If bankruptcy is not your field end of life strategy

Do you have an oil and gas field that is approaching its end of life? If filing bankruptcy is not your end of life strategy, you had better begin planning now. The first step is to realistically determine how much it is going to cost to meet your regulatory and abandonment obligations. This cost should include well abandonment, facility removal, site restoration and remediation of any known or suspected environmental impacts.

After determining your potential abandonment obligations and costs, you can then evaluate the options available. Some of these options are:

1. Sell the field with new operator assuming abandonment obligation. This is a good strategy if the new operator or whoever they sell the field to in the future meets this obligation. If not, the field could “boomerang” back to you and your company must pay to have the field abandoned. It is highly recommended that if you take this option, you have a baseline environmental and asset assessment documented and you require the new operator to have a performance bond for the abandonment liability in place.

2. Turn over abandonment obligations to a turnkey contractor to abandon the field. While this may be an attractive option on a cost and management basis, it does come with its pit falls:

a. Very often additional costs will be required due to change orders for work not specifically included in the contract.

b. Typically the contractor will do the minimum requirements that they can negotiate with the regulatory agency responsible for approving your wellsite abandonment but may not include potential environmental impacts.

c. You are still the operator of record and will be responsible for issues that show up after the contractor is done such as leaking wells, groundwater impacts, environmental impacts.

3. Negotiate an end of life an abandonment strategy with regulatory agencies that meet their closure requirements and your cash flow ability to commit to the effort. You may be able to get variances from individual well abandonment and testing requirements in exchange for commitment to a field abandonment program.

For more information or to discuss your specific asset end of life issues, please contact Chuck Greer with CRG Oilfield Abandonment LLC.