Asset retirement obligations (AROs) require oil companies to plug wells, dismantle installations, and restore the surrounding area when a well’s life ends. As the world moves away from fossil fuels, the scale of these retirements will increase significantly, carrying substantial financial and environmental consequences.  

Independent operators, who manage 33% of global oil production, lack the deep financial resources of the majors and can find themselves overwhelmed by decommissioning costs, which can exceed the net cash flow from the last 15 years of a well’s operations. This turns what appears to be a profitable asset into a financial liability. When they can’t afford it, they may abandon the operation, leaving behind “orphaned” wells. In the U.S. there are 1.2 million orphans. These pose serious environmental risks, including groundwater contamination, methane leaks, toxic emissions, and ecosystem degradation. This is in addition to the U.S.’s 2.6 million documented onshore oil wells that need plugging.  

In most countries a well owner has to pay an AOR bond before they start operations to cover its retirement costs. In almost all instances these are set too low – as low as $1,500 per well in the U.S. This leaves a massive financial gap. In the 15 states that account for 99% of U.S oil production it amounts to just $2.7 billion – the actual cost could reach as much as half a trillion. Even large oil companies face rising costs, with decommissioning expenses expected to grow for some from 10% to 30% of their operating budgets over the next decade.  

The solution to the growing financial and environmental liability lies in the well itself. Even when a well is retired and no longer productive it still has 50-80% of its oil remaining.