An oil driller leases a drilling site, effective August 1, 2013, which must be remediated after use. The estimated current remediation cost is 10,000. There is substantial uncertainty about the useable life, so the driller prepares a range of estimates: a 25% chance the life is 10 years, a 40% chance the life is 15 years, and a 35% chance the life is 25 years. Create one ARO with three separate layers for the different lives, putting the percentage chance in the Probability field. First layer: Name “Remediation alt 1”, begin date July 1, 2013, end date June 30, 2023, inflation rate 2.3%, risk-free rate 6.5%, probability 25%, cost 10,000. Click Save ARO Item. To create the second layer, choose Add Layer. Keep all information the same except the end date (June 30, 2028) and probability (40%); you may need to change the risk-free rate to reflect the longer life. Save ARO Item, then Add Layer again, and enter the third layer, with an end date of June 30, 2038, and probability 35%. Combined, the three layers have a Total ARO of 5,139.40.
