Author: Staci Taruscio, CEO

The VCM is having a superpollutant moment with $100 million in corporate commitments landing through the Beyond Alliance.

Google, Salesforce, JPMorganChase, these are serious buyers making serious bets on superpollutant abatement, and #methane is finally getting the attention it has long-deserved. The capital is starting to move, and it is an exciting time to be in methane.

I have spent the better part of two decades in oil and gas, and I have learned this industry from the inside out: how wells get drilled, how they get abandoned, and what gets left behind when an operator is nowhere to be found. That very background is why I started Rebellion, and it’s what I want to talk about today: Not all well-plugging projects are the same, and the differences are not technical.

When a carbon credit gets issued for plugging an oil and gas well, someone should be asking one question before anything else: Who was already responsible for plugging it?

In the US, most unplugged wells have a bonded operator who has a legal obligation to plug the well. It is a documented obligation, and there is a regulatory framework that requires it. The operator might be slow or financially stressed, but the responsibility exists regardless.

If private capital is funding a well being plugged in that scenario, what exactly did the market pay for? The answer is that it paid for something that the regulatory system already required, which is not an additional action, it’s more of a subsidy.

Additionality, which is the principle that a credit generated must represent action that wouldn’t otherwise happen, is the foundation of the carbon market if it is to remain legitimate. Without proper additionality, a credit is simply not a credit.

Which brings me to orphan wells, which are the one type of well that is categorically different from all other wells with a bonded operator.

An orphan well has no owner, no operator, no bond: In short, no one is legally responsible for plugging it. The state becomes the operator of record, which sounds reassuring until you look at the numbers. There are an estimated 3.7 million orphaned and abandoned wells in the US, and by contrast, in Okhaoma the largest federal orphan well investment in history has funded the plugging of 1,110 in total. State programs are working through their lists, the people doing this work are doing it right, but to say the gap is massive is an understatement.

The gap won’t be filled without private capital filling a gap that public budgets were not truly built to solve, and that gap is permanent, documented, and legally unassigned. The funding from carbon projects is additional by definition, and by the straightforward reality that no one else is coming.

The legality is another layer to this that I don’t hear discussed enough, and it is important that buyers understand it before committing their capital to a project.

In many states, mineral owners retain a right to have their property drilled even when a well is no longer under active lease. In simple terms, when an operator (who is a distinct entity from the mineral owner) plugs a marginal well early, they may be retiring a mineral owner’s asset without consent. The operator captures the carbon credit proceeds, and the mineral owner, who would have received royalties from continued production, loses the right to their resource.

When a mineral owner leases their land to an oil and gas operator, they are making a deal: You drill and produce the product, and we share the proceeds. If a well is still producing, even marginally, (which in Texas is 1 BOE / month)  and an operator decides to plug it early to generate credits, they are breaking that legal deal. The operator pockets the carbon credit revenue, and the mineral owner gets nothing, plus loses future royalties, which in current projects are modeled to be approximately 40 years of income.

It actually gets worse, because some marginal well carbon methodologies require that no new well ever be drilled on that site, which means the mineral owner’s asset is permanently condemned. They can never recover it, and not only is this a bad deal for the landowner, but multiple states and federal case law consider it a violation of constitutional property rights.

For a buyer who purchases a credit from a marginal well project, this creates real downstream risk. If a credit gets challenged on any grounds including additionality, legality, or both, the buyer holds that risk. The reputational and financial exposure lands on the company that bought it, not only the company that issued it.

Now, I’m not a lawyer, and buyers should consult their own legal counsel on these questions, but I am an operator who has spent years in this regulatory environment, and I know which questions must be asked before money changes hands.

Which is why we will only ever plug orphan wells. We made that decision before we issued a single credit, and we have never revisited that decision. We find this to be a standard, not a limitation, and a choice that decreases risk at every turn.

Additionality is an airtight case with orphan wells. Orphan wells have no legal risk, and they are where the restoration work we do— the native plants, the soil health improvements, the ecological recovery we document at our sites— makes the most difference because without us, none of this happens.

With 3.7 million orphaned and abandoned wells in existence, the problem is not going to run out. The sky is the limit for not only the market and buyers, but for landowners and ecological health.

Buyers who are looking at this market right now have a genuine opportunity to do something permanently good and verifiable for the climate. I want their capital to land well, and I want it to fund projects that hold up to scrutiny today and ten years from now when someone looks back at what the VCM has accomplished.

So, my advice to buyers before committing to a well-plugging credit is to ask these three questions:

1. Was there already a bonded operator responsible for plugging this well? If yes, then the additionality case requires more clarification.
2. Have the mineral owner rights been evaluated in the relevant jurisdiction? If not, the legal case requires more clarification.
3. What happens to the land after the well has been plugged? If the answer is nothing, you are buying half of a project.

The buyers who are asking these questions today are the ones who will be able to defend their commitments in the future.