Maximizing Profits Associated With Abandonment Decisions And Options
Authors: Antia D.D.J. 
Published: October 2008

Economic strategies which are designed to maximise profits associated with abandonment decisions and options focus on:-Extending field lifeOffsetting of economic risks onto a third partyReuse of facilities and infrastructureExpansion of associated secondary processing and distribution capabilities and usageThe sale of abandonment units to a third party.

Introduction

Abandonment decisions and options directly affect:-Field revenue and decommissioning costsThe supply of tariffed products and services processing, distribution, etc.)Regional resource depletion and management strategies via satellite field developments and utilization of hub infrastructure, etc.Production in sequential fields (i the field to be abandoned is producing via a reusable facility).

Economic strategies designed to maximise profits associated with abandonment decisions and options consider:-Optimizing late field life opex and production through contractor alliances, financial instruments and contractor financeIThe expansion of post production infrastructure utilization by satellite production, etc.1,2The sale of abandonment units to other operators 3 and contractors and abandonment optionsThe sale b the field's contractors, of the right (expressec1as a put option) to undertake opex or abandonment services on the field at a future date. The purchaser pays a fee to acquire the option and an additional fee if (or when) he elects to exercise the option1The reuse of facilities and infrastructure 1,4The offsetting of abandonment risks onto a third party I to 5

The various options can be considered using NPV, OPMV, and RAR modelling I to 6.

Abandonment strategies fall into two categories:-Abandonment deferral strategiesStrategies on or for abandonment.

Abandonment Deferral Strategies

Abandonment deferral strategies seek to extend the economic life of a field by:-Increasing the value of continuing production 1Expanding infrastructure usage 1,2.

Expanding infrastructure usage allows fixed costs and opex to be offset against tariff income, It may increase the economic reserve of the field by deferring abandonment (Figure 1) 1,2.

Increasing the value of the field's residual production is a function of additional capex, opex, abandonment costs and revenue. Abandonment deferral strategies seek to maximise this value by:-Increasing the correlation between opex and revenueFixing a ceiling for potential future costsFixing a floor for future revenues

Cost-Revenue Linkage

Cost-Revenue linkages1 take two forms:-A direct positive linkage between opex with revenue. This ensures that costs fall as revenues fall. A linkage of this type is a contract to supply operating services to a field which is based on a rate of $x/Bbl ($y/Mcf, $/BTU: or $/$ Revenue). This rate is sometimes linked to oil or gas prices using an equation of the form:-(Available in full paper)An indirect linkage between opex and revenue in a contract of this type can link the contract rate (for opex services) to time. This rate may decrease with time. The contract rates may be bid at the time the contract is awarded or be renegotiated at a future date to ensure that the field remains in production