Presentation on the Gulf of Mexico Offshore Decommissioning Market delivered by Dr. Mark J. Kaiser at the 2nd Annual Decommissioning and Abandonement Summit, Gulf of Mexico For more information on the decommissioning market go to www.decomworld.com

1. Mark J Kaiser
Center for Energy Studies – LSU
2nd Annual Decommissioning & Abandonment Summit
Houston, TX
March 29-30, 2010

2. Outline
 Capital Perspectives
 Risk Metrics, Matrices & Maps
 2009 Activity Levels
 Activity Forecast (Status Quo)
 Idle Wells & Structures
 “Idle Iron” Draft NTL No. T245g
 Regulatory Impact of “Idle Iron”
© The material in this presentation is copyright protected and may contain preliminary
research results. All rights reserved. No part of this presentation may be reproduced, quoted,
or transcribed in any form or by any means, electronic or mechanical, including photocopying
and recording, without the prior written permission of the author.

4. Worldwide, offshore spending in 2009 is estimated at $260 billion.
Domestic E&P spending in 2010 is estimated at $190 billion.

5. SECTOR PERCENTAGE
Drilling 40-50%
Production 40-45%
Seismic 3-5%
Subsea Hardware 3-5%
Platforms 3-5%
Decommissioning 3-4% [$1-3 B]

6. In 2009,
530 MMbbl @ $60/bbl + 2.25 Tcf @ $3.8/Mcf = $41 billion

7. Typically, ranges between $4-6 billion per year

8. 0
10
20
30
40
50
60
70
0
2
4
6
8
10
12
14
16
2001 2002 2003 2004 2005 2006 2007 2008 2009
GrossRevenue($billion)
MineralRevenue($billion)
Year
Royalty Bonus Rent Gross Revenue

9. Shallow water is defined as water depth < 500 ft. Deepwater
revenue is not considered.

10. Shallow water is defined as water depth < 500 ft. Deepwater
abandonment cost are not considered.

11. Decommissioning risk is defined in terms of value of proved
reserves or production relative to expected total
decommissioning liability.

12. Decommissioning Risk Metrics
R X R
E venue oved serves
E DecommissioningLiability
R X R
oduction venueYearT
E DecommissioningLiability
R X R
oduction venueYear T k T
E DecommissioningLiability
1 1
2 2
3 3
( )
(Re Pr Re )
( )
( )
Pr Re
( )
( )
Pr Re ( , )
( )
 
 
 


13. GOM Decommissioning Risk Matrix
R₁(GOM)= R₁[P,S], WD < 500 ft
Oil Price
($/bbl)
AVG AVG + 1*SD AVG + 2*SD
60 2.7 1.6 1.0
80 3.7 2.2 1.6
100 4.7 2.8 2.0

14. Chevron Decommissioning Risk Matrix
R₁(Chevron)= R₁[P,S], WD < 500 ft
Oil Price
($/bbl)
AVG AVG + 1*SD AVG + 2*SD
40 2.5 1.5 1.0
60 3.9 2.3 1.6
80 5.4 3.1 2.2
100 6.8 4.0 2.8
120 8.2 4.8 3.4

15. 0.01
0.1
1
10
100
1000
1 101 201 301
RiskMetric1
Companies
$40/bbl $60/bbl $80/bbl $100/bbl $120/bbl
GOM Decommissioning Risk Profile
R₁(P), S = AVG

16. {R₁ x R₂} Risk Map

17. {R₁ x R₂} Risk Map – Top 10
Chevron
Apache
W&T Offshore Inc
Exxon Mobil
Mariner Energy Resources
Energy Resource
Technology GOM
Unocal
Stone Energy Offshore
McMoRan
Energy Partners
0.125
0.25
0.5
1
2
1 2 4 8 16
2009Revenue/Liability
Value of Proved Reserves/Liability

18. When does a structure stop making money and become
unprofitable?

19. Economic Limit: Net Revenue = Cost

20. Structure Oil ($1000) Gas ($1000)
Caisson $374-393 $502-850
Platform $631-1,000 $800-1,100
Structure Oil (BOEPD) Gas (MCFEPD)[BOEPD]
Caisson 34-43 436-687 [72-113]
Platform 57-106 652-947[108-157]
Economic Limits
When a structure approaches these limits, it is getting close to being non-commercial. MMS
defines an offshore structure as “marginal” at 90 BOEPD (540 MCFEPD)

