It is recommended that a sample of 10-25% randomly selected wells are examined

with the methodology described in Chapter 5.4 and then scaled up by applying the
established distribution of P&A codes to the full wells portfolio.
4.3.2 Between 5 and 10 Years before COP

40.
When COP approaches (5 to 10 years before COP), the clarity of the work scope and
accuracy of the cost estimate should be enhanced by examining sample wells.
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41.
With reference to 5.3.1, it is recommended that the estimates are based on a sample
of 10-25% wells selected to be representative of the well population.
4.3.3 Less Than 5 Years before COP

42.
Well abandonment within 5 years to COP will require effort to define the work- scope
and associated cost further. It is recommended that all wells are examined with the
methodology described in Chapter 5.4.
43.
Experience has shown that an early start of the well assessments and planning (say 5
years before COP), improves the ultimate efficiency of abandonment significantly. This
planning may allow for early Phase 1 and possibly Phase 2 abandonment of shut-in
wells. The period may be required for review of the subsurface status and the wells,
engagement with stakeholders like DECC, possible platform upgrade, contract
awards, preparation of HSE cases, diagnostics. Being ready will reduce the idle time
until final abandonment and will reduce the associated cost. After all, the timing
when the production stops or becomes uneconomic is rarely a business decision
and wells are the first critical path activities during a decommissioning project
4.3.4 Well Abandonment Imminent

44.
When well abandonment becomes imminent, the estimate would reflect a conceptual
design in which the number and place of permanent barriers are indicated and casing
and conductor operations are identified. Cost estimates are part of a project and
have to incorporate full well and site details, contract strategies and spread rates,
eventually culminating into AFE type cost estimates.
45.
For Cost Estimates requiring a high degree of accuracy (e.g. for AFE purposes), the
characteristics of every individual well will have to be assessed.
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4.3.5 Cost Estimate Process Flow

46.
The estimation process flow shown below is the same whether for; field-wide, longterm, high-level, low-accuracy cost estimates, or individual wells assessment for more
accurate operational planning estimates.
1.
Maintain a Wells List that identifies all Wells & Fields and Nominal COP
2.
Carry out Well Review (Table 1) and update Wells List
3.
Assess the adequacy of analysis, acceptability of uncertainty and/or carry

out risk assessment
4.
Classify Location / Phases / Abandonment Complexity of field / wells (Table

2)
5.
Determine P&A Codes & Required Type of Abandonment (Tables 3.1-3.3)
6.
Update Wells List with P&A Codes
7.
Record Benchmarked or Deterministic Operational Durations (Table 4)
8.
Cost build-up, Criteria, inclusions / exclusions / assumptions stated

(Section 8)
9.
Define Work Units and Spreads required (Table 5 & Appendix 2)
10. Determine rig rate / Spread rate (Table 6)

11. Cost from Duration (Table 4) & Rates (Table 6) (Tables 7 & 8 examples)
12. Recognise Additional Costs: one-off campaigns, support, mobilisation,
refurbishment, contingency (Table 9 examples)
13. Determine project cost estimate for wells (Figure 1)
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Phase 1, Type 2
Phase 1, Type 2
Phase 3, Type 1
Phase 2, Type 1
Phase 1, Type 1
Duration
(in P&A Code

Table)
Spread
rate
(in P&A Code

Table)
Cost
Estimate
(in P&A Code

Table)
Number
of wells
(in P&A Code

Table)
Cost
Estimate
Wells for
Field
Figure 1: Schematic of ARO Estimation Process for a Field
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Campaign
one-off
Cost
ARO
Estimate
Wells for
Field
5 Classifying Wells for Abandonment Cost

Estimation
47.
The development of consistent well P&A cost estimates depends on a common

approach to classifying the type of well abandonment, either of wells individually or
within a field, and the assumptions that are applied with respect to the execution of
well abandonment operations.
48.
49.
This guideline proposes classification of wells according to three factors:
Location Of a Well, Platform or Field whether offshore or onshore
Abandonment Complexity the methodology and equipment required
Abandonment Phases reflecting the three phases of an abandonment

operation
For the purpose of generating an ARO for relatively new wells and fields or for assets
where COP is more than 10 years away, it may be appropriate to group all wells at a
location into a single class or coding.
50.
As COP is approached, increased estimate accuracy will be required. More detailed

definition of requirements for decommissioning relating to the status of individual
wells will require the classification of each well in relation to the complexity and
phasing of abandonment activity.
51.
The appropriate sample size of randomly selected wells, or all wells as determined in
the relation to the proximity of abandonment activity in the previous chapter,
should next be examined and classified in relation to the complexity of the
abandonment work. Refer to Section 5.3.
52.
Please note that the categorisation of suspended subsea wells as described in the
current Guidelines for the Suspension & Abandonment of Wells will be reassessed
prior to release of Issue 5 of those guidelines. The classification of wells for
abandonment described in these guidelines provides a more complete classification
of wells than the categories previously applied to suspended subsea wells.
5.1 Use of a P&A Code

53.
P&A coding is suggested as a method to summarise the classification of wells

included in an abandonment estimate. Individual wells or groups of wells can be
classified using the P&A Code to represent the location of the well and the
complexity of the three phases of well abandonment work.
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54.
The P&A Code commences with 2 letters indicating the location of the well(s), followed
by 3 digits representing the complexity of each of the 3 phases of well abandonment.
Classification or coding well abandonments is explained in the following sections.
5.2 Well Abandonment Location

55.
This simply defines the physical location of the well.
PL Platform well
SS Sub-Sea well
LA Land well
5.3 Well Abandonment Phases

