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Page added on July 10, 2018

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Why ‘Orphan’ Oil And Gas Wells Are A Growing Problem For States

Enviroment

When Bill West drives his weed sprayer over wheat and hay fields at his ranch northwest of Gillette, Wyoming, he occasionally bumps into debris from the more than a hundred defunct natural gas wells on his 10,000-acre property.

The company that owned the wells went out of business four years ago, leaving behind fuse boxes, internet boxes and thousands of feet of underground pipe.

“They just walked away and left everything sitting,” said West, 85. “It’s up to the state to take care of it now.”

So-called “orphan” oil and gas wells, which have been abandoned by defunct companies that cannot pay to plug them, are a growing problem in many states thanks to a recent slump in energy prices that has forced marginal operators out of business.

Adam Peltz, a senior attorney at the Environmental Defense Fund, said he heard officials from 10 states highlight their work on orphan wells at a spring meeting of the Interstate Oil and Gas Compact Commission. “It’s probably the issue that was raised by the most number of states.”

Peltz said that dealing with orphan wells is a cyclical issue — more wells become the state’s responsibility after a downturn — but it’s getting worse over time, as states struggle with a backlog of wells that dates back decades.

Nobody knows how many orphan and abandoned drilling sites litter farms, forests and backyards nationwide. The U.S. Environmental Protection Agency estimates there are more than a million of them. Unplugged wells can leak methane, an explosive gas, into neighborhoods and leach toxins into groundwater.

Methane leaking from abandoned wells caused explosions at a Colorado construction site in 2007 and at a Pennsylvania home in 2011.

In 2014, an Ohio elementary school had to be evacuated because of a gas leak traced to an abandoned well underneath the gym. Near the West Texas town of Imperial, effluence from decades-old oil wells has created a “lake” of salty, sulfurous water.

Sometimes the cost of plugging a well is covered by bonds that companies post before drilling. Often, it’s not. Costs can range from as little as $5,000 to plug a shallow well, such as the coalbed methane wells on Bill West’s ranch in Wyoming, to tens of thousands for deeper, more complicated projects.

In recent years, state legislatures and oil and gas regulators have increased funding for well cleanup by appropriating more money and increasing bonding requirements. They also have tried to make it harder for companies to walk away from their wells, such as by intervening earlier to prod companies to reactivate or plug wells that are sitting idle.

Wyoming’s oil and gas commission has been plugging 350 to 400 wells a year for the past four years — compared to a dozen or two in previous years. It has about 3,600 to go. Some of the over 30,000 active drilling sites across the state could one day join the list.

Assuming it costs about $5,000 to plug each orphan well, the state could be facing a bill of $18 million.

“If you ask me what keeps me up at night, it’s that all these wells have to get plugged,” said Mark Watson, Wyoming’s oil and gas supervisor.

A 1920s-era steel drilling rig at the Drake Well Museum in Titusville, Pennsylvania. Oil and gas drilling in Pennsylvania dat

Courtesy of the Pennsylvania Historical and Museum Commission
A 1920s-era steel drilling rig at the Drake Well Museum in Titusville, Pennsylvania. Oil and gas drilling in Pennsylvania dates to the 19th century, as do many orphan wells in the state.

Learning From Past Mistakes

Bill West said he and his wife, Marjorie, were happy some two decades ago to give a Michigan-based company permission to drill for coalbed methane on their land. “We got quite a lot of money out of it, lease money.”

When the wells became less profitable, the company sold them to the operator High Plains Gas. High Plains failed to meet state bonding requirements in 2014 and went out of business, leaving the state responsible for thousands of wells.

“I feel very bad about the landowners out there that are stuck with this,” said Ed Presley, former CEO of High Plains Gas. But now that High Plains has gone out of business, the company can’t do much about it, he said.

West said that many of his neighbors have orphan wells on their land, too. “I wouldn’t say they’re angry, they’re just upset that it’s taken so long to clean it up.”

The surge in orphan wells has led Wyoming regulators to speed up plugging efforts and increase bonding requirements.

Luckily, coalbed methane wells are relatively shallow and inexpensive to plug — it costs $5,000 to carefully fill a well with cement and seal it, on average, according to Watson. Some recent orphan wells have even been converted into water wells.

Between bonding payments and a conservation tax that oil and gas producers pay, Wyoming state regulators have been able to fund hundreds of plugging operations a year — mostly coalbed methane wells but some deeper oil and gas wells too — without burdening taxpayers.

Companies can now opt to either pay $100,000 to cover reclamation costs for an unlimited number of wells in Wyoming or pay $10 a foot of drilling depth to cover the cost of reclaiming each well.

Companies tend to choose a bonding option based on their size and planned operations. Companies also now must pay a one-time $10 a foot bond on wells that are sitting idle.

Industry leaders say they’re happy with the cost increase. “We have a pretty workable solution,” said John Robitaille, vice president of the Petroleum Association of Wyoming. He said that his organization prefers for companies to pay to plug wells rather than taxpayers.

