Latest update November 29th, 2024 1:00 AM
14,000 oil wells left unplugged in Gulf of Mexico
…could cost US-billions to safely seal
Kaieteur News – Plugging and abandoning wells is a policy priority because unplugged wells present potential financial and environmental risk to the public.
An offshore oil rig in the Gulf of Mexico (Shutterstock/nektofadeev)
That process is called decommissioning, which is a complex and costly process at the end of the economic life of an individual oil and gas project. It involves the safe plugging and abandoning of oil wells, removal of structures and restoration of the surrounding areas.
Offshore wells, compared with land wells, generally produce more, cost more to plug and abandon and present different environmental risks – a new study by Nature Energy revealed.
Nature Energy estimated that the cost for the plugging and abandoning all 14,000 unplugged, non-producing wells in the United States Gulf of Mexico offshore waters, inland waters and wetlands would cost about US$30 billion.
Oil and gas companies are legally required to plug wells once they are taken out of production, which usually involves a cement cap covered with sediment.
It was also stated that wells in the shallower waters closer to shore make up 90% of inactive wells but only 25% of total decommissioning costs. However, it was noted that those wells present larger environmental risks.
Notably, prior owners of wells in federal waters (deeper and farther from shore) can be held liable for plugging and abandoning costs if the current owner does not. “We find that 88% of outstanding P&A liability in federal waters is associated with wells currently or formerly owned by one of the large, financially stable ‘supermajor’ companies,” it was further stated.
In Guyana, American oil giant, ExxonMobil’s affiliate, Esso Exploration and Production Guyana Limited (EEPGL) has been taking out money from Guyana’s oil production for decommissioning.
Exxon’s affiliate is the operator of Guyana’s lucrative Stabroek Block which has over 11 billion proven barrels of oil.
Under a signed deal – the Production Sharing Agreement (PSA) – the oil giant has been taking out money from the first day of production (2019) to set aside as a decommissioning fee. It should be noted that the revenue has to be set aside in a special account, held by the Government to cover these costs when the time comes.
However, the Stabroek PSA jumps off the precipice of international best practice, and into a bottomless pit of abnormality on this front. ExxonMobil and its Partners which include Hess Corporation and CNOOC Petroleum Guyana Limited are able to benefit from a lopsided system that allows them to keep decommissioning funds in their pockets.
Based on its 2021 financial statements, for 2020 and 2021, ExxonMobil and its partners, Hess Corporation and CNOOC Group, have recovered a whopping US$355.7 million for decommissioning costs which would be incurred in another 18 years for the Liza Phase One Project.
During an engagement with the media last June, ExxonMobil Guyana acknowledged that decommissioning funds are not needed until 20 to 30 years down the line. Be that as it may, the company noted that the provisions of the 2016 Stabroek Block deal allow for early recovery.
However, the oil giant assured nonetheless, that when Guyana needs that money for clean-up, the money will be handed over.
Earlier this year, Commonwealth Secretariat warned its member countries in the oil and gas industry of the uncertainty of decommissioning costs, which can result in the price tag to restore the ocean floor, easily moving from US-millions to US-billions.
The Secretariat urged Governments to ensure they implement policies and regulations that would require oil and gas companies giving regular estimate on decommissioning costs.
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