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Decommissioning Liability Due Diligence

Decommissioning liability due diligence that prices each well, platform and pipeline from its own file, and shows who still stands behind it.

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Follow the last box, from the fan to a signed ask ↓
The problem

A seller’s decommissioning liability arrives as one number and a room of scans

A late-life package comes with a closure schedule built on flat rates per well and per platform, plus a data room of well files, deeds, bonds and filings going back decades. The bid is due in days. The engineer samples a handful of well files, the estimator prices the rest at the same flat rates, and counsel reads the release if there is time.

Then the surprises arrive after closing. Wells listed as plugged have no plug record. A well card calls a job simple when an old workover report says a work string is still stuck in the hole. The bond the seller posted ends on sale, and the release says known or unknown. Once you hold the license, you are first in line.

Built forDeal leadsAbandonment engineersClosure cost estimatorsDeal counsel

The Problem Today

Mature assets sell on one closure figure from a thin data room, and the buyer inherits what it misses.

Checked by hand today

  • Well files
  • Filings
  • Sale deeds
  • Bonds
  • Listed plugged, never provedWells carried at no cost with no plug record
  • Old reports go unreadA stuck tool from decades ago can double a cost

The Solution

  1. Read each boxThe data room read box by box as it lands; scans split into reports
  2. Rebuild each wellCasing, cement, zones and anything left in the hole, each fact cited
  3. A range, never one guessLow, central and high for each item; missing records stay wide
  4. Who still stands behind itPast owners, bonds, trusts and release wording, drawn for each well

Built-in controls

  • The deal lead opens each record before signing
  • Missing records stay wide until a page narrows them
  • Agents do not contact the seller

What You Get

Deal teams take a tested number into the call, line by line, with the names of who agreed to it.

  • The seller test, line by lineFrom the seller’s number to the records, one line per cause
  • Who agreed to the biggest numberThe deal lead signs, and counsel countersigns the ask
  • An evidence pack per dealEach item, its source page and the audit trail
The last box, then the ask

Decommissioning liability tested box by box, up to a signed escrow ask

An offshore package of six platforms is for sale. The seller carries its closure at one figure, the data room has 14 boxes, and the last one came in overnight. Here is how the buyer’s desk gets from that box to a number it can defend on the call.

demoThe package, the companies, the people and every figure are sample data.

  1. 01Morning

    The seller says $148.0M, and box 14 is still unread

    Deal lead

    The fan sets the seller’s single number as a dashed line against every item at its low, central and high: $170.1M, $202.5M and $259.0M after 13 boxes. A bar underneath splits the width into known, guessed and missing evidence. The note on top is blunt: 241 scanned workover reports for one platform came in overnight, and nothing in the ask can be drafted until they are read.

  2. 02Box 14

    Box 14 lifts the central case to $205.0M, a $57.0M gap

    Data room reader, for the deal lead

    The agents read the box and 240 of the 241 reports agree with their well cards. One does not. D-41 jumps to the top of the widest slices at $3.0M to $7.4M against the seller’s $0.90M, with a fish left at 6,200 ft. Even with every item at its low, the package now sits $23.0M over the seller.

  3. 03Box 14

    41 of 318 wells are not what the seller’s list says

    Well abandonment engineer

    The true-status table puts the seller’s word beside what the filings and reports show. The seller lists 208 wells as plugged; the records show 167. 25 have no plug record at all, and 16 are shut in or temporarily abandoned. The seller carries each at $0.00M, and each now has a range and an evidence mark beside it.

  4. 04Box 14

    D-41’s card says simple job, and the hole holds a stuck work string

    Well abandonment engineer

    The sketch is drawn from the records, with the fish at 6,200 ft and the lower sand below it with no plug. Each fact is marked known, guessed or missing and cites its page. On a platform plugging unit at $180,000 a day, 13, 24 and 36 days give $3.00M, $5.10M and $7.40M. He puts the range forward with his reason.

  5. 05Box 14

    Her signature waits until she has opened the report herself

    Deal lead

    She presses sign and gets a dialog instead. A checker opens what she checks, after it was put forward, and the engineer’s reading of the page does not count as hers. A signature on a $7.4M high case then means somebody on the bid read the evidence.

  6. 06Box 14

    In the seventh workover report, the packer would not release

    Deal lead

    The scanned page opens with three passages marked: 340 ft of 2-7/8 in. work string and the packer left in the hole, the lower sand at 8,940 to 9,010 ft left below the fish with no plug, and the well recompleted above. The reader was 88% sure, with two figures checked against the daily log. The trail logs that she opened it.

  7. 07Box 14

    Signed on a range put forward by someone else, with her reason

    Deal lead

    Back on the well, the panel now reads signed by the deal lead on a range the engineer put forward, with her reason: the cost build matches the record. Maker and checker are different people for each range. If anyone changes the range later, the signature does not carry over to the new numbers.

  8. 08Box 14

    Plugging and abandonment liability for D-41 falls first on the buyer

    Deal counsel

    The owners’ timeline runs from the first owner, since dissolved, through a second released by its deed, to the seller, released on paper by the draft sale agreement’s known or unknown wording. The who-pays ladder puts the buyer first for $5.10M and every other rung at $0. Across the package, $36.3M of security sits on paper and $0.00M of it is sure today.

  9. 09Box 14

    Seven lines carry the seller’s $148.0M to a central $205.0M

    Closure cost estimator

    The seller’s schedule uses four flat rates from a study that checked no well against its file. Pipelines left at no cost add $20.4M and down-hole trouble $22.4M. Wells listed as plugged with no record add $10.2M, and those still open $9.2M. Where the seller is high, on clean wells to 9,000 ft, the test says so: −$16.1M.

