April 7, 2022
Climate reporting should include disclosures surrounding inactive oil and gas wells including the age of the well, any emissions from inactive wells, the date of last production, and the estimated length of time the well is to remain inactive (or idle) and unplugged.
Additionally, companies should disclose their plans for closure, including current retirement costs (actuals from recent closures) compared to their current total ARO liability.
By disclosing these items, investors and the public will better understand how companies plan to pay for the cleanup of their assets at the end of their useful lives.
Asset retirement is an essential part of the oil and gas production cycle however, because these liabilities are a future task, they are far past the planning cycle of the current focus of management. This leads to the moral hazard that has allowed companies to under-risk and underfund the associated liabilities.
Since these liabilities are underfunded, when companies become insolvent the idle wells that are not plugged become orphan wells. Orphan wells are hazards to the environment and surrounding communities. These stranded assets are not monitored, studies have shown that they emit methane and carbon dioxide. They have significant potential to contaminate the surrounding soil and groundwater. These sites also often include dangerous equipment that poses significant risk to the environment and human safety.