Investors and taxpayers face paying out billions in clean-up costs as oil and gas companies prematurely close wells, according to latest research.
The study by think-tank Carbon Tracker suggests there are between 3.3 to 4 million active, idle or abandoned but unplugged wells in the USA.
But a failure to plan for an orderly energy transition and underestimates of the cost of closing deep shale wells will mean oil and gas companies passing on huge bills to investors and taxpayers.
Falling demand and prices - driven by the Covid-19 pandemic and energy transition - are forcing the early closure of tens of thousands of wells and jeopardising any chance of reactivating hundreds of thousands idle wells. The closures are occurring decades ahead of schedule and exceeding industry expectations, Carbon Tracker warns.
The cost of plugging a typical 10,000 shale well is around $300,000, vastly exceeded past industry and regulator projections of between $20,000 to $40,000.
The think-tank says the disparity reflects a failure to consider how modern shale wells are much deeper than older orphaned wells, thereby driving up costs.
Under federal and state regulations, operators must plug a well that is no longer usable and restore the location to a safe and clean condition. However states do not require companies to report these liabilities or set aside money to pay for the full cost of new and producing wells. This gives operators an incentive to delay closing wells, resulting in a ballooning number of idle sites.
“States are in a bind of their own making,“ says Carbon Tracker North America director Robert Schuwerk. “By not requiring pre-funding of retirement liabilities, they have encouraged companies to delay closure costs as long as possible. The pandemic and energy transition now risk a wave of closures that industry can't afford.“
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