Recent changes to the Canadian Oil & Gas Evaluation Handbook (COGEH) consider it a best practice to incorporate abandonment, decommissioning and reclamation costs into reserve evaluation reports. Not only is including environmental liability estimates the right thing to do, but increasingly it is being demanded by investors throughout the world. Sproule does an excellent job of explaining this best practice in their report entitled “Reserves Reporting Best Practice” available here.
Historically, determining Asset Retirement Obligation (ARO) Estimates has been a nuisance, usually requiring petroleum companies to lean on people within their organizations that would be better served project managing end of life work. It required using industry experience to come up with average gross well abandonment, pipeline abandonment, and reclamation estimates for each area in which the company operates, vetting these estimates against actual work completed and multiplying them by net well counts. From there, auditors would question the logic and competency of the people providing the estimates, requiring companies to constantly work at building trust between themselves and the auditors.
More recently, petroleum companies have started utilizing regulator generated deemed liabilities which were never intended to be used for this purpose. At their root, the LLR programs are primarily used as a method for allocating levy payments and they are useful for doing this fairly. They were not designed to be a fully inclusive calculation as substantiated by the lack of pipeline estimates and remediation estimates.
Solstice Engineering Ltd has been providing 3rd Party ARO Estimates and A&D liability evaluations to the petroleum industry since 2008. We guarantee accurate, AFE-ready end of life estimates regardless of inventory size. Our expertise with oil and gas ARO estimates, allows us to provide detailed cost estimates for individually operated and non-operated wells, pipelines and facilities equal to that of a human manually doing each estimate. Our approach reassures auditors understand the logic and process are robust, fulsome and deliver highly accurate reports.
Some of the key benefits of the Solstice ARO report are:
- Estimates include operated and non-operated wells, pipelines, facilities, reported spills, and water wells for a high level of transparency. Some clients worry that this will cause their estimates to go up but this often isn’t the case as the software has built-in savings by automatically combining multi-well/facility pads, combining pipeline segments that will be abandoned as one, reduced facility estimates as industry currently over estimates facilities, and via the ability to add campaign savings and through automated prioritized work plans.
- Estimates are automatically determined using government data, adjustable assumptions, and unit rates (hourly rig rate, wireline rate, reclamation day rate, etc.) such that estimates can be tailored.
- Using pool decline rates and economic limits or reserves tables, end of life dates for all wells, pipelines and facilities are estimated so that discount and inflation rates can be applied to the report itself without the need for additional software.
- Provides net discounted/inflated annual breakdown by end of life category designed for financial institutions, investors, and reserves reports.
- Provides detailed estimates by field and end of life category designed for auditor reviews.
- Provides line by line estimate details for every well, pipeline and facility for thorough audit reviews and to simplify in-house vetting.
- Provides side by side comparison for Solstice estimates, current client reported ARO estimates, and regulator deemed liabilities to aid report justification. Inventories can be filtered here to allow for running scenarios which is especially useful for managing divestitures opportunities.
- Provides reserves summaries broken down by 4 levels of hierarchy that are now required by financial institutions (see attached screen capture). This portion of report re-calculates based on filtered inventories described in previous bullet.
- Reconciliation tool to quickly define ARO changes period to period.
- Provides wellbore schematics, automated abandonment mini-programs, and AFE breakdowns for every well to expedite program execution and for audit reviews.
Solstice Engineering Ltd. has painstakingly developed this system over 12 years and is quickly becoming the industry leader when it comes to third party independent ARO estimates, A&D Evaluations and LLR Evaluations. This innovative solution is unique to industry and the methods used to create the evaluation reports are without competition. Why continue to waste money on poor allocation of your workforce, or third party companies doing this work the old fashioned way, when the future of these evaluations is here now?
If you are interested in receiving via email a sample of the Solstice ARO report, if you are interested in knowing what your company’s current liability actually is, if you are interested in truly understanding the impact of acquiring or divesting assets on your company’s liability, and if you are interested in optimizing your LLR to avoid posting security deposits, contact Solstice Engineering right now to find out how we can be of service.
- Oil and Gas Licensees
- A&D Specialists – Solstice estimates the LLR to determine the impact of an acquisition or divestiture and assist in specifying which assets should be included during negotiations.
- Financial Institutions
- Environmental Consultants
About Solstice Engineering Ltd.
Solstice Engineering Ltd. provides petroleum software solutions, acquisition and divestiture liability estimates, LLR evaluations, independent ARO estimates, and petroleum consulting services. SolComp, Solstice Engineering’s regulatory compliance management system, provides petroleum companies with the most complete and intuitive compliance software system available to industry.
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