Monday, May 29, 2023

Orphaned Wells Cleanup Costs Are Outweighing the Payouts

Biden’s New Infrastructure Grants for Abandoned O&G Wells Are a Drop in the Bucket.


Let’s talk about the elephant in the room. While oil and gas (O&G) producers continue to frack and pollute New Mexico, they crow about their massive contributions to the state’s economy. But years of allowing exploitation of the state’s pristine environment by the industry will cost New Mexico a bundle for years to come. After the O&G industry leaves New Mexico, a move that is being hastened by climate change, the state will be stuck with cleaning up after them. A study compiled for the state by the Center for Applied Research, an economic consulting firm, estimates it could cost $8.3 billion for cleanup of known abandoned and orphaned O&G wells.

More than half of U.S. states, including New Mexico, intend to apply for a portion of the $4.7 billion from Biden’s new infrastructure law for cleaning up abandoned oil and gas wells. States are also eligible to apply for initial $25 million grants to address high-priority wells and jump start their plugging programs. The Department of Interior issued a memo saying 26 states had indicated an interest in applying for grants to clean up documented orphaned wells.

These include Alabama, Alaska, Arizona, Arkansas, California, Colorado, Illinois, Indiana, Kansas, Kentucky, Louisiana, Michigan, Mississippi, Missouri, Montana, Nebraska, New Mexico, New York, North Dakota, Ohio, Oklahoma, Texas, Utah, West Virginia and Wyoming. An estimated hundreds of thousands of very old, abandoned wells exist in Pennsylvania, which also plans to apply for the funding.

New Mexico’s slice of Biden’s pie will just scratch the surface of the estimated costs needed for cleanup in the state where O&G has been sucking black gold for almost a century. In the world of climate change, it will take more than their extra billion-dollar bonus yearly to the state’s coffers to balance the equation. Boom or bust is always the bottom line with O&G. You play, you pay. At this point, New Mexico is first in line to foot O&G’s cleanup bill.

The fossil fuel industry has operated in the Land of Enchantment for more than a hundred years. They've removed hundreds of billions of dollars of profit from New Mexico while leaving a very expensive mess for New Mexicans to clean up. Abandoned wells have grown over the last decade in New Mexico, the 2nd largest oil and gas producer in the U.S., and many experts believe the number will keep growing as fossil fuels are replaced with sustainable energy.

According to the Center for Applied Research study, New Mexico has 57,401 active oil and gas wells statewide. The 64,858 inactive wells statewide are what is driving the cleanup costs to that estimated $8.3 billion for the state. Of the inactive wells, over 700 are orphaned wells (owner unknown) and thousands are low-producing or idle wells that could be abandoned in the near future.

O&G’s “credit score” with New Mexico for cleanup is in the minus brackets. Estimates by the New Mexico State Land Office are that the state has just $201 million in "financial assurances" towards the estimated $8.3 billion closure and cleanup costs of pollution from the industry. To be clear, there are 1000 million in a billion.

The Interstate Oil & Gas Compact Commission in 2019 tallied 56,600 orphaned wells in the United States. However, a recent Interior's analysis found there are more than 130,000 documented orphaned wells. There are also many more undocumented wells across the country that were drilled before regulators began requiring documentation in the mid-1900s.

The U.S. Environmental Protection Agency estimates that there are more than 3 million total abandoned oil and gas wells. About 2 million of those are estimated to be very old and never properly plugged. The agency believes these old wells are responsible for most of the methane emitted from abandoned wells.

For plugging only, costs average roughly $20,000, while full decommissioning (i.e., plugging and remediation) costs an average of $76,000. In rare cases, costs could be $1,000 per well, while in others over $1 million per well may be needed.

The abandoned and inactive wells are contaminating New Mexico’s groundwater, leaking methane into the state’s beautiful blue skies, impacting wildlife habitats and endangering the health of New Mexicans. The 57,401 active wells in New Mexico, will also ultimately have to be cleaned up. That cleanup is accelerated by the need to shift to sustainable energy right now to avoid a climate crisis.

So what is the answer to O&G pollution? Creating sustainable energy and diversification away from O&G is one answer. The passage of New Mexico’s Green Amendment by legislators would give residents an opportunity to vote in the next General Election on an amendment that protects the rights of present and future generations to clean water and air, a stable climate and healthy environments, as well as recognizing the cultural, natural and health values of the environment.

Creating a cleanup workforce from those who are losing their jobs as O&G dies out over the next 20+ years will generate employment opportunities. Who better to begin the cleanup than the displaced and fired roughnecks, roustabouts, rig managers and drillers who understand the industry well, have experienced the pollution firsthand, are hardworking and come with a set of skills to get the job done?

The next item on the cleanup agenda is how to pay for the mess created by being too lenient with the industry for one hundred years. “Show us the money for cleanup before you drill” might be a good battle cry. Cleanup costs are mounting daily beyond the 8.3 billion estimates. At this point, it's creating a methane smokescreen that legislators won't be able to walk away from.


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