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Borehole Battery: A Solution for Asset Retirement Obligations Utilizing IRA Tax Credits

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Borehole Battery

Guest submission by Phil Cruver

The Borehole Battery offers a solution for addressing Asset Retirement Obligations (ARO) in the oil and gas industry by utilizing IRA tax credits. This commentary explores the growing concern of underfunded Asset Retirement Obligations (ARO) within the oil and gas industry. It discusses the Investment Tax Credit (ITC) allowance in the Inflation Reduction Act (IRA), which offers up to 50% capital recovery for repurposing and plugging hydrocarbon wells. Such projects can benefit from a 30% base ITC for generating zero-emission electricity, with additional credits for meeting domestic content and energy community criteria. The innovative Borehole Battery™ is presented as a potential solution, utilizing these tax credits to help companies meet their ARO.

Let’s begin by describing the various types of hydrocarbon wells and identify those that are targeted candidates for concurrently converting and plugging:

  1. Abandoned Oil Wells: These wells have been permanently taken out of production and are typically sealed or plugged to prevent the release of oil, gas, or other substances into the environment.
  2. Orphaned Oil Wells: These wells lack an identifiable or operational original well operator.
  3. Idle Wells: In California, an idle well is defined as one that has not been used for two years or more and has not been properly plugged and abandoned. Other states and federal definitions include wells producing less than 15 barrels of oil equivalent per day.

Geo2Watts™ intends to work with fiscally sound responsible operators for conducting idle oil well conversions. Orphan wells that are not in operation and have no owners of record, can have expensive remediation issues that come with the abandonment. While those wells can potentially be converted, the cost and effort of doing so relegate them as a future opportunity rather than a near-term priority.

Addressable Market

The California Geologic Energy Management (CalGEM) is the agency responsible for regulating hydrocarbon and geothermal wells in California. CalGEM maintains a comprehensive repository of well records, production and injection statistics, well logs, and field maps. According to the CalGEM database, California has 220,080 wells owned by 1,623 operators. Of these, six major oil company operators own 163,562 wells, which is 73% of the total. By the end of 2023, there were 49,820 idle wells in California, and 36,472 of these are owned by the six major operators who have the resources and motivation to repurpose and plug them to comply with emerging stringent regulations.

In Texas, the Railroad Commission is the regulatory agency for oil and gas. Texas does not categorize wells as “idle” in its database. Instead, it uses five categories: no production, observation, partial plug, shut-in, and temporarily abandoned. There are 129,583 wells in these categories.

According to MineralAnswers.com, New Mexico currently has 114,385 wells, and only 43% of these wells are producing. By converting non-producing wells into sources of clean energy, New Mexico could address environmental risks and contribute to the state’s clean energy goals. 

Borehole Battery™ Technology

Once an idle oil well is plugged with the Geo2Watts™ proprietary heat exchanger, this effectively converts it into a Thermal Energy Storage (TES) system. Solar thermal collectors are used as the source of renewable heat, although heat pumps and resistance heaters can also be used to heat pressurized water up to 175°C. This heated water is then circulated throughout the TES with a closed-loop heat exchanger comprised of a unique combination of thermal conducting and insulating materials.

During electricity production, the pressurized water flows through the heat exchanger within the TES, which is then transferred to the evaporator/boiler of an Organic Rankine Cycle (ORC) power plant, driving the power cycle to produce electricity. The optimized design of the novel TES and its heat exchanger, combined with the ORC power plant and solar collector field, form the critical components of the closed-loop system named the Borehole Battery™, which is a patent-pending technology.

We don’t anticipate any leakage of working fluids as the Borehole Battery™ is typically installed inside the nested surface conductor, intermediate, and production casing strings, which are cemented to the surface. We plan to install fiber optic monitoring systems to measure temperature distribution and detect any changes. These systems use acoustics to signal leaks in the closed-loop heat exchanger and the use of water as the working fluid would not pollute underground reservoirs with the event of a leak.

Repurposing an underground oil well as a TES system offers inherent benefits to overall efficiency. The multiple thick layers of concrete casing act as potent heat insulators, and since the well is buried, it is not exposed to ambient air or wind, significantly reducing heat losses. Initial estimates suggest that heat losses over a span of 10 hours are just 1% of the thermal energy stored. While more detailed analysis of surrounding soil temperatures is required for higher accuracy, such low heat loss values make the Borehole Battery™ an ideal candidate for long-duration energy storage.

IRA Tax Incentives

There is growing attention on the issue of Asset Retirement Obligations (ARO) being underfunded by the oil and gas industry. While most major operators have reserves for end-of-life events for their wells and associated assets, smaller operators often lack the necessary resources. The Investment Tax Credit (ITC) allowance in the Inflation Reduction Act (IRA) provides up to 50% recovery of capital, which can be used to repurpose and plug hydrocarbon wells. This includes a 30% base ITC for qualifying projects that generate zero-emission electricity. Projects can qualify for additional ITCs, such as the 10% Domestic Content adder, which applies if a significant portion of the project’s components are sourced within the United States. Additionally, the 10% Energy Community adder is available for projects located in areas with a history of fossil fuel production.

The Borehole Battery™ components are manufactured in the USA, and Geo2Watts™ is targeting locations for repurposing and plugging idle oil wells that meet the Energy Community criterion. Therefore, for companies with insufficient ARO reserves to abandon all their wells, converting a well into a Borehole Battery™ may enable them to fully meet mandatory ARO requirements at up to one-half the cost.

The concept of repurposing idle and low-producing wells for generating clean electricity, while concurrently plugging them with the Borehole Battery™, could offer owners a strategic and potentially lucrative opportunity as they prepare for the wells’ “end-of-life”.

Phil Cruver Co-founder and CEO of Geo2Watts™

About the author: Phil Cruver is a Co-founder and CEO of Geo2Watts™. Previously, he was the Founder and CEO of Catalina Sea Ranch, the first aquaculture facility in U.S. Federal waters developed six miles offshore California. Phil was also the founder of five additional start-up companies and recently served as Principal Investigator for over $1.2 millions of Federally funded R&D projects. Phil founded International Dynergy, a publicly traded company that installed 500 wind turbine generators in Palm Springs, California.

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