Realizing the Inherent Value in Decommissioned Facilities
Authors: Byrd Robert C. 
Published: October 2008

Abstract
The costs associated with decommissioning offshore structures are continually increasing. This trend obliges platform operators to search for ways to reduce or cover liabilities associated with platform removal. Methods for reducing decommissioning expenditures can be developed through determining what the various decommissioning tasks are and planning strategies to lower the costs of these operations. In addition, the operator must view the decommissioned structure and its components as assets which can be used to recover some or all of the decommissioning expenses. The current market value of decommissioned facilities should be properly evaluated in order for the operator to maximize the value of his asset through scrap, resale or reuse. Above all, planning ahead and effectively administering a decommissioning project allow the operator to significantly reduce decommissioning liabilities and potentially recover a major portion of the overall expense of removing an offshore structure.

Introduction
Oil and gas operators are finding that the costs to decommission offshore platforms are continually rising. Recent growth in the areas of exploration and production, combined with a greater number of platforms to be removed, create a shortage of the type of equipment that is necessary to install and remove offshore facilities. As a result, contractor's fees for derrick barges (Fig. l)and other large vessels have gone up (Fig. 2). Since regulations require offshore structures to be removed no later than one year after production has ended, operators are compelled to devise strategies which will allow them to diminish their decommissioning liabilities operators need to find ways to reduce their overall decommissioning expenses. Understanding the requiredoperations for a decommissioning project, along with their associated costs, allows platform owners to calculate the current costs for removing non-producing structures and the potential future decommissioning expenses for their producing properties. In addition, operators should look at their decommissioned structures as assets which can be used to reclaim a portion or all of their decommissioning expenditures. Planning a decommissioning project at least two years ahead of time provides companies with options which can minimize their decommissioning liabilities by both reducing and recovering platform removal costs.1

Reducing Decommissioning Liabilities
Rising decommissioning costs. There are a number of factors regarding current oil and gas production needs that have caused the costs associated with decommissioning to rise:Limited number of derrick barges and rigsExpanded exploration and production (E&P) requirementsGreater number of installationsLarger number of decommissioning projectsMore complicated decommissioning projects (larger platforms in deeper water depths)
Derrick barge rates are significantly higher today that in 1994. Fig. 1 illustrates the rising trends in derrick barge rates, comparing 1997 costs to 1994 costs. As the graph shows, the total average annual increase of derrick barge day rates between 1994 and 1997 was approximately 18 percent. In addition, Offshore Data Services reported on January 16, 1998, that there were a total of 171 rigs under contract in the Gulf of Mexico. Based on a total fleet of 177 rigs, the utilization rate for rigs was 96.6 percent. The same week, Reuters reported that the number of working rigs in the European-Mediterranean area remained at 107 rigs under contract out of a total fleet of Ill, a utilization rate of 96.4 percent. Worldwide rig usage, as reported