The American Carbon Standard (“ACR”) registry has proposed new methodology that will provide the quantification and accounting frameworks, including eligibility and monitoring requirements, for the creation of carbon offset credits from the reduction in methane emissions by plugging abandoned and orphaned oil and gas (“AOOG”) wells.
This methodology’s public commentary period has closed and is now in a scientific peer review. The public commentary led to ACR to make a few significant recommendation changes relative to their initial version 1.0 methodolgy reports, chiefly among them include:
The timing on the final proposal is in the hands of the reviewing body, but ACR is maintaing a time target of end of the third quarter, or by October 2022. Once this methodology is approved, project developers can then register themselves and their AOOG projects with ACR in order to earn carbon offsets which then can be sold into the voluntary carbon credit market.
Abandoned wells in this methodology refer to unplugged wells with no recent production (which will be pared down to a six-month horizon), which have a known, solvent operator.
Orphaned wells in this methodology refer to wells without a solvent operator and are typically liabilities of the state, and that are not plugged or have been poorly plugged and require additional plugging measures to prevent emissions.
The distinction ACR is making is between these two terms is whether the well is associated with an active or solvent operator or has become the responsibility of the state or province. Even when there is a solvent operator associated with a well, many states and provinces allow operators to categorize wells as “idle” for a certain amount of time or, in some cases, indefinitely. Many wells remain classified as active or producing beyond their economic life to avoid plugging costs and/or maintain producing privileges or mineral leases.
The major challenge in the success of this opportunity to earn carbon credits for plugging AOOG wells will be the economics between the costs of well plugging versus the amount, and the value, of the credits earned. ACR estimates that less than 10% of AOOG wells will pay for themselves by simply applying this methodology and earning ACR credits in which to sell. As another aside to ACR's comments, credit prices for this project type is expected to be wide spanning and very much dependent on the amount of methan being emiited from the subject wells that are plugged. Having noted this, there will likely be situations where a large, contingent group of wells will allow enough scale to make the project profitable based on the carbon credits alone, or perhaps a set of wells that are very signifcant methane emitters such that their abatement will qualify for a large enough number of carbon credits to pay for itself or allow for a profit from the project.
However, ACR anticipates that the carbon credits granted in most approved AOOG well plugging projects will work in tandem with other incentives to motivate an AOOG well plugging project that would otherwise not be worthwhile, such as advantageously contributing to an asset retirement program on a marginal basis by including additional abandoned wells, or perhaps generating goodwill from authorities and/or investors by voluntarily plugging emitting AOOG wells when not required.
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