56.
The abandonment of any well can be divided into three distinct phases,
reflecting: the work-scope, equipment required, and / or the discrete timing of the
different phases of work
57.
The objective is to generate high-level cost estimates, and therefore the process
does not need to finesse sub-divisions of work, e.g. diagnostic and preparatory
operations. Allowance for such tasks should be included within the most appropriate
Phase.
5.3.1 Phase 1 - Reservoir Abandonment

58.
Primary and secondary permanent barriers set to isolate all reservoir producing or
injecting zones. The tubing may be left in place, partly or fully retrieved. Complete
when the reservoir is fully isolated from the wellbore.
5.3.2 Phase 2 - Intermediate Abandonment

59.
Includes: isolating liners, milling and retrieving casing, and setting barriers to
intermediate hydrocarbon or water-bearing permeable zones and potentially installing
near-surface cement. The tubing may be partly retrieved, if not done in Phase 1.
Complete when no further plugging is required.
5.3.3 Phase 3 - Wellhead and Conductor Removal

60.
Includes; retrieval of wellhead, conductor, shallow cuts of casing string, and cement
filling of craters. Complete when no further operations required on the well.
5.4 Well Abandonment Complexity / Work Type

61.
A digit is chosen (0 to 4) to reflect the complexity of abandonment work for each of

the three phases defined above, according to the following:
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TYPE 0:
No work required A phase or phases of abandonment work may already

have been completed
TYPE 1:
Simple Rig-less Abandonment - Using wireline, pumping, crane, jacks.

Subsea will use Light Well Intervention Vessel and be riser-less
TYPE 2:
Complex Rig-less Abandonment - Using CT, HWU, wireline, pumping,

crane, jacks. Subsea will use Heavy Duty Well Intervention Vessel with
Riser
TYPE 3:
Simple Rig-based Abandonment - requiring retrieval of tubing and

casing
The Operator may decide to include sub classification of subsea rig
based reservoir abandonment to reflect the time and spread
differences relating to through tubing, coil tubing or completion pulling
operations.
TYPE 4:
62.
Complex Rig-based Abandonment May have poor access and poor

cement requiring retrieval of tubing and casing, milling and cement repairs.
Table 2 provides a matrix that can be used to record the abandonment

complexity / methodology for the three phases for a well or wells at a location.
If multiple wells are being considered, the number of wells of each Type of
Abandonment Complexity for each Phase, may be summarised in this matrix
Table 2: Location, Abandonment Complexity Type and Abandonment Phase
Abandonment Complexity
Location
(Single Well, Field or Platform)
(May be Offshore or Onshore)
Phase
63.
Type 0
No work
required
Type 1
Simple
Rig-less
Type 2
Complex
Rig-less
Type 3
Simple
Rig-based
Type 4
Complex
Rig-based
1 Reservoir Abandonment
2 Intermediate Abandonment
3 W ellhead Conductor Removal
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5.4.1 Well Abandonment Classification Example 1

64.
For a Platform well, requiring a simple rig based abandonment across the reservoir
then requiring the tubing to be pulled, shallow barriers placed and the conductor
removed, the P&A Code would be PL 3/3/3
Type 0
No work
required
Phase
Platform Well 17/19-A57
Type 1
Simple
Rig-less
Type 2
Complex
Rig-less
Type 3
Simple
Rig-based
Type 4
Complex
Rig-based

65.
For a Platform well, to be abandoned across the reservoir with CT , then intermediate
P&A using a rig & no conductor to be removed (e.g. removed by HLV), the P&A Code
would be PL 2/3/0
Type 0
No work
required
Phase
Type 1
Simple
Rig-less
Type 2
Complex
Rig-less
Type 3
Simple
Rig-based
Type 4
Complex
Rig-based

Platforms with 30 wells: 5 already suspended at the reservoir, with two fully
abandoned,
but
with
Conductor
&
wellhead
remaining.
Reservoir
and
Intermediate abandonments require a range of methods for different wells.

Conductors & Wellheads will be recovered during platform removal. No Single P&A
Code is applicable, but the matrix summarises the number of wells that will require a
particular method of abandonment for each phase.
Phase
66.
Type 0
No work
required
Type 1
Simple
Rig-less
Type 2
Complex
Rig-less
Type 3
Simple
Rig-based
10
10
10
10
30
Issue 2, July 2015
Type 4
Complex
Rig-based
20
5.5 Determining Well Abandonment Complexity

67.
The characteristics or conditions of a well at the time of abandonment will influence

the complexity of abandonment, the facilities required and method to be used.
68.
Tables 3.1, 3.2 and 3.3, and associated notes, summarise some of the key factors
that will determine the complexity of the abandonment of a well.
69.
The tables indicate the feasibility of each Type of abandonment in relation to a

number of key characteristics of the well.
70.
Tables 3.1, 3.2 and 3.3 relate to the three phases of abandonment respectively.
However, some of the characteristics or conditions of the well may be applicable to
more than one phase of abandonment.
71.
The characteristics in all three tables may also be used to establish the
complexity and equipment requirements when a well(s) is to be fully abandoned in a
single (multi-phase) abandonment programme.
5.5.1 Using Tables 3.1, 3.2 and 3.3

72.
The complexity of abandonment is determined by assessing the characteristics in the

sequence listed in each table. The characteristics are assessed in sequence, and
eventually the feasibility of the Type of abandonment will become established.
73.
In each table more characteristics will need to be assessed in order to confirm that a
lower complexity method of abandonment is feasible.
74.
The feasibility of rig-less abandonment operations, may be affected by a number of

factors. In case of doubt, assume that; Type 3 simple rig abandonment is required.
75.
As an example of assessing Phase 1 abandonment for a platform well, using Table