Bill and Marjorie West were among the landowners who helped push for the changes. They are members of the Powder River Basin Resource Council, a community nonprofit that’s spent years lobbying state and federal lawmakers on the orphan well issue.

In other energy-producing states, the orphan well problem is more of a slow burn.

In Pennsylvania, over 8,000 orphan and abandoned oil and gas wells need to be plugged. But the state’s orphan well plugging program, which relies on drilling permit fees, could afford to plug just six wells last year, said Seth Pelepko, the manager of the well-plugging program at the Pennsylvania Department of Environmental Protection. The agency is looking for new sources of funding, such as state grants.

He said that, particularly in parts of the state that have seen decades of oil and gas development, people often don’t know that the oil and gas wells on their property could be dangerous. “We’ve come across wells where folks have set up their garden around them,” he said. In other places, wells date back to the 19th century and look like just another hole in the ground.

We’ve come across wells where folks have set up their garden around them. Seth Pelepko, program manager, Department of Environmental Protection

The Bonding Dilemma

Jill Morrison, the executive director of the Powder River Basin Resource Council in Wyoming, says the solution to the orphan well problem is simple. When companies get a permit to drill, they should pay a hefty bond that covers the cost of plugging and reclaiming the well. If they plug the well themselves, they get the money back. If they don’t, the state would have the money on hand to do the job.

But no state, including Wyoming, sets bonding amounts that high. Doing so would put many small-time oil and gas companies out of business.

The Colorado Oil and Gas Conservation Commission struggled with bonding requirements in the nine years that Richard Alward, owner and senior ecologist of reclamation company Aridlands LLC, served on the commission. His term ended in 2016.

Colorado Oil and Gas Plugging and Abandonment Bonds

Bond Amount Bond Description
$10,000 Any well less than 3,000 feet deep
$20,000 Any well 3,000 feet deep or more
$60,000 A group of wells under 100
$100,000 A group of 100 or more wells
Source: Colorado Oil and Gas Conservation Commission

“The big companies that could afford steep bonds were the least likely to run away and abandon things,” Alward said. Small companies that were more likely to go bust often couldn’t afford the large bond payments up front.

Colorado requires companies to put up a $10,000 plugging and reclamation bond for any well less than 3,000 feet deep; $20,000 for any well more than 3,000 feet deep; $60,000 for a group of wells under a hundred; and $100,000 for a group of a hundred or more wells.

In some cases, though, plugging a well can cost more than 10 times the bonding that companies post, said Dave Andrews, the manager of the Colorado’s orphan well program. In recent years, the state oil and gas conservation commission has been plugging about 10 wells a year on a budget of $445,000 plus bond funding.

The oil and gas wells in Colorado may be deeper and thus more expensive to fill than the coalbed methane wells in Wyoming, Andrews said. And the commission estimated that it cost, on average, $82,500 to plug a well and reclaim it.

To help the state oil and gas commission address its growing backlog of orphan wells — and do a better job reclaiming the land — the Colorado Legislature increased the funding for orphan well cleanup this fiscal year. There’s been no move to change bonding levels, Andrews said.

State authorities have done much more to address bonding inadequacy than the federal Bureau of Land Management, which hasn’t raised bonding requirements since they were first set in the 1950s and ’60s. It currently costs $150,000 to bond for an unlimited number of wells nationwide drilled to capture federally owned minerals, which could lie beneath publicly or privately owned land.

The agency’s record-keeping is so poor that it’s impossible to say how much the federal government spends on orphan well cleanup, a Government Accountability Office report found this year. In the areas with the most oil and gas drilling on federal land, the agency spends close to $270,000 for a well-plugging project, the report found. The agency counts 219 orphan wells under its jurisdiction.

Oil and gas industry groups have strongly opposed efforts to increase federal bonding requirements. Some environmentalists say that under the Trump administration, which wants to make it easier for companies to drill, bonding requirements aren’t likely to change.

“The BLM is currently reviewing the GAO report and its recommendations in order to evaluate the best ways to manage and identify orphan and idle wells and determine appropriate next steps with the program,” wrote Amber Cargile, an agency spokeswoman, in an email.

Asked to clarify the agency’s position on bonding, she added: “We’re looking at bonding along with other recommendations, but no decisions have yet been made.”

West, the Wyoming rancher, said that the drilling on his land has caused no end of problems, from flooding to making his well water too salty to drink. But he said that even if he’d known what was to come, he still would have said yes to the coalbed methane companies.

“We would’ve, for the money,” he said. He added that he’d just like to see regulation that would push companies to act more responsibly.

Meanwhile, Presley, the former High Plains CEO, hasn’t given up on his coalbed methane dreams. He’s about to launch a new company that will once more buy up idle wells and try to make them productive. He’s hopeful that some of the landowners who said yes to High Plains Gas years ago will agree to work with him again.

