Offshore platform decommissioning cost index: A solution to decommissioning planning

Offshore platforms decommissioning has become a central issue in the oil and gas or hydrocarbon industry in recent times. The burden and liabilities of decommissioning earlier platforms which did not incorporate the costs of decommissioning in their concession agreements with operators falls squarely on national governments. However, in recent concession contracts, operators are now mandated to set aside an annual amount into a special account created specifically to cater for decommissioning at the end of the concession or economic life of the platform. However, a common challenge facing the industry is determining accurate decommissioning costs for offshore platforms. Further challenge is the fact that no two platforms are the same, thereby introducing further element of uncertainty into current cost estimates. Hence taking this into cognizance, a cost index for offshore platform decommissioning was established to enumerate a range rather than an exact cost estimate. Therefore, this article attempts to use Laspeyres indices approach to generate a cost index for updating the cost of offshore platform decommissioning in Malaysia. Using historical cost data from earlier decommissioning carried out in the shallow waters in Malaysia, the index was able to predict future costs for similar scope of work with an accuracy range of plus or minus 20%. Consequently, given the degree of accuracy the index was able to achieve on a consistent basis, it can serve as a planning tool to assist governments, policy makers, senior management and concessionaires in estimating the annual amounts required to be set aside for the purpose of platforms decommissioning at their end of economic life. The index can also be used to carry out bid assessments among various contractors bidding for the same decommissioning contract.