3.1: Assess Characteristic 1: If the well has Sustained Casing Pressure (SCP) then it
is a Type 4 for that Phase, i.e. P&A code is PL-4-x-x.
76.
If the well has no SCP then continue the assessment of each characteristic in turn
until the required Type of abandonment is confirmed.
77.
The P&A Code for each / all phases can be completed by assessing the
characteristics in Tables 3.2 and 3.3.
Issue 2, July 2015
21
Table 3.1: Criteria for Classifying PHASE 1 Well Abandonment Complexity

x:Not Feasible :Required O:Optional
Note #
1
2
3
4
5
6
7
8
9
10
11
Well Characteristics /
Condition at abandonment
Sustained Casing Pressure due to
hydrocarbons or overpressures
Not cemented casing or liner at
barrier depths (cap rock)
Restricted access to tubing
Deep electrical or hydraulic lines
present at barrier depth
Annulus Safety Valve (ASV)
present
Packer set above cap rock
Site does not allow for CT/HWU
pumping operations
Multiple reservoirs to be isolated
Tubing has leak (e.g. corrosion,
accessories)
Inclination >60 deg above packer
(wireline access)
Well with good integrity, no
limitations
Well Abandonment Complexity

Type 1
Simple
Rig-less
Type 2
Complex
Rig-less
Type 3
Simple
Rig
Type 4
Complex
Rig
Notes:
1. Sustained Casing Pressure SCP related to overpressures or hydrocarbons originating from the
reservoir(s) indicates that the primary casing cementation has failed and requires repair at the reservoir
caprock level.
2. Not cemented casing or liner at the depth of the barrier (cap rock). Also applies to a (not
cemented) scab-liner. The casing will have to be milled or removed to place a competent barrier. Note: The
length between top of potential inflow (e.g. bottom of caprock formation) and top of barrier must be more than
200 ft to place permanent barrier (assumed that good cement is achievable).
3. Restricted Tubing Access tubing may contain a fish, stuck plugs, perhaps be collapsed or parted, hence
obstructing or limited access to the depth of the deepest permanent barrier, typically the production packer.
Access may be restricted due to internal deposits (scale, wax) if not removable or able to provide a
seal in conjunction with cement. The tubing will have to be recovered by a rig.
4. Deep gauge or electrical cables, or hydraulic lines a data or power cable or hydraulic line is not
acceptable to cross a permanent barrier and has to be removed. The tubing is to be recovered possibly
requiring a rig.
5. Annulus Safety Valve (ASV) An Annulus Safety Valve may not allow adequate flow for a
through-tubing circulation and cementation, thus will require the tubing to be removed, possibly requiring a
rig.
6. Packer set above cap rock if the deepest barrier is to be placed below the production packer, this will
have to be milled unless coiled tubing access is possible.
7. Poor access of CT/HW U to site offshore platform may not be capable of accommodating
equipment, crew or crane and a support vessel is required.
8. Multiple reservoirs to be isolated. This can often be achieved will coiled tubing. If not a rig is required to
remove the completion and packers as a TYPE 4 operation.
Issue 2, July 2015
22
9. Leaking tubing if the tubing is leaking, it cannot be used as a conduit for pumping cement. This will have
to be recovered unless coiled tubing access is possible.
10. High inclination (no wireline access) due to inclination above 60 deg, wireline access may not be
possible for setting wireline plugs and punching casing.
11. Well with good integrity no limitations for through-tubing rig-less abandonment.

Note #
1
2
3
4
5
6
7
8
9
10
Sustained Casing Pressure due to
hydrocarbons or overpressures
Restricted access to casing
Not isolated fresh water aquifers /
zones
Not cemented casing or liner at
barrier depths (cap rock)
Not isolated Shallow gas
Site does not allow for CT/HWU
pumping operations
Poor primary casing cementation
No tubing in well
Inclination >60 deg above barrier
depth (wireline access)
Well with good integrity, no
limitations, tubing in place

Type 1
Simple
Rig-less
Type 2
Complex
Rig-less
Type 3
Simple
Rig
Type 4
Complex
Rig
X
X
O
O
Notes:
1. Sustained Casing Pressure SCP on any of the casing annuli related to overpressures or
hydrocarbon zones shallower than the reservoir, indicates that primary casing cementations have failed and
require repair for final abandonment.
2. Casing access restricted casing may have collapsed or parted, obstructing access to the production
packer, where the deepest barrier is anticipated.
3. Fresh water zones Fresh water zones will require protection if poorly isolated.
4. Not cemented casing or liner at the depth of the barrier (cap rock). Also applies to a (not cemented) scabliner. The casing will have to be milled or removed to place a competent barrier. Note: The length between
top of potential inflow (bottom of caprock formation) and top of barrier must be more than 200 ft to place
permanent barrier (assumed that good cement is achievable).
5. Shallow gas not isolated Un-cemented (low saturation) gas zone will cause leaks to surface when
casing is cut and removed. This can be related to Sustained Casing Pressure. Such zones require isolation
after the tubing has been removed by a rig. Requires casing removal or milling.
6. Poor access of CT/HW U to site offshore platform may not be capable of accommodating equipment,
crew or crane and a support vessel is required.
7. If primary casing is poorly cemented, then a rig may need to remove long sections of casing.
8. No tubing in well if the tubing has been removed under Phase 1, a work string is required to place a
permanent barrier. This can be provided by CT, HW U, or rig.
9. High inclination (no wireline access) due to inclination above 60 deg, wireline access may not be
possible for setting wireline plugs and punching casing.
Issue 2, July 2015
23
10. Well with good integrity no limitations for through-tubing rig-less abandonment. Only a surface barrier
is required that can be placed through the tubing.

