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A New Approach to Decommissioning Cost Estimation Using Settled Liability Data

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  • Mark J. Kaiser

Abstract

Cost data in the oil and gas industry are proprietary and obtaining them is challenging; in addition, unless collected across a large and diverse sample, summary statistics are unlikely to be representative of the activity or process it is trying to inform. The purpose of this article is to apply settled liability data to infer private information on the cost of decommissioning in the Gulf of Mexico. The procedure avoids most of the traditional problems associated with cost studies but requires careful normalization and a clear understanding of the limitations of analysis. Using settled liability data from 17 public companies with operations primarily in the Gulf of Mexico, decommissioning cost is evaluated on a regional basis and by operator from 2008 to 2012. The average cost to decommission a structure between 2008 and 2012 is estimated to be $6.4 million in water depth less than 200 ft and $15.6 million in water depth greater than 200 ft. Average cost statistics are suggested as a market index for Gulf of Mexico decommissioning activity.

Suggested Citation

  • Mark J. Kaiser, 2015. "A New Approach to Decommissioning Cost Estimation Using Settled Liability Data," The Engineering Economist, Taylor & Francis Journals, vol. 60(3), pages 197-230, July.
    • Handle: RePEc:taf:uteexx:v:60:y:2015:i:3:p:197-230
    DOI: 10.1080/0013791X.2014.990127
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