Inactive Oil Wells to be Plugged

Oil and gas companies must permanently plug thousands of inactive wells in the Gulf of Mexico of at least five years under a federal order issued Wednesday. This can cost well owners billions of dollars, but it could also create job opportunities for rig workers. The U.S. Interior Department and its offshore-drilling oversight agency said companies must cement 3,500 wells that aren't producing oil or gas. Another 650 oil and gas platforms must be dismantled if they are not being used; this becomes effective October 15. Companies are given 120 days to submit plans to decommission production facilities and wells. Under the regulation, any well that has not been used during the past five years for exploration or production must be plugged. Owners of these wells have to pay for the permanent sealing of the wells and cannot reopen them later for production. Stock prices of some oil-field service and offshore drilling companies have risen because investors have bet that the companies could profit from new government-mandated work. Director of Research and Development at the Center for Energy Studies at Louisiana State University, Mark Kaiser, estimated that the plugging and abandoning inactive wells and removing idle structures could total $1.4- $3.5 billion. He estimated that companies would be losing up $6-$18 billion in revenue from future production.

Many lawmakers have been concerned by abandoned wells after the April 20 oil spill by BP in the Gulf of Mexico. That well is temporarily plugged but could be permanently seal by Sunday, according to Coast Guard Administrator Thad Allen. The Interior Department said idle wells and platforms could threaten the environment and pose a financial liability if destroyed or damaged by an event such as a hurricane. Bureau of Ocean Energy Management Director Michael Bromwich said that the risk of damages increase as the infrastructure ages.

Existing regulations require wells to be plugged and platforms to be dismantled within one year after a lease is terminated. But some lawmakers believe this rule hasn't been enforced. Under the new regulations, companies must decommission unused equipment even if the associated leases are still active. The government's success in overseeing the plugging of abandoned wells could depend on funding. The Interior Department has asked Congress for money to hire six workers to oversee the plugging and decommissioning process.

-Kelsey Tomlinson