When the well no longer produces or produces so poorly that it is a liability, it is abandoned. The point at which the well no longer makes a profit and is plugged and abandoned is called the “economic limit.” The equation to determine the economic limit contains four factors, namely:
(1) taxes,
(2) operating cost,
(3) oil price, and
(4) royalty.
When oil taxes are raised, the economic limit is raised. When oil price is increased, the economic limit is lowered.
When the economic limit is raised, the life of the well is decreased. Proven oil reserves are lost when the life of an oil well is decreased. Inversely, when the economic limit is lowered, the life of the well is increased. Proven oil reserves are increased when the life of the well is increased.
At the economic limit there often is still a significant amount of unrecoverable oil left in the reservoir. It might be tempting to defer physical abandonment for an extended period of time, hoping that the oil price will go up or that new supplemental recovery techniques will be perfected. However, lease provisions and governmental regulations usually require quick abandonment; liability and tax concerns also may favor abandonment.
In theory an abandoned well can be reentered and restored to production (or converted to injection service for supplemental recovery or for downhole hydrocarbons storage), but reentry often proves to be difficult mechanically and not cost effective.
In this process of Abandonment, tubing is removed from the well and sections of well bore are filled with cement to isolate the flow path between gas and water zones from each other, as well as the surface. Completely filling the well bore with cement is costly and unnecessary. The surface around the wellhead is then excavated, and the wellhead and casing are cut off, a cap is welded in place and then buried.
