When should producing properties in irreversible decline be shutin? When abandoned? These questions are addressed from an economic perspective. The questions are old, but analyses reveal new, currently relevant facets of decisions to shutin and abandon producing properties. producing properties
Consider a property currently producing oil under irreversible decline; further, assume that no viable-options exist to arrest the decline. Presumably, this is a normal, ultimate condition of all producing properties. Calhoun recently applied the adjective producing properties. Calhoun recently applied the adjective "geriatric" to describe wells in this condition; here we will apply the term to producing properties as well.
The options an operator of a geriatric producing property are two:
Continue to produce or
After and simultaneous with shutin, the operator may have the two options:
Abandon the property or
Maintain the property without production.
Commonly, shutin of production and abandonment of production. Commonly, shutin of production and abandonment of the property are considered coincident at the so-called economic limiting time for project evaluation; the practice is entirely appropriate save for the geriatric properties considered here. Shutin of production and abandonment of the property are two separate decisions, sequenced in time, which the operator can make for geriatric properties. This study examines the economics of those two separate and distinct decisions by operators of geriatric properties. properties. Abandonment: A Newly Relevant Matter. Abandonments have been and will be ongoing events in the oil business; abandonments are certainly not new in the business. Presently, however, abandonments have become an issue with ramifications. In the United States and other countries, current economics force more and more, at least proportionately, producing properties into the geriatric status. Concern about abandonments of producing properties was a key factor in newly proposed U.S. Department of properties was a key factor in newly proposed U.S. Department of Energy fossil fuel research priorities. Accelerating abandonments raise dual concerns about environmental aspects and loss of potential targets for tomorrow's EOR technologies. The "growing potential targets for tomorrow's EOR technologies. The "growing trend toward resource abandonment portends a substantial increase. in the number of idle, orphaned or shut-in wells that could harm freshwater aquifers, wetlands, and other critical resources" and "costs of inspection, enforcement, and plugging liability will likely become massive" are concerns voiced by the Interstate Oil Compact Commission.
Abandonments are often exceedingly expensive, too. A recent reports estimates about 200 structure removals per year circa 2010 in the Gulf of Mexico alone at a cost, in 1985$, of $300 to $400 million per year. Structures in water over 400 feet deep have estimated removal costs around $100 million. The unique problems of structure removal for abandonment in the North Sea problems of structure removal for abandonment in the North Sea have been studied.
The current incidence and costs of abandonments combined with the potential environmental concerns that loom and the lost opportunities for future EOR exploitation make this study newly cogent and necessary.
Consider a property producing now (t=0) at the rate, qo, in barrels of oil per year declining exponentially such that q=qoexp(-Dt) where D is the decline rate (1/year). Also consider than no feasible investment is possible that will arrest the prevailing production decline; thus, the property is geriatric.
(Only exponential decline is treated here; other decline functions are readily adapted to the same treatments. Also, for explanatory simplicity, only oil production will be treated here; treatments for declining producing revenues from oil and gas are simple variants.)