Abandonment costs or Abandonment expenditure (ABEX) are costs associated with the abandonment of a business venture. Abandonment costs traditionally applied to the process of abandoning an under-producing or non-producing

oil An oil is any nonpolar chemical substance that is composed primarily of hydrocarbons and is hydrophobic (does not mix with water) & lipophilic (mixes with other oils). Oils are usually flammable and surface active. Most oils are unsaturated ...

gas well An oil well is a drillhole boring in Earth that is designed to bring petroleum oil hydrocarbons to the surface. Usually some natural gas is released as associated petroleum gas along with the oil. A well that is designed to produce only gas m ...

. In that context, it means the removal of equipment, plugging of the well with

cement A cement is a binder, a chemical substance used for construction that sets, hardens, and adheres to other materials to bind them together. Cement is seldom used on its own, but rather to bind sand and gravel ( aggregate) together. Cement mix ...

, any environmental clean-up, etc. necessary to shut the well down. It is occasionally referred to as "Removal and Abandonment" or R & A. The objective of well abandonment is to ensure that no hydrocarbons leak into surface water or into the atmosphere. The cost of a routine abandonment of a typical well in the

United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territorie ...

is about $5,000 (~

Texas Texas (, ; Spanish language, Spanish: ''Texas'', ''Tejas'') is a state in the South Central United States, South Central region of the United States. At 268,596 square miles (695,662 km2), and with more than 29.1 million residents in 2 ...

average cost in year 2000). If a well has developed a leak that allows gas to flow up the outside of the well casing, finding and correcting the leak can push the cost of abandonment beyond $100,000. Wells that have been used as injectors or have been subject to

fracking Fracking (also known as hydraulic fracturing, hydrofracturing, or hydrofracking) is a well stimulation technique involving the fracturing of bedrock formations by a pressurized liquid. The process involves the high-pressure injection of "frack ...

operation are more likely to develop leaks because the injected substances can create channels that permit uncontrolled flow outside the casing. The term's application has been broadened from its original context to apply to the abandonment of other business ventures, primarily in manufacturing. It is often used in a cost-benefit analysis to determine if a marginal venture should be continued or if it is more financially beneficial to abandon the venture and plow the remaining money into something else in an attempt to recoup the losses. For example,

General Motors The General Motors Company (GM) is an American Multinational corporation, multinational Automotive industry, automotive manufacturing company headquartered in Detroit, Michigan, United States. It is the largest automaker in the United States and ...

had some abandonment costs from shutting down the

Pontiac Pontiac may refer to: *Pontiac (automobile), a car brand *Pontiac (Ottawa leader) ( – 1769), a Native American war chief Places and jurisdictions Canada *Pontiac, Quebec, a municipality ** Apostolic Vicariate of Pontiac, now the Roman Catholic D ...

and

Saturn Saturn is the sixth planet from the Sun and the second-largest in the Solar System, after Jupiter. It is a gas giant with an average radius of about nine and a half times that of Earth. It has only one-eighth the average density of Earth; h ...

brands. The existence of abandonment costs in an industry implies that there is no free exit from that industry.

References

Oilfield GlossaryEPA Well Abandonment Cost Form
{{business-stub Petroleum economics

See also

References