Carbon Tracker Fantasy: “Cleanup of deserted oil and gasoline wells may price Texans $117 billion”

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Carbon Tracker Fantasy: “Cleanup of abandoned oil and gas wells could cost Texans $117 billion”

Guest "This is Horstschiefer" by David Middleton

BUSINESS // ENERGY
Rehabilitation of abandoned oil and gas wells could cost Texans $ 117 billion

Paul Takahashi October 1, 2020

Plugging and cleaning Texas’s open oil and gas wells could cost businesses and taxpayers as much as $ 117 billion, according to a new report.

Carbon Tracker, a nonprofit financial think tank that studies the effects of climate change on financial markets, estimates there are around 3.8 million unaffiliated oil and gas wells nationwide, including more than 783,000 across Texas. As the coronavirus pandemic forces more oil and gas companies into bankruptcy, Carbon Tracker fears that more of these disconnected wells could be abandoned, leaving taxpayers on the hook to plug and clean orphan wells.

"Texas has by far the highest number of wells in the United States and the number of orphaned wells is increasing," said Greg Rogers, special advisor and co-author of the Carbon Tracker report. "We are seeing many operators going bankrupt and unable to afford to meet their legal obligations to connect abandoned wells."

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There are more than 6,200 abandoned oil and gas wells in Texas, according to the Texas Railroad Commission, which oversees oil and gas companies operating in the state.

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The number of orphaned wells could continue to grow as society shifts from fossil fuels to more sustainable energy sources. As the world hits or approaches peak oil demand, oil and gas companies may be less motivated to plug in wells, Rogers said.

"If you think the industry is fundamentally healthy with good prospects by the end of this century, that's not really a problem," said Rogers. "On the other hand, we have a big problem when the oil demand is the highest in 2019."

Houston Chronicle

You'd think that the "journalists" with the Houston Chronicle would have some knowledge of the oil and gas industry … Especially since it mentioned the Texas Railroad Commission's estimate of 6,200 orphaned wells. Otherwise there seems to have been no effort to check the crap fed to them by "Carbon Tracker" …

Our task

We are aware that there is a limited global “carbon budget” for cumulative emissions that must be adhered to in order to avoid exceeding 2 ° C and destabilizing the global climate. We believe that capital markets are inconsistent with the capital allocation process, exposing the owners of fossil fuel companies – their shareholders – to potential depreciation, as has already been observed in the EU utilities and US coal mining sectors. We also believe that companies have not given sufficient consideration to the possibility that technological advances and policy change could significantly reduce future demand.

Our job is to help markets understand and quantify these implicit risks.

Carbon tracker

European (misspellings in spelling and destabilizing) environmentalists on Gaia's mission to destroy fossil fuel companies are not reliable sources of information on the oil and gas industry. At the very least, Mr. Takahashi (2010 MA Interactive Storytelling) should have contacted sources in the oil industry or the Texas Railroad Commission, the relevant regulatory body in Texas.

Carbon Tracker claims that Texas taxpayers may have $ 117 billion at stake for plugging and abandoning 783,000 wells.

Total P&A liability Number of wells P & A / Well
Carbon tracker $ 117,000,000,000 783,000 $ 149,425

$ 149,425 per well?

What is the basis for this claim? The average P&A cost of nearly $ 150,000 / well sounds even more ridiculous than the 783,000 potentially orphaned wells. The Houston Chronicle article has links to a Carbon Tracker report that links to another Carbon Tracker report, neither of which has any useful information unless you sign up to download the full reports. I have already received enough SPAM emails, so I have not yet registered with Carbon Tracker.

However, as a petroleum geologist, I know where to look for useful information without exposing myself to a deluge of SPAM.

Abandoned well
What happens to oil and gas wells when they are no longer productive?

Petroleum and the Environment, Part 7/24
Written by E. Allison and B. Mandler for AGI, 2018

introduction

There were 1 million active oil and gas wells in the U.S. in 2017.1 If a well is nearing the end of its life, or if it cannot find economic amounts of oil or gas, regulators will require the well operator to remove all equipment and plug the borehole to prevent leaks.2 Usually, cement is pumped into the borehole to fill at least the top and bottom of the borehole and any parts where oil, gas, or water may leak into or out of the borehole . This generally prevents groundwater contamination and surface leakage. State or federal regulators will define specific clogging procedures and may monitor the clogging process depending on local conditions and risks.

However, there are many instances where wells are not properly plugged before exiting, especially if the well operator goes bankrupt and their wells are left “orphaned.” 3 This is more common when oil prices are falling rapidly and many wells become uneconomical, such as into the oil glut of the 1980s, the financial crisis of 2008 and the downturn of 2014.