  10. 10Before the call

    A $57.0M escrow with three names, and nobody signing their own work

    Estimator, deal lead and counsel

    The estimator puts the ask forward. The deal lead signs it, having opened the seller test herself. Counsel opens the release section and countersigns. All four gates are ticked, including 12 of 12 wide ranges signed one by one. Besides the escrow, the ask strikes known or unknown from the release and makes the trust and the past owner’s share conditions of closing.

D-41 before and after one workover report from box 14

The same well, priced from its card and then from the report. Days are on a platform plugging unit at $180,000 a day.

D-41 cost buildLowCentralHigh
Before box 14$2.1M$2.6M$3.4M
Days on the well132436
Of which the fish4 days13 days21 days
Plugging unit$2.34M$4.32M$6.48M
Services and cement$0.66M$0.78M$0.92M
After box 14$3.00M$5.10M$7.40M

demoSample data, from the working solution.

Decommissioning security of $36.3M on paper, and none of it sure today

Three different things, and only some of it could ever pay the buyer’s cost. Counsel’s rulings on each one write the ask’s security line.

Surety bond on one blockProtects the regulator, and ends on sale unless the surety agrees$18.0M
Trust on another blockPasses only with the trustee’s written agreement$9.4M
Past owner’s share of plugging, left under its capPasses only by written assignment$8.9M
On paper behind the package$36.3M

demoSample data, from the working solution.

Around the deal

Clauses, boxes, the sign-off queue and lot samples behind the bid

What counsel, the estimator and the auditor open on the same deal. Select one to enlarge it.

Eight clauses, in plain wordsRelease, warranty, old deeds, the bond, the trust and the license clause, each quoted and explained, with counsel’s ruling under it.
Virtual data room review7,214 documents and 92,230 pages in 14 boxes, with what each box did to the central case. Pipeline surveys moved it most, by +$26.8M.
The sign-off queueRanges that need their own signature, each with its finding and evidence, and two lots signed together once the deal lead opens a sample.
A lot, and what a pass meansEight pipelines drawn by the agent, which the signer cannot choose. A clean sample of 8 shows fewer than about 1 in 4 are wrong, at 90% confidence.
When two makers disagreeThe engineer puts B-47 at $0.62M to $1.22M. The estimator disagrees, with a central of $0.71M, and it waits for the deal lead to settle or send back.
What each signer openedThe audit trail filtered to records opened: the report before the range, the seller test before the ask, the release before the countersignature.

demoSample data, from the working solution.

The bid, the wording and the well work stay with named people

Agents read, price and draft. These calls belong to the deal team.

No agent talks to the sellerThe ask drafter writes seller questions and the ask, and a person sends them.
A silent file stays wideWhere the room says nothing, the range is not averaged away, and only a cited document narrows it.
Wording is counsel’sThe release reader quotes and explains each clause. Counsel rules on it, and the ownership chain gives no legal opinion.
No well is called safe to work onThe wellbore sketch is drawn from the records, not a well program, and questions about working a well go to the engineer.
The number on the call is the deal lead’sShe signs it after opening the seller test, and counsel countersigns. The person who put it forward signs neither.
The agents

Seven agents work the data room, and each hands its work to a person

Each one has a single job and a line it does not cross.

Data room reader

Reads each box, splits scans into reports and records the page behind each value.

  • Never edits a document
  • Holds an unreadable page instead of guessing
Well status agent

Checks each well’s listed status against filings and reports.

  • Never calls a well plugged without a plug record
Wellbore agent

Rebuilds casing, cement, zones, plugs and anything left in the hole, each fact marked known, guessed or missing.

  • Never writes a well program
Range agent

Proposes low, central and high per item from days, rates and like wells.

  • Never narrows a range without a cited document
Ownership chain agent

Draws owners, bonds and funds for each well, and who pays.

  • Gives no legal opinion
  • Marks a company’s means not tested when no accounts are in the room
Release reader

Quotes release, assumption and consent wording and says what it would do.

  • Reads, and does not rule
Ask drafter

Writes seller questions and the ask, each line tied to its proof.

  • Never contacts the seller
  • Never changes a signed ask

What deal teams ask about decommissioning liability in an acquisition

What is decommissioning liability due diligence?

Decommissioning liability due diligence tests what it will cost to plug the wells and remove the platforms, pipelines and caissons in a package before you buy it, and who else stands behind that cost. Here agents read the data room, price each item as a low, central and high range from its own file, and the deal team signs what goes into the bid.

What does it test that the seller’s asset retirement figure leaves out?

The seller’s figure is usually flat rates per well and per structure. This rebuilds each well from its reports, so wells listed as plugged with no record, stuck tools, pipelines left at no cost and clean wells the seller priced high all show up as separate lines with their sources.

What decommissioning security stands behind the wells?

The ownership chain shows past owners, bonds, trusts and shares of cost for each well, and what the sale agreement’s release would do to them. It separates security that protects the regulator from money that could pay the buyer, and counsel rules on each before it reaches the ask.

How does the virtual data room review handle scans nobody can read?

Unreadable pages are held and stay out of the figures, and a well with a short file keeps its range wide. The fan shows how much of the total rests on known, guessed and missing evidence, so a thin room shows on the first screen.

Who signs the escrow or price cut we take into the call?

The closure cost estimator puts the ask forward, the deal lead signs it after opening the seller test, and deal counsel countersigns after opening the release. The ask cannot be signed until each box is read, each wide range has its own signature and counsel has ruled.

Does it tell us whether a well is safe to work on?

No. The wellbore sketch is drawn from the records and is not a well program. The seller still operates the wells under its own permits, so questions about working a well go to your abandonment engineer.

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