Government Orders Idle Gulf of Mexico Oil and Gas Wells CappedSep 16, 2010 | Parker Waichman LLP
In the wake of the BP oil spill, the federal government has ordered oil and gas companies to permanently plug wells in the Gulf of Mexico that have been idle for more than five years, and to dismantle any unused oil platforms. Up until this point, producers often waited years after the infrastructure had been out of use to properly seal and dismantle their equipment.
Existing regulations already require wells to be plugged and platforms to be dismantled within one year after a lease is terminated. But under the new rules, companies must decommission unused equipment even if the leases are still active.
According to a Wall Street Journal report, there are 3,500 non-producing wells in the Gulf of Mexico, and 650 oil and gas platforms that are no longer in use. When they are finished with a well, gas and oil producers often seal them temporarily, in case they want to reopen it a later time. Permanently sealing a well, as the government is demanding, makes it nearly impossible to reopen it.
But the Interior Department and Bureau of Ocean Energy Management, Regulation and Enforcement say plugging the idle wells is necessary.
“As infrastructure continues to age, the risk of damage increases. That risk increases substantially during storm season,” Michael R. Bromwich, director of the Bureau of Ocean Energy Management, Regulation and Enforcement, said in a statement. “This initiative is the product of careful thought and analysis and requires that these wells, platforms and pipelines are plugged and dismantled correctly and in a timely manner to substantially reduce such hazards.”
According to the statement, oil and gas firms will have 120 days to submit a company-wide plan for decommissioning affected facilities and wells. The plans must contain details for each individual well and facility, including specific dates for the submission of related permits and for commencing and completing decommissioning work. After the Bureau of Ocean Energy Management, Regulation and Enforcement has approved a company’s decommissioning plan, bureau officials will track the progress of each company and of the industry as a whole.
Producers, of course, are crying foul over this new initiative. One expert told The Wall Street Journal that the cost to plug idle wells and remove unused structures could total $1.4 billion to $3.5 billion. Producers also could potentially give up as much as $18 billion in revenue from future production.
But, the same Journal article also points out that the initiative is likely to increase employment in the area. Yesterday’s announcement boosted the stock prices of some oil-field service and offshore drilling companies, as investors bet the companies could profit from new government-mandated work, the Journal said.