In 1859, two years before Abraham Lincoln was sworn in as president and the first shots of the Civil War were fired, Edwin Drake drilled the first commercial oil well in Titusville, Pennsylvania. For more than 150 years, oil and gas development has cycled through boom and bust years in the Appalachian Basin.
The current shale gas  revolution in the Appalachian Basin is providing New England with natural gas to heat homes, run businesses, and generate electricity. The New England states consume over 800 billion cubic feet of natural gas per year. The Energy Information Administration (EIA) statistics indicate that there are more than 2.5 million natural gas customers in New England and natural gas is the primary heating fuel for 35% of residential homes in New England.
The fastest growing gas consumption sector, nationally and regionally, has been natural gas for electric power generation. Gas-fired electric power generation accounted for approximately 50% of New England’s natural gas consumption. According to EIA, New England expects to see more than 1,369 MW of electric power generation retired between 2013 and 2016.
Lower natural gas prices and regional environmental initiatives are leading natural gas-fired generators to provide a greater portion of the electricity in the northeastern United States. Entergy Corporation has proposed closure of the Vermont Yankee 604-megawatt (MW) nuclear plant in 2014 and Dominion Energy Resources has planned the closure of the 750-MW Salem Harbor coal- and petroleum-fired power plant in 2014. So what is the plan for the future? Approximately 1,193 MW of capacity is expected to come on line in New England between 2013 and 2016 and one-half of the capacity additions will be from natural gas.
The rebirth of oil and gas development in the Appalachian Basin is important to the New England states due to its close proximity, reducing transportation costs, thus helping to lower the price of gas.
Improvements in the technology used to bring natural gas from deep bedrock to the surface has given life to the old oil and gas fields of Pennsylvania, Ohio, West Virginia and other states. The greatest improvements have been made in directional drilling, allowing the pipe to intersect a greater area of rock containing oil or gas; and hydraulic fracturing, the process of breaking the rock to release the oil or gas.
While the media pays great attention to “anti-fracking” groups and adds to the environmental misinformation, the industry has been making environmental improvements, including the elimination of historical environmental concerns such as closing of old wells that could contaminate groundwater.
Many oil companies with well-known names like Standard Oil Company (later broken up into Chevron, Exxon, Amoco and others), Pennzoil, and Quaker-State got their start in the Appalachian Basin. Many smaller companies have emerged, merged, sold out or went under. The boom and busts have led to many abandoned (non-producing) wells; in some cases, open holes in the ground, many of which have no known owner (orphan wells). An unplugged abandoned well can pose a threat to health, safety, or the environment.
Groundwater protection is a primary concern, as old wells typically do not have surface casings cemented in place, which provides and additional protective barrier. During World War II steel surface casings were often scavenged for the steel. Today’s wells have multiple casings cemented through the fresh water bearing zones, providing superior protection.
Unconventional shale (e.g. Marcellus/Utica shale) development has provided the economic impetus to plug (e.g., close) many of the abandoned wells left behind by previous generations. Companies operating in the basin today recognize the importance of good environmental stewardship. They also recognize that where old abandoned oil or gas wells exist, there is the potential to create communication between a new well during drilling and nearby old wells, potentially creating environmental impacts.
Most states have inaugurated significant programs for identifying and addressing orphan wells. For example, in Pennsylvania, the Commonwealth has long had a well program to plug orphaned oil and gas wells; however, funding for these programs has been inadequate to make a significant reduction in the number of orphan wells. Pennsylvania is reported to have more than 8,000 orphan wells, not unique; West Virginia is thought to have 4,500 orphan wells; New York is reported to have over 4,100 orphan and inactive wells; and Ohio also has thousands of orphan wells.
Recently, with the success of unconventional shale development, the Appalachian states are relying on revenues from oil and gas fees to provide funding for plugging orphan wells.
Perhaps more importantly, many private oil and gas operators have been voluntarily plugging abandoned oil and gas wells. Thousands of old wells have been plugged by operators who had no involvement in the drilling, production, or abandonment, but simply inherited abandoned wells.
In addition to unplugged wells, operating companies may also find old facilities such as tanks, pipelines, power houses, and other related facilities that must also be removed.
The liabilities associated with these legacies can be great, which is why the performance of environmental due diligence has become an essential part of today’s oil and gas industry mergers and acquisitions. The ultimate reason for performing environmental due diligence is to manage potential financial risk by quantifying the liabilities and associated costs and protecting the buyer from future claims.
Unlike today, early oil and gas drilling was conducted with little oversight and regulation. Long gone are the days when wells were plugged with tree stumps and a bailer full of cement. Today’s operators not only apply state of the art technology to plugging but also follow stringent regulations and safety standards.
When plugging a well, there’s a wide range of engineering and construction work before and after the actual plugging job. On the front end, a number of issues must be addressed to ensure a successful plugging: land and lease ownership; well record review; several permits; access rights; timber management; erosion and sedimentation controls; health and safety planning; access road and pad construction; and mobilization of equipment.
The plugging work itself is often only one-third of the total work; however, it can quickly add up to much more if not done right or if down-hole problems are encountered. Experience counts because every extra day plugging is money spent and with experience the task is done right the first time. Factors to consider include: the well depth and type of equipment to be removed from the well and its condition; well type (oil, gas, both, or injection); vertical or directional well; is there hydrogen sulfide gas; and removal of packers and down-hole equipment.
Most states require the well to be cleaned out to total depth before plugging proceeds. And cement plugs are typically required above and below any producing zones.
Well control and containment of fluids is critical at all stages of the plugging operation. Wireline services are typically used to verify producing zones as well as shooting off stuck tubing and packers.
Nonporous material (i.e., gel) is typically placed between cement plugs with the top plug tagged to verify correct placement.
Following the plugging, equipment is demobilized and the site is reclaimed. Most states have basic requirements for reclaiming a site under the oil and gas laws as well as regulations for erosion and sedimentation control.
Whether performing due diligence for an acquisition or planning future asset development, obtaining a realistic assessment of liability posed by legacy wells and facilities is critical. Time and again finding an experienced and trusted advisor proves worthwhile.
The oil and gas industry is in the midst of extraordinary growth in the Appalachian Basin. It’s indisputable that the resurgence has provided an incentive and the financial support for the closure of old wells; a beneficial environmental legacy.
The Palmerton Group, A Division of GZA GeoEnvironmental, Inc. provides oil field consulting services; performing environmental due diligence for oil and gas acquisitions; and has plugged more than 1000 wells for private oil and gas companies in the Appalachian Basin since 2005. Several oil field services staff members have more than 30 years’ experience in the basin drilling, operating, and plugging wells.
 Shale gas refers to natural gas removed from a shale rock rather than other rock types such as sandstone or limestone.