Trash or treasure: the maturing Gulf of Mexico is generating a growing number of decommissioning jobs, resulting in the growth of a special type of Gulf operator. To these firms, some producers' junk is their treasure.(GULF OF MEXICO SHELF)

Publication: Oil and Gas Investor

Publication Date: 01-JUL-05

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COPYRIGHT 2005 Hart Publications, Inc.

Giving up oil and gas since the 1940s, the Gulf of Mexico continues to provide traditional E&P companies with opportunities-some big, some small. Yet, some fields and facilities found their productive peaks years ago. The shine has long worn off their once-pristine platforms as they near the time to turn off their lights.

For those for which the sun has set, the operator has called in plug-and-abandonment (P&A) professionals and is prepared to pay decommissioning costs. To some of these P&A firms, however, it's only dusk. They take over the property to produce it further, sometimes paying for it, minus the eventual P&A costs.

Three of these end-of-life E&P firms are subsidiaries of well-known oil-service companies and have the advantage of insurance and bonding of their larger parents. Clout as a proven going-concern is important in the P&A business. When letting go of a Gulf property, many asset owners want to make sure liability for the asset doesn't come back to them--the federal Minerals Management Service (MMS) can stick a previous owner with the responsibility for P&A if the current owner is insolvent.

Also, a poorly handled P&A job can be a public-relations disaster for a prior owner. For example, the Big #1 well may not have belonged to Big International Oil Co. since 1975, but public perception is that the well--and its nasty oil leak--belongs to Big. So much for Big's bid to drill offshore St. Croix.

Several circumstances have made P&A services increasingly important in the Gulf.

* A new accounting rule, FASB 143, requires that decommissioning liabilities be disclosed, forcing investors to look at this liability closer.

* Also, the MMS is stepping up its regular Gulf platform-inspection program as a result of severe damage in the east-central Gulf from Hurricane Ivan, a Category 5 storm, in 2004. Heightened MMS scrutiny may lead to earlier P&A decisions for some operators.

* Meanwhile, softening of commodity prices could tip a number of wells into the P&A column. In the past few years, strong prices have extended the economic lives of many...

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