In the late 1980s, the U.S. Environmental Protection Agency estimated that 200,000 of 1.2 million abandoned wells may not have been properly plugged.4 Since then, tens of thousands of abandoned wells have been plugged by state and federal regulators, as well as some voluntary industry programs. These efforts continue, and many orphaned wells have yet to be properly sealed. The exact number is unknown: approximately 3.7 million holes have been drilled in the US since 1859.6 and their history is not always well documented. Older wells, particularly those drilled before the 1950s, have likely been improperly abandoned and poorly documented.

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Abandoned Well Plugging Campaigns

For several decades, states have stepped up enforcement of plugging and tidying requirements. States generally require the operator to provide a performance guarantee or other financial assurance that a well will be plugged and the well location restored. However, the borrowing amounts may not cover the cost of clogging and cleaning up if an operator goes bankrupt.11 Most states therefore impose fees or a production surcharge on operators specifically designed to remediate orphaned wells and associated surface equipment For example, Pennsylvania adds an orphan well surcharge to application fees for drilling permits 14, while Texas adds a 5/8 cent surcharge for oil field cleaning to the state oil production tax of 4.6 %.15 The Oklahoma Energy Resources Board rehabilitates abandoned wells with voluntary industry contributions 0.1% of oil and gas sales. 16

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American Geosciences Institute

Orphaned wells are a problem. It is mostly associated with very old, poorly documented wells. Wells can also be orphaned if the operators go bankrupt. States currently require a certain amount of bond and duty taxes and surcharges to fund P&A work on orphaned wells. The states also have ongoing P&A programs for orphaned wells. AGI locations with specific numbers for state and federal P&A programs. Let's compare the fantasy of Carbon Tracker with the real world.

Total P&A liability Wells P & A / Well
Carbon tracker $ 117,000,000,000 783,000 $ 149,425
TX 1984-2008 163,000,000 USD 35,000 $ 4,657
TX 2017 $ 11,600,000 918 $ 12,636
OK since 1994 $ 100,000,000 15,000 6,667 USD
CA since 1977 $ 27,000,000 1,350 $ 20,000
BLM 1988-2009 $ 3,800,000 295 $ 12,881
Real world $ 305,400,000 52.563 $ 5,810

In a presentation at the 13th annual Ryder Scott Reserves Conference, the Texas Railroad Commission numbers for 2013-2017 were cited:

Wells Cost (millions) P & A / Well
2013 778 $ 20.9 $ 26,900
2014 563 $ 15.0 $ 26,600
2015 692 $ 10.7 $ 15,500
2016 544 $ 8.5 $ 15,700
January-June 2017 223 $ 2.4 $ 10,800
Real world 2,800 $ 57.5 $ 20,536

$ 5,800 to $ 20,500 per hole is just a little less than $ 150,000 per hole. However, P&A costs for individual wells can vary widely. A 2015 Wyoming Public Radio report of orphaned wells in Wyoming had the following graphics:

The rising cost of cleaning after oil and gas

The vast majority of the wells cost P&A less than $ 10,000 each. Some wells came into the Carbon Tracker area, mostly deeper wells. However, there is clearly no solid relationship between depth and P&A cost.

The rising cost of cleaning after oil and gas

Bet what the R2 is? There should at least be some statistical relationship between depth and cost, but the sample size is far too small for meaningful statistics. Only five holes exceeded $ 100,000 with the most expensive being a shallow hole (~ 3,000 feet).

What happens to orphaned wells? At least four things can happen, only one of which involves tax money.

Things that can happen to Orphaned Wells
• Plugged or brought back into production by
current operator
• Put back into production by a new operator
• The surface owner can pocket well
• The Railway Commission is doing well

Ryder Scott

Where do states get the money for orphaned P&A wells from?

Texas

Sources of money that RRC uses for funding
Clog the orphan well

• Recovered by the responsible party
• Salvaged from salvaged devices
• Of performance guarantees, letters of
Credit and cash deposits
• Taxes and fees paid by industry and the public

13th annual Ryder Scott Reserves Conference

Wyoming

Between 1997 and 2014, it cost the state of Wyoming a total of $ 11 million to plug orphaned wells, and only $ 3 million was covered by bonds. The other $ 8 million came from the Conservation Tax Fund – a state tax levied on oil and gas extraction that finances the regulator who oversees the industry and pays for things like clogging wells.

