Handling Decommissioning and Restoration Liabilities within PRMS and their Impact on Reported Reserves of Producing Fields Approaching Abandonment

Harrison, B. and Falcone, G. (2017) Handling Decommissioning and Restoration Liabilities within PRMS and their Impact on Reported Reserves of Producing Fields Approaching Abandonment. In: SPE Latin America and Caribbean Petroleum Engineering Conference, Buenos Aires, Argentina, 17-19 May 2017, (doi: 10.2118/185497-MS)

Full text not currently available from Enlighten.

Abstract

It is estimated that nearly 150 fields may cease production by 2020 on the United Kingdom Continental Shelf (UKCS), requiring tens of billions of dollars to be spent on decommissioning and restoration (D&R) to remove platforms and development wells. Unfortunately, SPE's Petroleum Resource Management System (PRMS) offers limited guidance on how to handle D&R liabilities, even though such costs impact on whether late-life producible hydrocarbon volumes from a mature field can be classified as reserves. The economic limit test (ELT), which ignores any costs related to abandonment, is described in the PRMS as the date when net operating cash flow (NOCF) becomes negative, and it defines the reserves to the end of commercial producing life. However, with the agreement of government regulators, some North Sea field operations continue at negative NOCF to defer abandonment expenditure (Abex) and to maximize recovery. Therefore, a discontinuity can occur when subsequently calculating the point forward net present value (NPV) of the developed project, which must include D&R costs, and which leads to the developed project's NPV becoming negative, even though there is a positive ELT to some future date. Recoverable hydrocarbon volumes must be commercial to be classified as reserves, so we have an increasingly common state of affairs where mature fields in the North Sea continue to produce, but should perhaps be reclassified as contingent resources. Operators will find it far more difficult to get loans from banks or attract investor funding if their reserve base is eroded. The PRMS has an implicit, but unstated assumption that the operators of developed projects have arranged financing for D&R liabilities, yet some operators of mature producing fields, who are stil negotiating such cover, argue that the tail-end produced volumes can be booked as reserves in accordance with the vague guidance in the PRMS. The paper discusses this discontinuity between ELT and point forward NPV, as well as issues around abandonment in the region, methods to finance D&R and safeguard against default, differing views of how D& R costs should be handled within PRMS, and their impact on project classification. The definition of D&R within PRMS is critically reviewed, with formal responses solicited from the SPE Oil & Gas Reserves Committee (OGRC). Finally, the paper suggests changes to the PRMS are needed to make it more suitable for characterizing mature assets that are approaching abandonment.

Item Type:Conference Proceedings
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Falcone, Professor Gioia
Authors: Harrison, B., and Falcone, G.
College/School:College of Science and Engineering > School of Engineering > Systems Power and Energy

University Staff: Request a correction | Enlighten Editors: Update this record