Evolved solutions have industry leading capabilities and experience in dealing with 3rd party verification and disputes relating to Decommissioning security agreements and decommissioning liabilities. We have therefore produced a lessons learnt for Operators.
DSA Verification Lessons for parties to consider in DSA disputes and 3rd party verification exercises
1. How to avoids disputes:
Develop a robust estimate with truly independent input (agreed by all parties) with high level of experience of decommissioning. Challenge the commercial confidentiality of existing estimates – The change of achieving swift resolution to disputes, will always been improved by sharing cost estimates and supporting data with all parties, regardless of whether that is a requirement of the DSA.
2. The basis of the verification:
DSA disputes and verification, should be based on the total costs (or large elements of that estimate). It is advised to avoid focusing on individual itemised disputes, when there is potential for the dispute to be influenced by other cost elements or issues (that may end up out with the scope of dispute). Example being post CoP Facilities Running Costs. To verify the level of OPEX and duration, its essential to assess the manhours / time / cost of activities allocated to this period, such as Well P&A, Engineering down, cleaning / flushing and removal prep.
3. The parties involved:
Both (all) parties should instigate the verification exercise, regardless of commercial agreements, to ensure transparency and avoid unfair influence on the 3rd party.
4. Auditability of data:
Inputs to estimates require to be auditable; Example being email history with unclear logic or reference being used to base cost metrics, years later.
5. Industry Benchmarks referenced:
Misinterpretation of industry benchmarks are common. 3rd party verification will provide a more robust interpretation.
6. The level of estimate:
As can be seen from the OGA reports, a large percentage of decom liability estimates are unfortunately still at class V level. The inputs to class V estimates vary considerable and can lead to inconsistency and the inability to verify. Class V estimates are identified by AACE Cost estimation classification system as being for ‘concept screening’, Methodology being Capacity Factored, Parametric Models, Judgment, or Analogy and with an accuracy range of Low: -20% to -50% Or High: +30% to +100%. We would argue this is not sufficient for financial provisioning. Advice is to develop a more robust estimate.