Development of a Decommissioning Cost Estimation Model for Oil and Gas Fields on the Norwegian Continental Shelf

Master's thesis in Industrial economicsDecommissioning of offshore installations on the Norwegian Continental Shelf (NCS) is not a new industry, but apart from the vast Frigg and Ekofisk I projects, it has seen little activity in the years since the production from oil and gas fields started to decline. However, decommissioning is set to grow steadily in the coming years as more and more fields’ running costs surpass their revenues. Cost estimation for decommissioning is a major challenge in the petroleum industry, and is notoriously difficult, due to the great uncertainties concerning the condition of the facility and the scope of work for the project. As far as the authors are aware, no scientific papers have examined probabilistic modelling for decommissioning cost estimation on the NCS. Cost engineers mostly rely upon historical databases, which some insiders have described as out of date. Also, the uniqueness of each field in the North Sea makes benchmarking challenging. This thesis uses probabilistic modelling to attempt two things: 1. Estimate the decommissioning cost of a facility on the Norwegian Continental Shelf 2. Estimate the decommissioning cost of all infrastructure on the Norwegian Continental Shelf Using a mostly self-compiled database of installations on the NCS and their associated subsea equipment, cost data for facilities previously decommissioned and those soon to be decommissioned were gathered for use as inputs to a Monte Carlo cost simulation model. The model shows sufficient accuracy to be used for cost estimation in future decommissioning projects. Besides probabilistic modelling, other approaches to estimating the cost of decommissioning the entirety of Norwegian offshore petroleum infrastructure have been applied: through analysis of operators’ Asset Retirement Obligations, and through a comparative analysis of the decommissioning scope in the UK and Norway along with the estimated future decommissioning expenditure in the UK