The rising cost of cleaning after oil and gas

State governments get the money back from:

  • The responsible party.
  • Sale of recovered equipment.
  • Performance bonds.
  • Taxes paid primarily by the oil and gas industry,

In the case of the federal government, they can actually pursue the previous owners of a well if the current operator goes bankrupt and cannot cover the P&A costs.

In 2013, Apache sold its shelf activities and properties in the Gulf of Mexico
(Assets Transferred) to Fieldwood Energy LLC (Fieldwood). Under the terms of the Agreement, Apache received $ 3.75 billion in cash, and Fieldwood assumed $ 1.5 billion in discounted asset abandonment liabilities. In relation to such demolition liabilities, Fieldwood has issued letters of credit in favor of Apache (Letters of Credit) and has set up an escrow account (Trust A) funded with a net interest rate of 10 percent depending on the future oil price and Apache is the beneficiary. On February 14, 2018, Fieldwood filed for protection under Chapter 11 of the US Bankruptcy Act. In connection with the 2018 bankruptcy, Fieldwood confirmed a
Plan according to which Apache agreed, among other things, to accept bonds in exchange for certain letters of credit. Apache currently holds two bonds and the remaining letters of credit to secure Fieldwoods Asset Retirement Obligations (AROs) for the transferred assets if those demolition and retirement obligations need to be met over the remaining life of the transferred assets.

Given the current commodity price environment, declining demand for oil and gas, and recent media reports, Fieldwood could run into financial trouble. If Fieldwood finds itself in financial distress, Apache has no way of knowing whether or to what extent Fieldwood can continue to execute its AROs in relation to the transferred assets. If Fieldwood fails to perform any of its AROs in relation to the transferred assets, Apache's remedy is a claim for damages against Fieldwood for breach of its contractual obligations under the contract.

If Fieldwood does not execute any of its AROs on the transferred assets, Apache would expect appropriate government agencies to execute such AROs and hold Apache financially responsible for them, unless it is done by Fieldwood. Until an Apache claim for breach of the Agreement is resolved, Apache may be forced to use available cash to cover the costs it incurs in performing such AROs. While Apache assumes that Apache can reimburse all or some of these costs under the remaining Letters of Credit, Bonds, and Trust A, it is possible that such decommissioning security will not be sufficient to cover all of Apache's costs and expenses Implementation of such AROs emerged.

Market Screener

States generally do not have laws that allow them to find previous owners of wells. Costs that cannot be reimbursed by those responsible are covered by tax revenues and other fees from oil and gas producers.

From 2007 to 2009, oil and gas well operators in Texas paid the state over $ 149 billion in taxes and royalties for oil and gas production.

New record: Texas’s oil and gas industry paid $ 16.3 billion in taxes and government royalties in 2019, the most of them in Texas history

"Last year alone, the Texas oil and gas industry paid the equivalent of $ 38 million a day to fund our schools, roads, universities and first responders," said Todd Staples, president of TXOGA. "More tax and royalty income from the oil and natural gas industry means our lawmakers will have to work harder to meet the needs of our growing state."

In fiscal 2018, Texas school districts received $ 1.24 billion in property taxes from mineral properties producing oil and natural gas, pipelines, and gas utilities. The counties received property taxes on oil and natural gas minerals of $ 366.5 million.

"In addition to taxes and royalties, Texas oil and gas companies are investing billions in advanced technologies that protect and improve our environment – proof that we can grow our economies, protect the environment and improve our energy security at the same time." Staples said. US CO2 emissions are near 20-year lows, and methane emissions from oil and natural gas systems have decreased 14 percent since 1990 – while production has skyrocketed.

Government royalties paid by the oil and natural gas industry in fiscal 2018 rose 18 percent to a total of $ 2 billion. These funds will activate the Permanent School Fund (PSF), which will benefit Texas Public Schools and the Permanent University Fund (PUF), which will benefit Texas Public Higher Education. According to Staples, the oil and natural gas royalties are the only substantial new money paid into PSF and PUF annually.

"What is remarkable to me is that the Texas Permanent School Fund, rarely recognized outside of Texas, leads the pack among ALL educational institutions in the country," he said. "With a balance of $ 44 billion at the end of fiscal year 2018, the PSF is the largest educational foundation in the country – larger than Harvard University's $ 39.2 billion endowment."

The Texan oil and natural gas industry paid more than $ 14 billion in taxes and royalties in 2018, up 27% from 2017

What's more notable than the fossil fuel-powered Texas Permanent School Fund, which is the largest educational foundation in the country? Well-educated idiots at the University of Texas in the People's Republic of Travis County are actually calling for the UT system to get rid of fossil fuels. I don't slate you.

