Industry Perspective on Well Decommissioning Pennsylvania Orphaned and Abandoned Well Workshop May 16, 2018

Transcription

1 Industry Perspective on Well Decommissioning Pennsylvania Orphaned and Abandoned Well Workshop May 16, 2018

2 Abandoned wells present a significant danger to the public. 2

3 Understanding the tactical nuances of P&A is critical to making strategic change A successful P&A project requires navigating significant operational hurdles. Orphan well programs are expensive due to market structure. Solutions are within reach. 3

4 Understanding the tactical nuances of P&A is critical to making strategic change A successful P&A project requires navigating significant operational hurdles. Orphan well programs are expensive due to market structure. Solutions are within reach. 4

5 This is how a P&A job should look. 5

6 This is how a P&A job should look. 7 Days $15,000 - $25,000 Wireline Services 6

7 This is how a P&A job actually looks. 2-3 Months $150,000 - $250,000 Wireline Services < 1960 Wireline Services Wireline Services 7

8 This is how a P&A job actually looks. Intro Operations Structure Solutions Conclusion 8

9 This is how a P&A job actually looks. 9

10 Understanding the tactical nuances of P&A is critical to making strategic change A successful P&A project requires navigating significant operational hurdles. Orphan well programs are expensive due to market structure. Solutions are within reach. 10

11 Profits P&A services are relatively low margin in the oilfield services sector. OFS Profits over the Well Lifecycle Drilling Completions Production Servicing P&A 11

12 Financial constraints and significant risk keep the P&A market highly fragmented. High CAPEX, Maintenance, and Fuel Expense General Liability, Umbrella, Automobile, Inland Marine, and Professional Insurances High working capital requirements (large A/R, small A/P) Rent expense Decision-makers accept high operational risk daily O&G market is volatile Business is highly seasonal Market has shifted toward a turnkey model placing all risk on the contractor 12

13 The plugging market for O&G operators sustains existing contractors in the region. Total Available Market PA 191,216 WV 73,067 OH 54,459 M-U Operators >10 Unconventional Wells PA 34,486 WV 27,921 OH 6,492 Segment Total: 68,899 Source: PADEP, ODNR, WVDEP databases, accessed Jan

14 The structure of most orphan well programs requires contractors to charge a premium. Plugging for O&G Operators Jobs are lump sum bids (efficient operations result in greater profits). P&A projects involve long-term commitments (10 or more wells per year). Boosts reputation and company brand. Allow for opportunities beyond P&A. Plugging Orphaned Wells Jobs are paid based on time and material but with a not-to-exceed ceiling P&A projects are awarded to the lowest bidder and may only consist of 1-2 wells. More restrictive timelines to complete projects. Perception exists that P&A contractors who mainly work on orphaned wells are cheap and unsafe. Good work does not necessarily result in future work. Orphaned Well Premium: 30% 100% 14

15 Understanding the tactical nuances of P&A is critical to making strategic change A successful P&A project requires navigating significant operational hurdles. Orphan well programs are expensive due to market structure. Solutions are within reach. Intro Operations Value Solutions Conclusion 15

16 % Total Revenue Employees Contractors need more flexibility when completing projects. P&G Revenue and Employees by Month in % 12% 10% 8% 6% 4% 2% % JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC % of Annual Revenue 7% 5% 7% 2% 3% 7% 10% 14% 14% 17% 8% 7% # of Employees Intro Operations Value Solutions Conclusion 16

17 Pennsylvania must commit more funding to its orphaned and abandoned well program Wells Plugged under the Ohio Orphan Well Program HB ,006% Increase 80 0 FY13 FY14 FY15 FY16 FY17 FY18 (proj) FY19 (proj) Source: Ohio Department of Natural Resources, Jan Intro Operations Value Solutions Conclusion 17

18 A nonprofit can supplement PADEP efforts under the Environmental Good Samaritan Act. Fundraising Project Management Procurement Lobbying $11.05 billion Source: Giving USA 2017, Annual Philanthropy Report Search Teams Intro Operations Value Solutions Conclusion 18

19 Understanding the tactical nuances of P&A is critical to making strategic change A successful P&A project requires navigating significant operational hurdles. Orphan well programs are expensive due to market structure. Solutions are within reach. Intro Operations Value Solutions Conclusion 19

20 Questions? Intro Operations Value Solutions Conclusion 20