Environmental Cost Criteria for Exploration and Production
Authors: O&apos;Leary H.E. , Parums A.M. 
Published: December 2007

BP Exploration (BPX) has completed a study which assembles in a rigorous, comparable format, a wide range of quoted costs for reducing emissions and discharges to the environment. It compares the costs of different improvement technologies for Exploration and Production, and shows how these Costs compare with other parts of the petroleum sector or other industries. The study uses two measures ('capex/annual te', 'NPC/total te). Regulators' expectations of justifiable spends are mapped onto these typical technology costs from studies and actual projects. The environmental issues considered include atmospheric emissions (VOC, methane, NOx and CO2) hydrocarbon aqueous emissions.

These common measures can be used by drilling, petroleum, facilities and production engineers to benchmark environmental spend and by management as an input to decision making in response to environmental challenges.

The simple framework enables the mapping cf environmental assessments from a variety of sources enabling site specifics decisions to be considered against a company-wide or industry-wide context.

As well as providing a framework for true economic comparison of environmental improvement options, the paper provides powerful support to the strategy of making simple operational improvements before costly facility change, and for the need to consider the whole scope cf environmental impact from any project, not just one narrow goal.

Introduction

The objective of this study is to assemble, in a rational, comparable format, typical costs per tonne for reducing emissions and discharges to the environment.

The aim is to provide a rationale for helping the BPX Asset federation to target spend most efficiently in response to environmental concerns. Economic evaluation is only one of the factors in deciding whether to implement an environmental improvement - other considerations may include regulatory compliance, community concerns and operational benefits.

The environmental issues covered are (i) discharges of oil to sea from produced water and drill cuttings (ii) hydrocarbon emissions to air - VOC, methane (iii) combustion emissions - NOx and CO2.

The costs are illustrated in two ways (i) total installed capex per annual tonne of pollutant reduced (ii) Net Present Cost (NPC) per lifetime tonne of pollutant reduced, using a discount rate of 8% real (but pre tax), and generally a project life of 10 years. NPC is the negative Net Present Value (NPV).

The capex/annual te measure captures the immediate short term pressures of tight annual budgets set against annual emissions targets. The NPC/lifetime tonnes measure is a more accurate method of reflecting operating costs, revenue from any possible product recovery, and pollution taxes if applicable. Where projects actually show a profit the NPC measure will capture this, and the measure is also compatible with industry's general commercial criteria.

External publications or regulators also use a variety of other measures to describe environmental improvement costs, e.g. as an 'Annualised Cost' or a 'Rate of Return'. All of these measures can be mapped onto the capex/te or NPC/te measures used in this study - for example a project which generates enough revenue to yield a 5% rate of return will show a NPC at the 8% rate of (order of magnitude) $130k per million $$ capex.

It would be helpful to be able to compare different environmental impacts (e.g. a tonne of oil to sea versus a tonne of methane to air), because (i) Assets will have options across the spectrum (ii) projects will have multiple impacts. These can be either additive (e.g. flaring reduction also leads to lower VOC's, methane, NOx and CO2) or offsetting (e.g. re-injecting produced water to reduce oil and chemicals discharge to sea can generate significant air emissions).

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