Methods of Financing Reclamation Costs in Oil and Gas Industry

According to Subsoil Law of Russian Federation, an upstream company is responsible not only for development of wells and facilities, but also for wells abandoning and reclamation of a site and associated facilities. However, on the decline production phase, oilfield profitability is on the minimum level. Due to this, financing of dismantling costs using only operating profit is impossible. This mismatch of cash-in and obliged cash-out flows leads to the risk of companies’ failure to restore wells, which means that reclamation and abandoning must be financed by government. Such precedents are known worldwide, and Russia is not an exception. This study presents the range of existing schemes on financial guarantees for reclamation oilfield infrastructure, which must be provided by an upstream company. Additionally, experience and policies of Russia, Canada and Alaska (the USA) are analyzed, considering economic, legal and other factors, influencing on production. The possibility to use foreign experience by Russia is evaluated. On the bases of made calculations, a tool of financial guarantee and required update of Subsoil Law of RF are suggested, which lets increase oil recovery factor of an oilfield.