Marginal Wells: Not Adding Up


Jan 22, 2024

Marginal Wells: Not Adding Up

Marginal wells generate relatively small amounts of income due to the nature of the asset - residual gas or oil production from a late-life well. Many marginal wells are borderline uneconomic to produce, with even the most basic issue prompting abandonment. However, for many operators keeping a well on production as long as possible is a necessity, as retirement costs can be significant and highly variable. This stems primarily from the higher set of standards operators are required to comply with once a well reaches the final stages of its lifecycle. While from an operational perspective this increased burden makes sense due to the risk of remediation efforts impacting production, from a financial perspective it creates a host of problems. With less revenue coming in from the well at the tail end of its productive life, funds to properly decommission the well are often insufficient. This issue clearly evidenced by the sheer number of orphan wells across the U.S. (130K documented).

Lifecycle of a Well: Boom to Bust

Wells producing over 15 boe/d are categorized as non-marginal, less than 15 boe/d as marginal, and under 0.5 boe/d as extremely marginal. Research estimates that extremely marginal wells emit approximately 11% of U.S. total methane from oil and gas production while producing just ~0.2% of oil and ~0.4% of gas.

Cost of Compliance: Monitoring vs Mitigating

The U.S. has ~800,000 active wells, with around 75% classified as marginal. About 1 in 3 of the 800,000 are considered extremely marginal. These ~275,000 wells are at risk of immediate abandonment once the proposed EPA methane rules (i.e., quad O compliance) and methane emission fees come into effect in 2024. Other marginal wells will also be at risk in the medium term due to maintenance, monitoring/inspections, and equipment concerns.

EPA rules will require optical gas imaging (OGI) of all pad locations/tank batteries in addition to inspections and gas reading on wellheads: estimated quarterly OGI cost is $4,500/pad. The costs of mandated monitoring are simply not feasible for the negligible production of extremely marginal wells.

With these new rules the economics change making abandonment the most logical solution for most extremely marginal wells.

Financial Scope: Reality Check

However, the financial implications of closing 275,000 wells anytime soon staggering. Considering that the “average” cost of plugging a well (excluding site restoration) commonly varies from $20,000 to $50,000, the low end of the total to properly abandon just the existing inventory of extremely marginal wells would be ~$5.5 billion, while the upper end is in excess of $13.75 billion.

Clearly a compromise necessary when it comes to marginal wells. Prioritizing closures based on methane emissions and costs should be considered to maximize the impact of available resources, with more funding critical to eventually solving the problem. In their current state the new fees will see operators struggle to finance and execute large-scale simultaneous abandonment campaigns and smaller companies forced into bankruptcy, further compounding the already significant orphan well issue.

Federal Assistance: Make or Break

The federal government is funding state efforts for marginal well closures, but the next 2 to 5 years will be critical for marginal well owners and communities that depend on the industry. States may use federal funding to prioritize closures by methane intensity, absolute methane emission volumes, cost of closing, or other guidelines. Methane fees could be used to fund additional well closures, but the fee allocation has not yet been announced.

Realistic Transition

A transition that allows companies to manage well closure on a realistic timeline will protect states and taxpayers from a sudden surge in orphan wells. It is imperative that these considerations are properly addressed in the final rules and their ensuing interpretation to maximize emissions reduction.

For operators seeking to streamline abandonment, BioSqueeze provides a cost-effective solution that minimizes risk to ensure programs stay on track and avoid costly overages and delays. Using natural soil bacteria delivered via low-viscosity fluids that form new minerals similar to limestone, BioSqueeze efficiently eliminates methane in the form of sustained casing pressure/casing vent flow while leaving the well full ID thus ensuring regulatory requirements are satisfied with minimal impact on standard abandonment procedures.

Have a well you'd like us to take a look at? Fill out the form below and our team will conduct a wholistic evaluation of the well and recommend next steps to eliminate annular leaks/gas migration free of charge.
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