22. 2009 Summary (Shallow; Deep)
592 Permanent Abandonments (547;38 )
568 Temporary Abandonments (527;41 )
158 Structure Removals (53,15,89;1)
E(CAPEX,2009) ~ $1.1-3.5 billion
E(CAPEX, 2008) ~ $818 million – 2.6 B

23. Wells Drilled
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
0
200
400
600
800
1,000
1,200
1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007
CumulativeNumberofWells
AnnualNumberofWells
Year
Development Exploration

24. Wells Abandoned
0
5,000
10,000
15,000
20,000
25,000
0
200
400
600
800
1,000
1,200
1,400
1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008
CumulativeNumberofWells
AnnualNumberofWells
Year
Permanent Abandonment Temporary Abandonment

25. Total Well Inventory
(includes never-producing wells)
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
1947 1957 1967 1977 1987 1997 2007
NumberofWells
Year
Total Inventory Wells Drilled Permanent Abandonment

26. 0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007
NumberofStructures
Year
Total Inventory Installation Removal
Total Structure Inventory
(includes auxiliary structures)

27. 2009 Company Activity
Wells (PA, TA) E(Cost), $ million
 Chevron: 31, 59
 Apache: 52, 37
 Stone : 59,7
 GOM Shelf: 16, 33
 W&T Offshore: 38, 10
 Subtotal: 33%,26%
 Chevron: 87-281
 Apache: 77-252
 W&T: 59-180
 Stone: 52-179
 ERT: 49-155
 Subtotal: 29%
Structures
 W&T Offshore: 16
 Chevron: 9.6
 Devon: 7
 Maritech: 8.1
 ERT: 7.2
 Subtotal: 30%

28. 0 1,000 2,000 3,000 4,000 5,000 6,000
Eni Petroleum
Hunt Petroleum (AEC)
Stone Energy
Beryl Oil and Gas
Merit Management Partners I
Anglo-Suisse Offshore
Pisces Energy
El Paso E&P
Nippon Oil Exploration
Nexen Petroleum Offshore
Maritech Resources
Energy XXI GOM
GOM Shelf
SPN Resources
Devon Energy
Energy Partners
McMoRan
Unocal
Stone Energy Offshore
Mariner Energy Resources
Energy Resource Technology GOM
Exxon Mobil
W & T Offshore
Chevron
Apache
Decommissioning Liability ($ million)
AVG AVG+2*SD

29. Assumes no significant regulatory changes or major
hurricane destruction in the next 5 years

30. Well PA Forecast -
Status Quo
0
100
200
300
400
500
600
700
800
1948 1958 1968 1978 1988 1998 2008 2018
NumberofWells
Year
AVG AVG+2*SD AVG-2*SD 2009

31. Structure Removal: CAIS & WP
Status Quo
0
20
40
60
80
100
120
140
1973 1983 1993 2003 2013
NumberofStructures
Year
AVG AVG+2*SD AVG-2*SD 2009

32. Structure Removal: Fixed Platforms
Status Quo
0
20
40
60
80
100
120
1975 1980 1985 1990 1995 2000 2005 2010 2015
NumberofStructures
Year
AVG AVG+2*SD AVG-2*SD 2009

33. Well classes: (1) Producing, (2) Idle, (3) Never-producing
Idle wells: Idle (1-4) years, Idle (5+) years

34. 0
2
4
6
8
10
12
1 6 11 16 21 26 31 36 41 46
Avg.#ofproducingwells
Year
Oil (0-0.5 MMBOE) Oil (0.5-1 MMBOE)
Oil(1-2 MMBOE) Oil(2-4 MMBOE)
Oil(4-8 MMBOE) Oil(>8 MMBOE)
0
3
6
9
12
15
1 6 11 16 21 26 31 36 41 46
CumulativeP&AWells
Year
Oil (0-0.5 MMBOE) Oil (0.5-1 MMBOE)
Oil(1-2 MMBOE) Oil(2-4 MMBOE)
Oil(4-8 MMBOE) Oil(>8 MMBOE)
Average Oil Structure Well Profiles

35. Years Since Last Production
0 = producing well; 1 = 1 year since last production; 2 = 2 years since
last production, etc.