HuffPost



10 Comments on "Why ‘Orphan’ Oil And Gas Wells Are A Growing Problem For States"

  1. twocats on Tue, 10th Jul 2018 7:58 am 

    a human centipede of libertarian capitalist f@&koes. i have zero empathy for anyone involved in this.

    “water is too salty”

    “that’s the cancer.”

  2. Darrell Cloud on Tue, 10th Jul 2018 8:27 am 

    I don’t understand why this is a surprise. When business collapse they walk off from all of it. Be careful you may wind up owning a waste disposal site.

  3. rockman on Tue, 10th Jul 2018 9:43 am 

    Texas began addressing this issue decades ago:

    “Volatility in the oil and gas industry has created many problems within the industry for the past three decades. Prices have risen and fallen at least five times since 1986. Back in 1984 when the first bust was beginning, the Texas Railroad Commission came to the industry with a new problem that involved a lot of oil and gas producers going out of business and leaving the state with orphaned wells that needed to be plugged.

    The commission did not have the funds budgeted from the Legislature, so the commissioners asked the industry to fund the pluggings with the creation of the Well Plugging Fund. The first year it raised a little more than $1.1 million, and 177 wells were plugged.

    Financial conditions in the industry deteriorated from 1984 to 1991. Even though the fund raised $16 million and 4,078 wells were plugged, the commission could not keep up with the increase in orphaned wells. The fund needed more money. The commissioners went to the Legislature and the Oil Field Cleanup Fund was created, and the industry was assessed a series of fees in 1991 that were capped at $10 million annually. The Legislature increased the cap to $20 million in 2001, and in 2013 it changed the name to the Oil and Gas Regulation and Cleanup Fund. Overall, the Railroad Commission has plugged 35,378 wells with $256 million since 1984.

    The fund does not replace the liability of owners of oil and gas wells from their plugging liability. In 2001, the Legislature also implemented a financial assurance program that requires a blanket bond, letter of credit or cash deposit by every operator based on the number of wells in the company.

    “The commission’s regulatory goals are to eliminate the threat of pollution posed by orphaned unplugged wells and to minimize the number of orphan wells requiring plugging with Oil and Gas Regulation and Cleanup funds,” the program’s annual report to the commission stated.

    Not all of the orphaned wells are immediate threats to the environment. The Railroad Commission has implemented a comprehensive evaluation system to determine which wells need to be plugged first. In 2015, 413 wells were plugged out of a total of 5,644 wells removed from inventory. The largest number (4,262) were reinstated when the operator’s permit was renewed. Some of the orphaned wells (701) were sold to other operators or returned to active status (177).

  4. twocats on Tue, 10th Jul 2018 9:55 am 

    cap the wells with the heads of oil and wall street execs that pushed the plans. that will definitely cut back on the number of orphaned wells. king dong has made it clear – deterrence in the extreme is the only thing that works.

    if your financial situation has deteriorated – well then, the market has spoken. into the pit.

  5. CAM on Tue, 10th Jul 2018 12:46 pm 

    Actually what is happening is that some land owners find that their property is worthless. Who wants to buy a polluted site?

    Let’s see what happens when good old Bill West goes to sell his property.

  6. Outcast_Searcher on Tue, 10th Jul 2018 1:38 pm 

    Anyone who assumes they can have massive amounts of hydrocarbons produced from their land and receive lots of money for it with NO RISK is, frankly, an idiot.

    Good government regulations, high bonds, and massive penalties for improper cleanup and followup for the producers would surely help.

    But you’re NOT going to reliably get something for nothing in the real world.

    If it were me, I’d just be up front about those concerns and demand more money. And if they didn’t want to produce — fine.

  7. dave thompson on Tue, 10th Jul 2018 3:39 pm 

    The problem of “orphaned wells” is baked in the corporate cake of externalization of costs. Corporations internalize profits and externalize costs, great for shareholder value. Not so great for the public that end up paying for the left over mess.

  8. Boney Joe on Tue, 10th Jul 2018 6:59 pm 

    “Bill West said he and his wife, Marjorie, were happy some two decades ago to give a Michigan-based company permission to drill for coalbed methane on their land. “We got quite a lot of money out of it, lease money.””

  9. Keith McClary on Tue, 10th Jul 2018 11:23 pm 

    Orphan wells: Alberta’s $47 billion problem

    https://www.producer.com/2018/03/orphan-wells-albertas-47-billion-problem/

  10. rockman on Wed, 11th Jul 2018 8:00 am 

    dave – “Not so great for the public that end up paying for the left over mess.” Read my post again: the industry paid to plug 35k wells in Texas…not the public. If politicians didn’t develop similar programs in other states that’s not the fault of the industry. OTOH such programs may exist in other states…maybe most/all of them. Notice the article didn’t say anything about the industry funded plugging program in Texas, did it?

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