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Agreement does not allow an owner to avoid its DRR obligations by
transferring its ownership interest in PBU.
The Reasonableness of Exxon’s $24 Million Estimate for
Prudhoe Bay Well-Plugging and Other Well-Site DRR Costs
Of the total $928 million estimated by Exxon’s experts for
total fieldwide DRR costs, $111.6 million relates to well-site
DRR costs--$85 million for plugging the 645 wells and $26.6
million for closing the pits next to the wells and for cleaning
up the 37 well sites. We discuss below the reasonableness of
Exxon’s estimate of $24 million (22 percent of $111.6 million)
for its share of Prudhoe Bay well plugging and well-site cleanup,
the only DRR costs that we have determined satisfy the first
prong of the all-events test of the accrual method of accounting.
Respondent claims that all of Exxon’s estimated Prudhoe Bay DRR
costs are too remote and speculative, that they cannot be
ascertained with reasonable accuracy, and therefore that they do
not satisfy the second prong of the all-events accrual test.
To protect against hydrocarbon leakage after abandonment of
the wells, AOGCC regulations require that upon abandonment each
well must be “plugged in a manner which will permanently confine
all oil, gas, and water to the separate strata originally
containing them.” This procedure involves setting a series of
cement plugs to seal the wells. Exxon presented a cost-effective
plan, which makes use of coiled tubing units, for setting such
plugs. Exxon’s plugging method achieves the regulatory
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