Page 433 - Hydrocarbon Exploration and Production Second Edition

420 Economic Lifetime

Income
and Costs

increase production

income

Defer Economic

Abandonment
costs

reduce costs
Time
Economic
Abandonment
Figure 18.1 Deferring decommissioning.

18.2. Economic Lifetime

The economic lifetime was introduced in Section 14.3, Chapter 14, and was
defined as the point at which the annual net cashflow turned permanently negative.
This is the time at which income from production no longer exceeds the costs of
production, and marks the point when decommissioning should occur, since it does
not make economic sense to continue to run a loss-making venture. Technically, the
production of hydrocarbons could continue beyond this point but only by accepting
financial losses. There are two ways to defer decommissioning (Figure 18.1)

reduce the operating costs, or
increase hydrocarbon throughput.

Of course the operator will strive to use both of these means of deferring
abandonment.
In some cases, where production is subject to high taxation, tax concessions may
be negotiated, but generally host governments will expect all other means to have
been investigated first.

18.2.1. Reducing operating costs

Operating costs represent the major expenditure late in field life. These costs will be
closely related to the number of staff required to run a facility and the amount of
hardware they operate to keep production going. The specifications for product
quality and plant up-time can also have a significant impact on running costs.