Word to the Wise: 5 ways to reduce your ARO
January 28, 2020
There are many ways to reduce your ARO by addressing the liabilities held by your company. Here are five of the most successful ways clients of XI Technologies have reduced their ARO.
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A lot of the conversation around liabilities in the oil and gas industry involves the calculation of those liabilities: how important it is, how you get your numbers, which calculations you can trust, and if those calculations are complete. But perhaps the more significant conversation is around managing the liabilities themselves. It’s important to get the absolute best picture of your asset retirement obligation calculations. It’s even more important to find the best, most efficient way to address those obligations.
1. Area-Based Closure program
If you have wells in Alberta that are due to be abandoned, you should be taking advantage of the Area-Based Closure program. The voluntary ABC program exempts participating companies from inspection and reporting requirements for low risk suspended wells when they agree to spend a set amount of money on permanently abandoning and reclaiming wells in a defined geographical area. Using the program will allow you to target specific areas, giving you access to economies of scale by consolidating closure activities and partnering with other firms in the area.
At XI Technologies’ ARO Leadership Panel in November, Grant Cutforth of Surge Energy discussed how their use of the ABC program resulted in significant savings for their abandonment and reclamations program. Cutforth illustrated that for every dollar Surge spent on abandonments, they removed $1.43 in liability.
2. Partner with other producers in your area
As stated above, using the ABC program can make it easy to find other producers doing abandonments in an area to partner with to reduce costs. Even if you’re not using the ABC program (for instance, if you’re doing abandonments outside of Alberta or to wells in Alberta ineligible for the program), you should look to partner with other producers in an area you plan to abandon. Take advantage of economies of scale by sharing resources or contractors.
3. Leverage technology
Are you maximizing your efficiency when it comes to planning and executing your abandonments? New technology continues to emerge that can aid in reducing your spend on liabilities, be it software or hardware. Software like XI Technologies ARO Manager can help you quickly and easily take a holistic view of your abandonments and reclamations, where they are, when they hit, and the associated additional costs. There are also hardware innovations such as waterjet cut and capping or advances in bridge plug and cement technology that can reduce the costs of abandonments compared to more traditional methods.
4. Focus on ancillary costs
It’s important when prioritizing which wells receive which portions of a year’s budget to factor in the total cost of the liability when deciding which wells have the biggest impact on your bottom line. It’s easy to just zero in on the obvious abandonment and reclamation costs and make your determination on them. But this ignores all the ancillary costs involved with maintaining a liability such as lease costs, property taxes, utility costs, and maintenance costs.
When you factor in the ancillary costs into the total cost evaluation, you may find that some liabilities you deemed lower priority are in fact more costly than those that appear higher priority at first glance. Eliminating these wells will bring down your total liabilities in a cost-effective way.
5. Outsourcing
If abandonments and reclamations fall outside your area of core competency, the most effective way to reduce your ARO costs is to work with companies who specialize in that area to tackle them for you. These companies are already doing the things on this list: using incentive programs to their advantage, finding economies of scale, leveraging technologies, and being aware of the true, total costs of an abandonment program. If you’re unable to reduce costs using the steps above or other means, it might be worth seeing if there are experts who can do so for you while you concentrate on your core areas of competency.
XI Technologies is an industry leader in ARO and are the creators of the WCSB’s first web-based ARO software tool for evaluation, tracking, managing, and auditing of asset retirement obligations in the oil and gas sector. If you’re interested in how XI Technologies can help your organization reduce its ARO, contact XI Technologies.
