Upstream Oil and Gas Production Decommissioning

Decommissioning

A well reaches the end of its producing life when the cost to operate it exceeds the revenue it generates. Decommissioning is the process followed to take a well out of service once it has reached this point.

In this lesson, we will discuss the process of decommissioning along with the importance of plugging and abandoning a well. We’ll also explore the differences between onshore and offshore decommissioning. Finally, we’ll look at why a well might be temporarily abandoned.

Decommissioning a well involves 3 main steps:

Dismantling the producing and transportation facilities,
Plugging and abandoning the well and
Restoring the producing area to its original state.

The primary objective of plugging and abandoning a well is to totally contain any remaining hydrocarbons and in particular, protect groundwater reserves. This process also limits fluid movement within the wellbore until nature restores the pressure balance that existed before the well was drilled. Plugging and abandoning is commonly referred to as “P&A”.

An operator’s plan for decommissioning a well is a legal obligation. The plan is reviewed and approved by the applicable governing body, which we will discuss in more detail.

Learn more about Upstream Oil and Gas Production Decommissioning

Onshore decommissioning

Decommissioning an onshore well involves removing all surface equipment, production tubing and uncemented casing. To plug the well, sections of the wellbore are filled with concrete to isolate the flow of reservoir fluids from each other and to the surface. Finally, the surface casing is cut off and a cap is welded in place several feet below the ground, as required by the regulators.

In the US and Canada, the states or provinces regulate onshore well decommissioning. In most other countries, this is controlled at a national level.

In the US, states generally require an oil company to post a bond before a well is drilled. The bond is intended to ensure there are adequate funds to plug and abandon the well when the time comes. The bond requirement is often set as an amount per well but it can vary depending on the well depth or other criteria.

Many states also set aside funds that can be used to plug and abandon wells. These funds are provided by taxes collected on oil and gas production. They can then be used if an oil company goes bankrupt and can’t fulfill its obligations. This can become a political hot topic if a state does not have adequate funding to address all of its abandoned wells. This is of particular concern during periods of low oil and gas prices as multiple oil and gas companies declare bankruptcy.

Offshore decommissioning

Decommissioning an offshore well is much more complex and expensive compared with an onshore well. The planning process for decommissioning an offshore well can take up to three years.

For decommissioning purposes, offshore production facilities consist of two parts. First is the topside, or platform, which is the structure visible above the waterline. This component is generally taken to shore for recycling or reuse.

Second is the substructure that includes the parts below the water’s surface and equipment on the seabed. The seabed is also referred to as the mudline.

The substructure is generally severed 15 feet below the mudline, removed and brought to shore for recycling or refurbished for use in another location. The well is plugged using cement as described previously for onshore wells.

Subsea pipelines or power cables often remain in place. Their removal may be required if they pose an environmental hazard or interfere with navigation or commercial fishing operations.

Offshore decommissioning is generally regulated at the national level. In the US, offshore oil and gas activities are governed by the Bureau of Ocean Energy Management, or BOEM, and the Bureau of Safety and Environmental Enforcement, or BSEE.

BSEE and several states in the US have also established “rigs-to-reefs” programs, widely used in the Gulf of Mexico. These programs allow for an offshore substructure and/or platforms to be partially deconstructed or toppled to create an artificial reef to support marine habitat. Environmental opposition has limited this practice in other parts of the world.

BOEM has extensive policies and procedures in place to ensure that companies operating offshore can meet their decommissioning obligations. BOEM reviews each company’s financial ability to carry out its obligations. Current policies allow for some obligations to be self-insured, but BOEM may also require bonds or other additional security to be posted, before the well is drilled.

Starting in mid 2016, offshore oil and gas lessees and operators are subject to a new final Decommissioning Costs Rule. They are required to submit summaries to BOEM of their actual expenditures for the decommissioning of wells, platforms and other facilities on the Outer Continental Shelf.

Temporary abandonment

An operator may decide to temporarily abandon a well by placing temporary downhole plugs.

This may be done for a variety of reasons. Offshore, many successful exploratory wells are plugged until the platform and subsea facilities are constructed.

A producing well with remaining reserves may be temporarily plugged if market prices are too low to make production or EOR projects profitable

A well that is no longer capable of production may be plugged and retained for future use as a waterflood injection well used in enhanced oil recovery projects.

As with complete decommissioning, temporary abandonment must be done in compliance with lease provisions and regulatory requirements.