Note #
1
2
3
4
Poor integrity of conductor
Platform unable to suspend
conductor load during raising
Water depth beyond limitation for
cutting by LWIV (Subsea well)
Conductor cutting/retrieval rig-less

Type 1
Simple
Rig-less
Type 2
Complex
Rig-less
Type 3
Simple
Rig
Type 4
Complex
Rig
Notes:
1.
Poor integrity of conductor An involved programme will be required in case a conductor has poor
integrity (corrosion, weak connectors) or a shallow restriction or damage.
2.
Platform unable to suspend conductor load during retrieval The platform may not be strong
enough to suspend the heavy conductor load, which may include cemented inner casing.
3.
Water depth beyond limitation for cutting conductor by LW IV The cutting equipment typically
used by a Light W ell Intervention Vessel (LW IV) may have water depth limitations, beyond which a
rig is required.
4.
Conductor: Site can accommodate ri g -less cutting and retrieval spread or retrieval planned with
heavy lift vessel. Site can support loads of raising a multi-string conductor from the seabed,
accommodate jacking spread, crane and crew. Annuli are free of polluting fluids. No need to install
environmental plug.
The Operator will need to decide from a budget-holding s t a n d p oi nt whether to include or
exclude conductor retrieval in Phase 3, in the event that the conductors are to be retrieved by
Heavy Lift Vessel.
Issue 2, July 2015
24
6
78.
Well abandonment Duration Estimation
Having assigned P&A codes to wells base on location and complexity, it is then
necessary
to
determine
the
likely
duration
of
each
Phase
of
the
well
abandonment activity.
79.
Generally this is done by benchmarking against similar operations, or by deterministic

modelling of the phase. Either method is acceptable, but assumptions made in the
process must be stated.
6.1 Benchmarking of Durations

80.
To determine the likely duration of each well Type and Phase listed above it is
anticipated the Operator will use some form of benchmarking using internal and
external data sources. Benchmarking from a suitable data set will allow Operators to
determine typical times for proposed operations and estimates of Non-Productive Time
(NPT) and Waiting on Weather (WOW). Correct benchmarking will also establish the
degree of skew within the dataset and determine key factors such as P10, P50, P90
and Mean within the distribution. These factors can then be used in probabilistic
modelling of the sequence of Phases or Wells to determine the most likely outcome to
a project.
81.
Alternatively, Operators may wish to use a deterministic value for each Type and
Phase, and also include estimated allowances for NPT or WOW, based on
benchmarks.
6.2 Duration of Operations

82.
To establish well P&A durations, the process is anticipated to include the

following steps:
Define scope and assumptions for each phase and Type, as captured in the
P&A code.
Determining phase durations either by benchmarking using internal and

external data sources or using deterministic modelling.
Determining NPT and WOW, either by benchmarking or using deterministic

modelling.
Establish degree of skew and determine P10, P50, P90 and Mean. (if
applicable)
Issue 2, July 2015
25
83.
Table 4 provides illustrative durations for different phases and complexities of

abandonment.
84.
Table 4: Illustrative Durations for Different Well Abandonment Complexities & Phases
Type 0
No work
required
Type 1
Simple
Rig-less
Type 2
Complex
Rig-less
Type 3
Simple
Rig-based
Type 4
Complex
Rig-based
10
Phase
Platform Well (Days)
6.3 Contingency & Extreme Event Allowance

85.
With deterministic estimates it is not possible to determine a range of possible

outcomes.
86.
Inclusion of contingency in estimates may require risk assessment to establish the

potential impact of the uncertainties of information, the absence of detailed
engineering and planning, etc.
87.
An allowance for contingency reflecting real life performance should also be

considered. For example, an assumption on extreme event frequency could be made,
e.g. one in ten phases will take twice the expected duration. Such assumptions must
be stated.
88.
The term extreme event is being used in this context for wells or well phases that
take considerably longer than would normally be expected; possibly due to well
condition, unusual weather etc. These would be beyond a P90 estimate.
89.
If a sufficient dataset is available and it is possible to use a probabilistic analysis, then

consideration of an extreme event is less important provided there is a sufficient range
of possible outcomes in the dataset. However, the possibility of an extreme event
should not be ignored.
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26
Determining Well Abandonment Phase Costs
7.1 Cost Assumptions

90.
Well abandonment cost of a phase is modelled as time related cost: the cost
estimate should be determined by multiplying expected duration of a phase and the
applicable spread-rate.
91.
The equipment spread for each phase should firstly be determined. Table 5 outlines
example equipment spreads for different locations, complexities and phases. Once
the equipment spread is defined a spread cost should be calculated as follows.
7.2 Equipment Spread Costs

