Sam Arnold's post

Quality credits part 2 - Permanence - Capping an oil well is forever!
There is a quality of carbon credits that attempts to quantify how long a positive climate action will last.
Permanence describes a quality of a carbon credit that measuring the duration of the positive climate action.
Permanence for us is keeping that oil molecule where it has been for millions of years, and where it will stay for millions more.
Traditionally, forestry avoidance credits have an impact that can be measured in the tree life, as when a tree dies it emits carbon. More recently, there is direct air capture and carbon capture and sequestration, which tries to take carbon out of the atmosphere and sequester it into the earth. This is permanent as it lasts a significant amount of time, but there can be leaks in the system and this needs continuous monitoring. We believe that we have the highest Permanence in the carbon offset world.
Oil is trapped in pore spaces deep in rock and cannot move without a tremendous amount of pressure. We are shutting down wells that have had a lot of that pressure reduced, and when you remove the way out (hole to the surface), there is no way for that oil to move.
But what it someone would go drill a new well? There is actually nothing to prevent this other than economics. Wells that are producing a few barrels a day of oil would go back to producing a few barrels a day upon drilling a new well in that location. Since oil can only travel so far from its home to the hole to the surface, that specific oil needs to have a hole close enough that the pressure can get it to the surface. Thus, a well would have to be drilled inside our radius of drainage, or what we call the Permanence Polygon.
A new well costs millions of dollars. Capturing say five barrels of oil a day would give you $500 a day in revenue even at $100/bbl oil. The operator would have to give the royalty owner a cut, or 25% typically. So, they are down to $400 a day in net revenue. Expenses vary but are on average $20/bbl, taking away another $100 a day. So net revenue is $300/day or $109,500 per year. If a well is on the low end $5mm, then that represents a 2% return in year one, vs a new well which would return the majority of its lifetime cash flow in the first year. The average reserves left in the ground at 5 barrels per day maps to about 10,000 barrels, so at $100/bbl value less costs you are down to about $55/bbl or $550,000 or revenue for the life of the well, losing significant amounts of money. Even at $400/bbl, you still would not recoup your costs, and at $1,000/bbl one would cover the costs of the new well but not give you a return on that investment.

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