Excerpt from https://insideclimatenews.org/news/23052021/north-dakota-orphaned-abandoned-oil-gas-wells-methane-emissions/ June 2021 by Nicholas Kusnetz,
The Environmental Protection Agency estimates that the nation’s unplugged wells leaked about 263,000 tons of methane in 2019, which, when compared to carbon dioxide over a 20-year period, is equivalent to the climate-warming emissions of more than 5 coal-fired power plants. The agency added that the actual figure could be significantly smaller or three times greater.
While many of the wells—hundreds of thousands at least—are orphaned, many more are still operated by oil companies that critics say have avoided plugging them because of regulations that allow the industry to postpone cleaning them indefinitely, eventually dumping the responsibility on taxpayers.
President Joe Biden’s American Jobs Plan calls for spending $16 billion to clean up the nation’s orphaned wells and coal and hardrock mines, and lawmakers have drafted bills with similar goals.
Environmentalists, leaders in both political parties and the oil industry all support directing federal dollars to plug orphaned wells as a way to address climate change and pollution, while creating jobs for oilfield workers. But some advocates say that what happened in North Dakota shows the risks of spending billions of dollars without sufficient scrutiny and without requiring oil companies to put up more money to pay for plugging their wells.
“There’s an incredible opportunity to begin cleaning up and better cataloging orphan wells while creating well-paying jobs,” said Sara Cawley, a legislative representative for Earthjustice, an environmental nonprofit. But, she said, any federal spending needs to be tied with regulatory reforms, including requiring companies to set aside more money for plugging, “so that taxpayers are not continuing to pay for clean-up in perpetuity.”
Two bills have been introduced so far. Both would direct billions of dollars to plug orphaned wells on state, federal and tribal lands, and both include language that would encourage states to improve well-plugging regulations by tying a portion of the funding to reforms. Only one, however, by Rep. Teresa Leger Fernandez (D-N.M.), would require oil companies to purchase more expensive bonds when drilling on federal land, leaving more money available in case of default.
“In North Dakota I think the story is in some ways a fairly succinct one,” said Nikki Reisch, director of the climate and energy program at the Center for International Environmental Law, which highlighted the state’s program in a recent report. “Taxpayer dollars were being used to pick up polluters’ tabs, while at the same the state was repurposing federal funds to support new fracking, making the very same problem worse.”
No one knows how many old wells are scattered across the nation’s oil and gas fields. According to the Interstate Oil and Gas Compact Commission, states have identified nearly 57,000 orphaned wells, but estimate there are hundreds of thousands more undocumented ones. The EPA has estimated there are more than 3 million abandoned wells, regardless of whether they have owners or not. Often, companies can avoid plugging wells when they are no longer productive by calling them idled, a status that can last decades.
Locally, old wells can contaminate groundwater and foul farmland, spewing not only petroleum but also toxic, highly salty water. Abandoned well sites render sections of farmers’ fields unusable.
Companies are generally required to purchase bonds when they drill wells as a form of insurance—governments can confiscate the bonds if companies fail to plug their own wells. Lawmakers or regulators determine the levels for those bonds—for example, $10,000 per well or $150,000 for all a company’s wells within a state—but in many cases those levels were set decades ago, and barely begin to cover plugging costs.
Carbon Tracker has collected data on more than 2.4 million catalogued, unplugged wells, including all the nation’s active wells, and has estimated it would cost about $288 billion to plug them. But its analysis showed that state and federal bonds would cover only about 1 percent of that cost, raising the question of who will pay the difference if companies go bankrupt or fail to plug their wells. That estimate for the coverage of bonds excluded Texas, for which Carbon Tracker was unable to obtain data. Last week, New Mexico’s State Land Office released a report that found that oil company bonds in the state covered 2 percent of the expected cleanup costs, falling $8.1 billion short.
Rob Schuwerk, executive director of Carbon Tracker’s North American office, said the looming transition away from oil and gas will make the problem worse. It is one thing if industry revenues are stable or growing, and companies only occasionally bail on their cleanup responsibilities. But if oil and gas demand begins to decline, the industry is likely to face falling revenues and a spike in bankruptcies, just as companies abandon a wave of unprofitable wells. They might not have money to plug their own wells, leaving taxpayers on the hook.