92.
Equipment spread costs can be calculated by either a top-down analysis of actual

abandonment data or a bottoms-up analysis of individual services costs.
93.
In the top-down case the spread rates are determined by benchmarking with similar
operations and equipment spreads that have been used.
94.
In the bottom-up case the spread rate is determined from the assumed utilisation and
cost/day of the required equipment and services to be used. Potential synergies in
service provision may be considered.
95.
The assumptions made in determining spread costs must be stated, for example if
current or expected rig rates have been used etc. Assumptions for future rig rates are
a key input to the final estimate; hence these need investigation and documentation;
todays rig rates are considered a good starting point. It must be kept in mind that
price escalation factors may be applied to the decommissioning estimate in order to
arrive at the final ARO value.
Issue 2, July 2015
27
Table 5: Work unit & Equipment Spreads for different locations, complexity
Location
Onshore
Platform with
support vessel
Platform with
modular rig
Platform with
fixed rig
Type 1
Simple
Rig-less
Pump spread
Type 2
Complex Rig-less
Type 3
Simple Rig
Type 4
Complex Rig
CT, HWU
Rig / hoist
Rig / hoist
Pump spread
CT spread
Pump spread
CT spread
Modular Rig
Modular Rig
spread
spread
Pump spread
CT spread
Platform Rig
Platform Rig
spread
spread
Platform with
Pump spread +
jack-up
Accom. spread
LWIV
Subsea
Spread
CT spread
LWIV spread
Subsea
Deep water
Jack-up
spread
Jack-up spread
Semi spread
Semi spread
Semi/drillship
Semi/drillship
spread
spread
Legend
Pump
Electric and slick line, pumping services, cementing spread.
spread
CT /HWU
Coiled tubing (CT) or Hydraulic Work-over Unit (HWU), electric and slick line,
spread
pumping services, cementing spread. Tubing and casing cutting and recovery
services.
Rig
Functional drilling rig, electric and slick line, cementing and pumping services,
spread
tubing and casing cutting and recovery.
LWIV
Light Well Intervention Vessel, equipped with all services necessary to
spread
perform that phase of work. This may include diving services.
Semi
Functional semi-submersible rig suitable for the location, electric and slick
spread
line, cementing and pumping services, tubing and casing cutting and recovery
services.
96.
Note: The scope of Coil Tubing work can range from a standalone operation, to
deployment through the derrick for both simple and complex well abandonment.
Assumptions relating to the potential deployment of CT in Type 2, 3 and 4
abandonments must be clearly stated, as this may add to the Type 3 and 4 spread
costs.
Issue 2, July 2015
28
Table 6 Illustrative Example Spread Costs for Different Complexity/Types

Site/Installation type
(nominal currency per day)
Type 1
Simple Rigless
5,000
Type 2
Complex
Rig-less
10,000
Platform with support vessel
20,000
25,000
Platform modular rig
25,000
Platform fixed rig
25,000
Onshore
Platform jack-up
Type 3
Simple Rig
Type 4
Complex Rig
35,000
35,000
35,000
55,000
55,000
35,000
55,000
55,000
70,000
90,000
110,000
110,000
140,000
170,000
220,000
220,000
Subsea Deep water

300,000
300,000
The numbers used in this table are illustrative
300,000
300,000
Subsea
7.3 Operational Support & Ancillary Costs

97.
In determining spread costs, consideration should be made for the following logistic
support
(boats,
helicopters,
storage
space
rental,
dock
operations,
etc),
accommodation, operational overheads, onshore support, preparation work, DSV

support to provide access to older sub-sea wells.
98.
Ancillary charges e.g. the transport, disposal and decontamination of waste fluids,
tubing, and other equipment may be significant and should be stated.
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29
Determining Field Well Abandonment Cost
8.1 Integrating durations, spread rates for a well across

phases
99.
Having classified a well by its Location, Phases, Complexity and Phase Spread Costs
it is then a simple matter to integrate these factors to determine a likely duration and
cost for the abandonment of the well. For example an abandonment consisting of
Phase 1 Type 2 and Phase 2 Type 3 would cost 5 x 35,000 + 5 x 55,000 = 450,000
(nominal currency units).
Table 7 - Example of Estimated Duration per Phase
Type 1
Simple
Rig-less
3
Type 2
Complex
Rig-less
5
Type 3
Simple
Rig
3
Type 4
Complex
Rig
7
10
3 Wellhead Conductor Removal
Platform Well (Days)

Phase
Table 8 - Example of Estimated Spread cost per Phase

Site/Installation type (nominal
currency per day)
Platform fixed rig
Type 1
Simple
Rigless
25,000
Type 2
Complex
Rigless
35,000
Type 3
Simple Rig
Type 4
Complex Rig
55,000
55,000
8.2 Campaign and Additional Project Costs

100.
Developing a well abandonment cost estimate for ARO or similar purposes needs to
recognise the other costs that will be incurred in the project and campaign(s).
101.
Table 9 provides guidance on the issues to be considered; it is not exhaustive and

the range of issues will depend on individual project circumstances.
Issue 2, July 2015
30
Table 9 - Project / Campaign Factors for Consideration

Issues
Management overhead
and engineering
Well Inspection /
Surveys
Location surveys
Site preparation
Platform Rig Upgrade
Riser and subsea well
tools
Mobilisation &
Demobilisation of rig
and rig equipment.
Mobilisation &
Demobilisation
Transport to shore /
Logistics
NORM Scale treatment
and decontamination.
Post removal survey
and trawl
Discussion
Most abandonment project ARO will include a management overhead. This is
specifically intended to capture the engineering specifically associated with
well abandonment i.e. well file review and categorisation, conceptual design,
detail programme development, contracting and procurement, HSE
documentation, etc.
Well diagnostics would include well surveillance, surveys and inspections of
the wells prior to detail operational planning to determine well condition and
ability to access.
For a jack-up rig adjacent to a platform this would include the seabed survey.
For a semi-submersible this would include seabed and anchor pattern
surveys.
For subsea wells this will include fishing net and protective structure removal.
This would include rig upgrade cost, recertification etc.
Final removal of a platform rig is carried in the facilities removal budget.
Inspection/refurbishment of subsea tools and connectors. Preparation of
risers may be required.
The installation of a temporary modular platform rig. It would also include
removal of a temporary modular rig.
For a semisubmersible this would include the cost of bringing and removing
the rig from site.
This is the general cost of mobilising rig or rig-less equipment to well site for
the abandonment operations.
These include helicopters, vessels and supply base support.
These may well have been included in the development of spread costs for
the various phases. If not then they should be identified separately.
It is possible that tubulars recovered from a well will be contaminated. The
cost of dealing with this should be addressed.
This specifically applies to subsea wells. It is usual to carry out this survey,
post abandonment.
8.3 Determining Field or Platform Well Abandonment Costs