36. Well Status (Water Depth < 500 ft)
0
2,000
4,000
6,000
8,000
10,000
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
NumberofWells
Year
Producing Wells Idle Wells (1-4 Years) Idle Wells (5+ Years) Well Never Produced

37. Well Status (Water Depth < 500 ft)
0
10
20
30
40
50
60
70
80
1990 1993 1996 1999 2002 2005 2008
Percentage
Year
Producing Wells Producing Wells and Idle Wells (1-4 Years) Idle Wells (5+ Years)

38. Well Status (Water Depth > 500 ft)
0
200
400
600
800
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
NumberofWells
Year
Producing Wells Idle Wells (1-4 Years) Idle Wells (5+ Years)

39. Well Status (Water Depth > 500 ft)
0
20
40
60
80
100
1990 1993 1996 1999 2002 2005 2008
Percentage
Year
Producing Wells Producing Wells and Idle Wells (1-4 Years) Idle Wells (5+ Years)

40. Idle (5+ yr) Well Ownership (#)
0 200 400 600 800 1,000 1,200
Eni Petroleum
Dynamic Offshore Resources NS
Merit Management Partners I
Nippon Oil Exploration
Anglo-Suisse Offshore
Devon Energy
Maritech Resources
McMoRan
Stone Energy Offshore
Energy Partners
Unocal
W & T Offshore
Chevron
Number of Idle Wells (5+)
Water Depth < 500 ft Water Depth > 500 ft

41. Idle (5+ yr) Well Ownership (% Active)
0 10 20 30 40 50 60 70 80 90 100
Merit Management Partners I
Energy Resource Technology GOM
Stone Energy Offshore
Mobil Oil E&P Southeast
Energy Resource Technology
Northwestern Mutual
Hunt Oil
Unocal
Noble Energy
Fairways Offshore Exploration
Shell
Energy Partners
Forest Oil
Percentage of Idle Wells (5+)

42. The purpose of NTL No. T-245g is to ensure that idle
infrastructure on active leases is decommissioned in a timely
manner.
Draft version “g”: Dec 7, 2009

43. Decommissioning Requirements
(Status Quo)

44. Decommissioning Requirements
(NTL No. T-245g Draft)

45. Draft NTL No.T-245g:
“… establish guidelines and pro-active measures
to provide a consistent and systematic
approach to determine the future utility of
idle infrastructure on active leases and to
ensure that all wells, structures, and pipelines on
terminated leases and pipelines on terminated
pipeline rights-of-way are decommissioned within
the timeframes established by regulations,
conditions of approval, and lease instruments.”

46. Idle Wells (1):

47. Idle Wells (2):

48. Idle Wells (3):

49. Idle Structures (4):

50. A 3-yr time horizon appears impossible to achieve;
a 5-yr horizon will be challenging;
a 10-yr horizon is realistic but involves tradeoffs

51. Wells Impacted (+/- 5%)

52. Probably
Impossible

53. Challenging

54. Realistic but
involves maintaining a
large inventory of idle
wells and structures for
a longer period of time

55. Mark J Kaiser
mkaiser@lsu.edu

57. WD < 500 ft
13,865 active
wells
29%
producing
51% idle >
4 years
WD > 500 ft
1,162 active
wells
58%
producing
24% idle >
4 years
NOTE: There are 1,959 wells in WD < 500 ft and 755 wells in WD > 500 ft that
have never produced, for a total GOM inventory of 17,741 wells in 2009

58. WD < 500 ft
3,133 active
structures
51%
producing
23% idle >
4 years
WD > 500 ft
71 active
structures
85%
producing
4% idle >
4 years
NOTE: There are 3,696 structures in WD < 500 ft and 73 structures in WD > 500 ft
that have never produced, for a total GOM inventory of 3,769 structures in 2009

59. Idle Well Exposure - Chevron