Schuwerk said that confiscating a bond could pose problems for the company that purchased it. Bond companies could suddenly view that company as a risk, and require it to pay higher premiums for its other bonds, for example, driving up drilling costs.
Regulators have largely granted Ness’s request, at least so far. According to data provided by the Department of Mineral Resources, the state confiscated 320 wells and had plugged 280 as of May, at a cost of $39.3 million, including $6.1 million that came from a state well-plugging fund financed with industry fees and penalties and taxes on production. The state “reclaimed”—or cleaned up—only 173 of the sites.
But so far, the state has confiscated bonds worth only about $3.4 million, while it is pursuing another $1.5 million through civil action, Helms said. All of that money would go to reimburse the state fund, rather than the CARES Act money. Helms said that while they are still looking into it, the rules of the CARES Act may dictate that the state cannot or should not reimburse the federal government.
The department said that seven companies, responsible for 77 of the confiscated wells, have either entered bankruptcy or were determined to be insolvent. The rest of the wells, however, were owned by companies that continue to pump oil in the state.
Cobra Oil and Gas, for example, had 121 wells confiscated. State records say the Texas-based company has another 369 active wells, suggesting there may have been revenue to cover plugging costs. Cobra did not respond to phone messages or emails.
Helms said companies like Cobra “are not off the hook,” adding, “I don’t think I can tell you that we’re going to pursue full reimbursement, but I think I can commit we’re going to pursue at least some reimbursement from those companies.”
Helms said the North Dakota Legislature has made changes in bonding and regulations in recent years that are intended to prevent the 14,000 wells that have been drilled in North Dakota over the past decade from facing a similar fate. Wells that have been idled for 18 months, for example, are now required to have dedicated bonds, rather than being covered by a “blanket bond” for all of a company’s wells in the state.
Wyoming also sent CARES Act funds as grants to oil companies, which they could use to frack wells they had already drilled or to plug older wells. According to data provided by the Wyoming Business Council, which administered the funds, Devon Energy received nearly $5.8 million, which it used both to frack new wells and plug old ones. Six other companies, including Occidental Petroleum, received more than $1 million each.
Randall Luthi, chief energy advisor to Wyoming Gov. Mark Gordon, said in a statement to Inside Climate News that the spending was “completely appropriate,” adding that thousands of people in the state were unable to find work last year. He said the program provided “an economic and environmental shot in the arm for Wyoming at a time when it was needed,” and that, “CARES money was always intended for solvent, but struggling companies.”
Neither Devon, Occidental nor Continental Resources responded to requests for comment.
Skokos, of the Dakota Resource Council, said he supported cleaning up old wells, but that the way it was administered was “basically a bailout for the industry.”
“We could have been using that money for other things like paid family leave or money for actual workers increasing unemployment,” he said. “There’s people that were struggling.”
Adam Peltz, a senior attorney with the Environmental Defense Fund, said it was unlikely that any federal efforts to plug orphaned wells would be spent on wells with solvent owners, as it was in North Dakota and Wyoming.
“The overwhelming, vast majority of this money will be spent on pre-regulatory wells that really have not a trace of an owner on record,” he said. Pennsylvania, Ohio and other eastern states where some of the first oil wells were drilled, for example, have hundreds of thousands of orphaned wells and little funding to plug them. “And they’re just going to sit there as pollution vectors,” Peltz said, “until and unless we come up with a lot of money to plug them. The good news is we’re in a moment where money is flowing for good causes.”
He noted that some states, including North Dakota, have also begun to improve their bonding requirements.
But Reisch, of the Center for International Environmental Law, warned that those changes have hardly begun closing the gap.
“The looming legacy of the oil and gas industry, and of the fossil fuel economy, is really going to be this ghost infrastructure and these toxic wells,” she said. “The magnitude of the problem and the funds needed to address it properly is really daunting.”
Nicholas Kusnetz, Reporter, New York City
Nicholas Kusnetz is a reporter for InsideClimate News. Before joining ICN, he worked at the Center for Public Integrity and ProPublica. His work has won numerous awards, including from the American Association for the Advancement of Science and the Society of American Business Editors and Writers, and has appeared in more than a dozen publications, including The Washington Post, Businessweek, The Nation, Fast Company and The New York Times. You can reach Nicholas at email@example.com and securely at firstname.lastname@example.org.