102.
The process to determine the well abandonment cost estimate for a field or platform
is to determine the Complexity, Phases and spread costs per phase for each well, as
described in 9.1, and making a summation for all wells in the field. The final step for
generating the estimate for each field or platform is to add a one-off additional cost
associated with the campaign(s) for the field, as described in 9.2.
103.
The process is illustrated in Figure 1. Appendix 4 provides a worked example.
104.
As indicated in chapter 5.1, the entire process and detailed assumptions need to be
documented for audit and future reference.
Issue 2, July 2015
31
References
1. Guidelines for the Suspension and Abandonment of wells, Oil & Gas UK, Well
Abandonment Group
2. Decommissioning Cost Estimating Guidelines, Oil and Gas UK,
Decommissioning Workgroup
3. Financial Accounting Standards No. 143: Accounting for Asset
Retirement
Obligations
(June
2001,
based
in
US).
http://www.fasb.org/pdf/fas143.pdf
4. International Accounting Standards, IAS 37 - Provisions, contingent liabilities and
contingent assets [2005] http://www.iasplus.com/standard/ias37.htm
Issue 2, July 2015
32
10 Appendix 1
O&GUK Decommissioning Estimating
Guideline Interface
With respect to interfacing with the Guidelines on Decommissioning Cost Estimation
WBS, it is important to ensure what is included in the wells estimates and which
items are not. This should be documented as part of the estimate. Below is a list of
items that should be considered. The Table below provides an overview with cost
elements as typically assigned.
1. Platform operational cost, i.e. to keep the platform running and maintained
during the well abandonment operations. Such costs are typically not assigned
to wells, but to Production (pre-COP) or Facilities (post-COP).
2. Well Engineering includes Contractor Project Management, review of well files,
review of well categorisation (both platform and sub-sea wells). Typically
assigned to Wells as a once-off campaign cost.
3. Rig upgrade cost, for re-instating a rig that is out of service and certification.
These would normally be covered as a one-off cost for abandonment.
4. Site surveys, facilities upgrades and preparation for jack-ups and modular rigs.
These costs are typically not assigned to wells.
5. Cost for a crane upgrade for a crane that requires significant maintenance prior
to well abandonment. These are typically assigned to Facilities. These costs are
typically not assigned to wells.
6. Installation of temporary facilities such as crane or accommodation modules.
These costs are typically not assigned to wells.
7. Inclusion of Mobilisation and Demobilisation charges for rigs, spreads and
equipment. These include contract start-up, modifications, risers, moves,
shipment, commissioning, back-loading, etc. These cost are typically assigned
to wells.
8. Logistics cost for supply boats, dock, storage, helicopters etc are typically prorated.
Issue 2, July 2015
33
9. Removal, Decontamination & Disposal of recovered tubulars, wellheads, etc.

Waste disposal, including NORM. These costs are typically assigned to wells.
Any cost related to drill cuttings piles is typically not assigned to wells but to
facilities.
10. Conductor removal costs are typically assigned to wells cost estimate. On
certain platforms the conductor may be retrieved by a Heavy Lift Vessel. This
cost would typically go to the Guidelines on Decommissioning Cost Estimation
WBS. The cost for cutting the conductor is to be defined as per the individual
work scope.
11. Accommodation and catering charges for the well abandonment crew. These
costs are typically assigned to wells.
12. Cost associated with simultaneous operations, i.e. both well abandonment and
production OR well abandonment and facility decommissioning activities. These
costs are typically not assigned to well abandonment costs.
13. Early well abandonment diagnostics activities using wire line, wellhead checks,
pressure testing, corrosion assessment, etc. These costs are typically assigned
to wells.
14. Subsea diving support for wells. These costs are typically assigned to wells.
15. Site Preparation for subsea wells includes: seabed and other surveys, net
removal, leak check, tree preparation and protective structure check. These
costs are typically assigned to wells.
16. Typically, one mob/demob estimate is used, where a workover vessel or rig is
necessary for decommissioning, wells are generally treated, plugged and
abandoned and, where relevant, conductor removed in one operation.
17. Work on wells during the Preparation stage (Rig or Rigless) should be included
in the wells estimate.
18. Post-removal debris survey & trawling verification/certification. These costs are
typically not assigned to wells.
Issue 2, July 2015
34
11 Appendix 2
Generic Well Abandonment Services
The list below provides generic services for consideration when determining a
bottoms-up estimate of a spread rate. This is not specific to phases, locations, rig
or rigless, but intended as checklist for completeness.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
EQUIPMENT and SERVICES

to be considered for spread rate estimate
Office staff management, support, consultancy
On-board supervision
Rig equipment + crew
Coiled tubing unit + crew
Hydraulic Workover Unit + crew
Accommodation and Catering
Crane operation
Electrical generators
Scaffolding service
BOP rentals
Riser rentals
Slick line service + crew
Electric line service + crew
Perforations, punches, tubing cutting + expert
Logging cement tops and bond, corrosion
Pumping, cementing services (tanks, pumps, blenders + crew)
Cement and additives
Packers, bridge plugs
Wellhead and X-tree removal services
Temporary pipe work, valves (chicksans, etc)
Casing cutting, retrieval
Casing milling services
Tubular handling services
Fluids and chemicals + services
Fluid waste storage tanks, transport, disposal
Equipment disposal
NORM disposal
HSE equipment (H2S, Norm, survival, etc)
Supply vessels, dock and storage fees, road transport
Move vessels, positioning
Helicopter transport
Diving support
ROV services
Conductors cutting + crew
Conductor retrieval (sectioning, raising, handling, cleaning, transport) +
crew
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12 Appendix 3
Accounting Regulations for Asset Retirement Obligations
Financial Accounting Standards No. 143:
Accounting for Asset Retirement
Obligations (June 2001, based in US).

