Carbon Finance Options Emerge for Plugging Old Oil Wells

Source: ClimateWells

Key Points: Two developments in mid-April marked progress toward new financing options for plugging old oil wells: Zefiro Methane IPO’d in Canada and ClimateWells announced JP Morgan’s support for plugging marginal wells in Los Angeles. Both intend to use carbon offset credits (mostly for avoided methane emissions) as a revenue source.

Zefiro Methane IPO’d on the Cboe Canada Inc. exchange. This is not the first opportunity to buy equity in a carbon offset company (as opposed to buying offsets directly). The London Stock Exchange allowed it starting in 2022. The LSE listings, however, are mutual funds that have invested in carbon offset projects (e.g. Foresight Sustainable Forestry). Zefiro is the first company to list with a revenue stream tied to offset crediting — in this case to plugging orphaned and abandoned oil and gas wells.

Zefiro intends to use American Carbon Registry’s orphaned well methodology as well as a methodology for abandoned wells when one is established. (Note: both well types have been abandoned and are no longer producing, but unlike an orphaned well an abandoned well still has an owner of record; standard industry lexicon refers to abandoned wells as idle or non-producing wells.) Zefiro indicates it is developing a pipeline of prospects including both well types. With that said, Zefiro’s assets are comprised of service rigs, wireline units and related equipment acquired in two acquisitions in 2023 and revenue could also come from plugging and measurement contracts.

The above comments under no circumstances should be construed as investment advice or an investment recommendation in regard to Zefiro shares.

Note that the only credits that have been issued using the ACR methodology are from another project developer, Rebellion Energy Solutions, for its Heartland Methane Projects. Those credits were issued in January and remain outstanding.

ClimateWells’ plugging of marginal wells in Los Angeles. ClimateWells is undertaking plugging activity through August 2024 in the Wilmington neighborhood in Los Angeles. Its scope of work is to plug dozens of marginal wells (of which two have active flares), gas processing equipment and transmission lines. JP Morgan’s announcement affirms that it is continuing First Republic’s initial support of the work back in 2022.

Marginal wells, in contrast with orphaned/idled wells, are still producing but have been associated with very high methane fugitive emissions relative to their production. There are an estimated 335,000 wells in the United States (out of nearly 900,000 producing wells) that produce less than 1 barrel of oil equivalent per day; these marginal wells collectively produce 0.2% and 0.4% of U.S. oil and natural gas, respectively, but comprise 11% of the country’s estimated methane emissions from oil and gas production.

ClimateWells has developed a methodology for crediting of marginal well closure. This methodology is currently listed on the Open Carbon Protocol. Channel checks indicate that it is expected that the offset credits will list on the International Carbon Registry; ICR is listed as a CliimateWells’ partner.

For more information about carbon finance for plugging oil and gas wells in their different lifecycle stages, please see this article.

4/29/2024