In 2019, Texas oil and gas producers paid over $ 16 billion in taxes and royalties. So the state spent 25% of the income:

FY2019 Billions
Taxes and royalties paid $ 16.28
Consumed %.
School districts $ 1.54 9%
Counties $ 0.40 2%
Permanent University Fund $ 1.02 6%
Permanent school fund $ 1.11 7%
TX RRC P & A. $ 0.03 0.21%
TX RRC Pollution Clean Up $ 0.00 0.01%

In fiscal 2009, the Texas Railroad Commission spent about $ 35 million on P&A work on orphaned wells and about $ 2 million on oil and gas pollution reduction. This corresponds to less than 0.3% of the taxes and license fees that the state generates from oil and gas production.

total Wells P & A / Well
FY2019 $ 34,942,911 1.710 $ 20,434

The average P&A cost over the past few years has been around $ 20,000 per well. Taxes and fees already paid by oil and gas producers conveniently cover these costs.

After thoroughly destroying Carbon Tracker's claim that the average P&A cost is nearly $ 150,000 per well, let's move on to the actual number of wells taxpayers may be hooked on.

783,000 orphaned wells in Texas?

Carbon Tracker claims there could be up to 783,000 orphaned or potentially orphaned wells in Texas.

Carbon Tracker, a nonprofit financial think tank that studies the effects of climate change on financial markets, estimates there are around 3.8 million unaffiliated oil and gas wells nationwide, including more than 783,000 across Texas.

We must assume that Carbon Tracker's 783,000 are based on the belief that every well in Texas will become a ward of the state. Even then, we cannot reach 783,000.

Wells
Shut down and / or inactive 146.428
To produce 294.271
TX RRC total 440.699
Carbon tracker 783,000

Texas Railroad Commission

Maybe they're just tabulating the total number of wells ever drilled in Texas. A total of 696,406 holes were drilled in Texas from 1960 to 2018. 431,257 of these holes were properly P&A examined.

Currently, out of a total of 146,428 decommissioned and / or inactive wells in the state, the Texas Railroad Commission can identify only 6,208 orphaned wells that do not comply with the commission's obstruction rule.

Wells monitored by the Railway Commission
August 2020

Let's split up the inactive wells.

Only 13% (19,267) inactive wells are currently not compliant with the plugging rules.

Inactive wells % of inactive
Compliant with Bond / LOC 78.316 53%
Compliant shutdown <1 year 48,845 33%
Not conform 19,267 13%
total 146.428 100%

The operators of almost half of the non-compliant wells are in the process of bringing them into compliance (active P-5).

Not conform % of inactive
Active P-5 8,866 6%
Delq P-5 10.401 7%
total 19,267 13%

About 40% of the non-compliant wells were non-compliant for fewer than 12 moths and were not considered orphans.

Delq P-5 % of inactive
<12 months 4.193 3%
> 12 months (orphans) 6.208 4%

Approximately 75% of the currently orphaned wells have been prioritized for P&A.

Orphaned wells % of inactive
Prioritization completed 4,513 3%
Prioritization is in progress 1.695 1%
6.208

Of the 4,513 orphaned wells prioritized, only 1,818 are considered "high priority". The rest is considered to be “low risk” (not urgent).

Prioritization completed % of inactive
High priority 1 3 0.002%
High priority 2H 1,045 0.7%
High priority 2 770 0.5%
High priority subtotal 1,818 1.2%
Low risk priority 3 1,341 0.9%
Low risk priority 4 1,354 0.9%
Low risk subtotal 2,695 1.8%
total 4,513 3.1%

Just over 1% of inactive wells are orphaned and are considered a high priority for plugging.

Conclusion

Unless Joe Biden wins the election and is serious about the crazy things he promised before he promised not to, Texas taxpayers may not be hooked for $ 116 billion to cover the cost cover for closing and leaving 783,000 wells. The only way to make the Carbon Tracker fantasy come true is for the world to suddenly stop consuming oil and gas. In that case, we'd all be dead in a few months. If the US government had done something really stupid like banning fracking. If the federal government were to put the oil and gas industry out of business, taxpayers would be hooked on hundreds of billions of dollars in P&A liabilities … And rightly so, because they chose the idiots who put the industry out of business would have. You would also potentially be liable for $ trillion in damages awarded in lawsuits brought by oil and gas companies for violating the "revenue clause" of the US Constitution.

The vast majority of Texas oil and gas wells are properly P&A eligible at the end of their productive lives. A tiny fraction of the taxes and fees paid by oil and gas producers covers the cost of P&A work that the well operators cannot pay for.

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