http://www.fasb.org/pdf/fas143.pdf
FAS 143 paragraph 7
The fair value of a liability for an asset retirement obligation is the amount at which
that liability could be settled in a current transaction between willing parties, that is,
other than in a forced or liquidation transaction. Quoted market prices in active
markets are the best evidence of fair value and shall be used as the basis for the
measurement, if available. If quoted market prices are not available, the estimate
of fair value shall be based on the best information available in the circumstances,
including prices for similar liabilities and the results of present value (or other
valuation) techniques.
FAS 143 paragraph A20
In estimating the fair value of a liability for an asset retirement obligation using an
expected present value technique, an entity shall begin by estimating cash flows
that reflect, to the extent possible, a marketplace assessment of the cost and
timing of performing the required retirement activities. The measurement objective
is to determine the amount a third party would demand to assume the obligation.
Considerations
in
estimating
those
cash flows
include
developing
and
incorporating explicit assumptions, to the extent possible, about all of the following:
a. The costs that a third party would incur in performing the tasks necessary to
retire the asset
b. Other amounts that a third party would include in determining the price of
settlement, including, for example, inflation, overhead, equipment charges, profit
margin, and advances in technology
c. The extent to which the amount of a third partys costs or the timing of its costs
would vary under different future scenarios and the relative probabilities of those
scenarios
d. The price that a third party would demand and could expect to receive for
bearing the uncertainties and unforeseeable circumstances inherent in the
obligation, sometimes referred to as a market-risk premium.
Issue 2, July 2015
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It is expected that uncertainties about the amount and timing of future cash flows
can be accommodated by using the expected cash flow technique and therefore
will not prevent the determination of a reasonable estimate of fair value.
FAS 143 paragraph A21
An entity shall discount estimates of future cash flows using an interest rate that
equates to a risk-free interest rate adjusted for the effect of its credit standing (a
credit-adjusted risk-free rate). The risk-free interest rate is the interest rate on
monetary assets that are essentially risk free and that have maturity dates that
coincide with the expected timing of the estimated cash flows required to satisfy
the asset retirement obligation. Concepts Statement 7 illustrates an adjustment to
the risk-free interest rate to reflect the credit standing of the entity, but
acknowledges that adjustments for default risk can be reflected in either the
discount rate or the estimated cash flows. The Board believes that in most
situations, an entity will know the adjustment required to the risk-free interest rate
to reflect its credit standing. Consequently, it would be easier and less complex to
reflect that adjustment in the discount rate. In addition, because of the
requirements in paragraph 15 relating to upward and downward adjustments in
cash flow estimates, it is essential to the operationality of this Statement that the
credit standing of the entity be reflected in the interest rate. For those reasons, the
Board chose to require that the risk-free rate be adjusted for the credit standing of
the entity to determine the discount rate.
International Accounting Standards, IAS 37 - Provisions, contingent
liabilities and contingent assets [2005]
http://www.iasplus.com/standard/ias37.htm
The amount recognised as a provision should be the best estimate of the
expenditure required to settle the present obligation at the balance sheet date, that
is, the amount that an entity would rationally pay to settle the obligation at the
balance sheet date or to transfer it to a third party.
http://www.iasplus.com/interps/ifric001.htm
IAS 37 requires the amount recognised as a provision to be the best estimate of
the expenditure required to settle the obligation at the balance sheet date. This is
measured at its present value, which IFRIC 1 confirms should be measured using
a current market-based discount rate.
http://www.iasplus.com/pressrel/2003pr07.pdf
Issue 2, July 2015
37
In the spirit of convergence, the IFRIC considered the US GAAP approach in

Statement of Financial Accounting Standards No. 143 Accounting for Asset
Retirement Obligations and, in particular, that changes in estimated cash flows are
capitalised as part of the cost of the asset and depreciated prospectively, and the
decommissioning obligation is not required to be revised to reflect the effect of a
change in the current market-assessed discount rate. The IFRIC did not choose
this approach because IAS 37, unlike SFAS 143, requires a decommissioning
obligation to reflect the effect of a change in the current market-assessed discount
rate. The IFRIC agreed that it was important that any Interpretation it developed
should deal consistently with changes in estimated cash flows and changes in the
discount rate.
Issue 2, July 2015
38
13 Appendix 4
Worked Example of Well Abandonment Estimate for Platform with 30 Wells
Phase 1, Type 2
Phase 1, Type 2
Phase 3, Type 1
Phase 2, Type 1
Phase 1, Type 1
Duration
(in P&A Code

Table)
Issue 2, July 2015
Spread
rate
(in P&A Code

Table)
Cost
Estimate
(in P&A Code

Table)
Number
of wells
(in P&A Code

Table)
Cost
Estimate
Wells for
Field
39
Campaign
one-off
Cost
ARO
Estimate
Wells for
Field
Number of Wells of Each Type of Abandonment for Each Phase:
Phase
Number of Wells of each

