With approaching deadlines for net zero targets, energy companies are transitioning into new areas in order to continue supply of commodities to the market. In this light, decommissioning is becoming increasingly important. However, to overcome the execution barriers, lowering the cost for wells that need to be plugged and abandoned calls the shots for the investment decision.
Despite our industry’s innovation in new technologies and experience gathered over many years, the budgeting workflows and communication within a project team seem to have stagnated. Reflecting the daily conversations we have with drillers, we see there is a wide gap in how teams approach their uncertainty assessment and tracking of cost and time.
Can lump sum cost modelling for decommissioning lead to Operator’s and contractor’s mutual benefits?
Lump sum drilling model has risen as one of the initiatives for improving cost efficiencies. This commercial model has proven very successful and equally unsuccessful for contractors whose time and cost planning didn’t quite work. The challenges of lump sum engagement involve poor budget planning due to lack of well data and incomplete overview of all potential risks.
As time is critical with thousands of wells queued to be P&A’d, the most reasonable approach seems to be to abandon wells in batches with multi-well campaigns outsourced to decommissioning specialist houses.
What benefits does lump sum bring to decommissioning?
The benefits of the lump sum commercial model include cost guarantee and transparency for the Operator. The Operator frees resources to engage with exploration and production of new, higher value resources and reserves.
The contractor, on the other hand, improves accuracy in drawing a more realistic model of the end result of the decommissioning campaign, taking into account potential risks and unexpected events. Learning from previous experiences and having a complete overview of operational trends, time and cost allows the Contractor to improve its skills to execute projects within a set commercial framework.
Probabilistic lump-sum calculation provides security
Probabilistic planning methodology considers all possible project outcomes and risks that can arise during decommissioning campaigns. Using a Monte Carlo simulation approach helps the engineering teams to identify why a well may be more or less expensive than planned. Hence, well cost planning is done more accurately and there is greater possibility of the project being sanctioned and reduced potential for budget overruns.
Some of the globe’s largest energy and energy services companies enjoy significant improvements in their uncertainty assessment with cost planning through implementation of AGR Software’s iQx P1 probabilistic planning tool. Their teams achieve greater transparency of operational data, improved information input for investment decisions and enhanced understanding of correlation between costs and risks.
P1 outputs provide a realistic range of well time and cost ranging from the minimum (P1), through the most likely (P_Mean) to the maximum (P99). In this context, P1 means that only 1 % of the realizations came out lower than this value and P99 means only 1 % came out higher.
With one decommissioning project and budget set on the Mean Percentile (the most likely), the outcome of the operation’s cost would most probably be faster and cheaper in most cases (approximately 60-70 %) of the time assuming the risk exposure is low. In other words, approx 30% of the time, the decommissioning project would exceed the sanctioned budget. With data library of previous wells, the teams can set up cost models which improve as the operations develop and as a result, the average cost model success rate improves. The overall cost level of a batch of wells decommissioned fits within the sanctioned budget.