Type and Phase
TYPE 4
Complex
Rigbased
TYPE 1 TYPE 2 TYPE 3
Simple Complex Simple
RigRig-less
Rigless
based
10
10
5
10
TYPE 0
No work
required
Intermediate
2
Abandonment
Wellhead
Conductor
3
Removal
10
30
Duration - Number of Days required for each Well for each Type and Phase:
Phase
Number of Days for each

Well, Type and Phase
TYPE 4
Complex
Rigbased
TYPE 1 TYPE 2 TYPE 3
Simple Complex Simple
RigRig-less
Rigless
based
3
5
3
10
TYPE 0
No work
required
Intermediate
2
Abandonment
Wellhead
Conductor
3
Removal
Spread Rate for each Type:

Spread Rate for each Type
(nominal currency per day)
Platform fixed rig
TYPE 1
Simple
Rig-less
25,000
TYPE 2
Complex
Rig-less
35,000
TYPE 3
Simple Rig
55,000
TYPE 4
Complex
Rig
55,000
Cost Estimate for All Wells by Type & Phase:

Cost Estimate for All Wells
by Type & Phase
TYPE 0
No work
required
Phase
Intermediate
2
Abandonment
3
Wellhead
Removal
0
Conductor
TYPE 1
TYPE 2
TYPE 3
Simple
Complex
Simple
Rig-less
Rig-less
Rigbased
10x3x
10x5x
5x3x
25000=
35000=
55000=
750000
1750000
825000
10x6x
10x5x
35000=
55000=
2100000 2750000
TYPE 4
Complex
Rigbased
8x10x
55000=
4400000
Estimate for Campaign cost (as per Table 9) = 2,000,000

Cost Estimate Wells for Platform
Issue 2, July 2015
= 14,575,000
40
Prepared by the following Oil and Gas UK Workgroup members:

Issue 1 April 2011
Issue 2 - 2015
Bill Inglis (BP)
Martin Mosley (Talisman)
Garry Skelly (CNRI)
Sandy Fettes (Fairfield)
Jules Schoenmakers (Shell)
Taiwo Olaoya (Oil & Gas UK)
Martin Mosley (Talisman)
Tom Gillibrand (BP)
Max Baumert (ExxonMobil)

Phil Chandler (Interact)
Steve Brealey (Hess)
Steve Kirby (Sasok)
Issue 2, July 2015
41

HS096 OP106 Guidelines On Well Abandonment Cost Estimation Issue 2 July 2015

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HS096 OP106 Guidelines On Well Abandonment Cost Estimation Issue 2 July 2015

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Guidelines on Well Abandonment Cost Estimation

Guidelines on Well Abandonment Cost Estimation

ISBN: 1 903 004 51 9

Exchange 2, 2 Floor, 62 Market Street, Aberdeen, AB11 5PJ

Issue 2, July 2015

Guidelines on Well Abandonment Cost Estimation

Design & Construction Regulations .......................................................................... 8

Well abandonment Cost Estimation ......................................................... 10

Introduction to the Estimation Process .................................................................... 10

Classifying Wells for Abandonment Cost Estimation ............................. 17

Use of a P&A Code................................................................................................. 17

Well abandonment Duration Estimation ................................................... 25

Benchmarking of Durations .................................................................................... 25

Determining Well Abandonment Phase Costs ......................................... 27

Cost Assumptions .................................................................................................. 27

Determining Field Well Abandonment Cost ............................................. 30

Integrating durations, spread rates for a well across phases................................... 30

Issue 2, July 2015

Guidelines on Well Abandonment Cost Estimation

Issue 2, July 2015

Guidelines on Well Abandonment Cost Estimation

Authorisation for Expenditure

Issue 2, July 2015

Guidelines on Well Abandonment Cost Estimation

The Decommissioning Cost Estimating Guidelines first published in 2006, defined

The Guidelines on Well

Abandonment Cost Estimation, first issued in 2011, are

applicable throughout the development life-cycle of wells, for example:

initial field economics,

calculation of the abandonment provision / asset retirement obligation

planning the cessation

high-level decommissioning cost estimation for decommissioning projects.

Additionally, a benchmarking service for well abandonment has been developed,

Issue 2, July 2015

Guidelines on Well Abandonment Cost Estimation

Objective of the Guideline

a template or common framework against which Operators can prepare their

a checklist of activities in order that an estimate can be built that is both

recognition that more detailed estimates will be required as Cessation of

assistance in establishing a greater level of confidence in determining

a means of both comparing estimates from different sources (third parties

a framework for benchmarking.

Cost (non-defined currency) and duration (days) include merely illustrative

Issue 2, July 2015

Guidelines on Well Abandonment Cost Estimation

Companies have to formally assess their decommissioning liabilities (Asset

of estimating the liability is expected to increase as the decommissioning date

Petroleum Act 1998, section 29 (4); an abandonment programme

shall contain an estimate of the cost of the measures proposed in it;

3.1 Design & Construction Regulations

In addition DCR Regulation 15 requires Operators to ensure that a well is so

Issue 2, July 2015

Guidelines on Well Abandonment Cost Estimation

3.2 Accounting Standards / Protocols

The likely cost of decommissioning should be in accordance with the accounting

Issue 2, July 2015

Guidelines on Well Abandonment Cost Estimation

Well abandonment Cost Estimation

4.1 Introduction to the Estimation Process

This Well abandonment guideline provides; guidance on what needs to be considered

Appendix 1 provides background to the interface between Well Abandonment

For an estimate to be regarded as representative of good practice the following

Assumptions all assumptions made in building the estimate should be