One byproduct of the global crash in oil prices that doesn't get much attention is the status of abandoned oil wells. If a company has gone bankrupt or out of business, there may be no one but the state left to foot the bill for plugging hazardous wells.
From Alberta to Texas to Pennsylvania, state officials are wrestling with the problem of not only plugging abandoned wells, but in many cases, even finding them. Many wells were abandoned 50 or more years ago, with no documentation to show where they are, or that they even existed. Other wells lie idle and unmonitored during lengthy bankruptcy proceedings and asset liquidations.
Not A New Problem
While the recent economic turmoil in the shale fields and tar sands has resulted in thousands of abandoned oil wells, there are old wells dating back to the turn of the 20th century that are still being stumbled upon.
Jack Romine, of Bartlesville, Oklahoma, discovered an abandoned gas well in his yard that could date back as far as the 1930s. The well was never capped. A simple metal plate had been placed over it. Romine figured something was wrong when he saw bubbles coming out from the edge of the plate on a rainy day. Even though it was rated a "serious threat" by state inspectors, months have gone by with no action except a 10ft tall PVC pipe placed over the well to vent the flammable natural gas away from ground level.
In Pennsylvania, site of the country's first oil boom in the 1860s, the problem is even worse. A contractor hired to plug two abandoned wells in a nature preserve found two uncapped, unknown wells in a spot in the woods he had passed through a dozen times. State officials estimate the number of abandoned wells in Pennsylvania at 200,000, and more are constantly discovered.
In the Western US, the problem of hidden, abandoned oil wells is complicated by the fact that suburban development has spread over old oil fields. In Fort Collins, Colorado, reporters from Inside Energy who were attempting to find abandoned wells in a suburban neighborhood were met with hostility by some homeowners. The problem with finding some of the estimated 35,000 hidden oil and gas wells is that they were capped below ground level, and covered with dirt. Real estate developers in many cases never even thought to look for them. An undiscovered well under a home, store, or school could lead to a methane gas explosion.
Stuck With The Bill
In Texas, like everywhere else that is facing the problem of abandoned oil wells, the problem isn't so much finding them, it's finding the money to cap them. State Representative Drew Darby, who heads the House Energy Resources Committee said that abandoned wells were becoming a serious problem in West Texas. “We’ve seen some that were over-leveraged and simply walking away. Certainly out in my part of the world, where you got producers simply walking away,” he said. While there are "only" 12,000 known abandoned oil wells in Texas, the problem is hiring enough inspectors and paying for remediation. The bonds that drillers in Texas have to put up for each well only cover 17% of the cost of capping an abandoned well.
In Wyoming, the state just acquired 413 coal bed methane gas wells that were drilled by two companies that went bankrupt. According to the Casper Star Tribune, Patriot Energy, which held the permits, and High Plains Gas, which bought the Patriot wells in 2014, no longer are in business and don’t have working phone numbers. Over the last two years, the state has plugged 940 wells and converted 62 others to water wells for use by ranchers. It may be two more years before they can get to the 413 Patriot Energy wells.
The problem most states are encountering is funding. The agencies involved in plugging wells get most of their funding from fees and bonds levied on oil companies to cover plugging wells. During the boom times, there were far fewer abandoned oil wells, and many more being drilled. This provided the funds to cap those wells that were abandoned. Now, the opposite is occurring. Fewer new wells are being drilled, while the number of abandoned wells is surging.
In addition, some state governments are underfunding regulators and telling them to raid their capping fund to finance general operations.
Fixing Unemployment and Abandoned Wells At the Same Time
The oil sands of Alberta, Canada gave birth to a huge boom throughout the province, especially in Calgary. These oilfields were much harder hit by the global oil glut than the shale fields of North Dakota and Texas, because the cost of extraction was much higher. The Alberta Energy Regulator lists 66,500 wells as “abandoned” and another 76,500 “inactive” under its Licensee Liability Rating system.
While Alberta does have a polluter-pay policy that makes companies responsible for well decommissioning, the number of failed drilling companies has meant a big increase in the number of "orphan" wells. The province also has big economic problems. The oil collapse has driven the unemployment rate up to a 21-year high.
In a "two birds with one stone" plan, the industry trade group Petroleum Services Association of Canada (PSAC) has asked the Federal government to use $500 million CAD in infrastructure funds to hire unemployed well workers to plug abandoned wells. The thought is that no one knows more about plugging abandoned oil wells than the people trained to drill them. it also keeps skilled oilfield workers in Alberta, for when oil prices rebound.
The PSAC's earlier request to the Alberta provincial government for financial support of the plan was shot down by Alberta Premier Rachel Notley. She noted that the existing "polluter pays" laws should be used to clean up abandoned wells.
Noting that even the $500 million requested from Ottawa isn't nearly enough to cap every well that needs it, a spokesman from the PSAC said “While we absolutely agree well decommissioning is the responsibility of the licensee, (generally exploration and production companies), economic circumstances and steadily increasing costs due to ever-improving regulations are causing this work to be delayed or postponed and regular activity has almost come to a standstill,”
Energy Minister Margaret McCuaig-Boyd is in favor of the plan. “I think we could put a lot of folks to work in a fairly quick time (with the federal money) because the skills are out there right now and it is an issue that needs to be dealt with,” she said. “It will provide some jobs. No solution is going to provide jobs for everybody, but we need to look at how we can get as many Albertans back to work as we can.”
Speaking of the government being left on the hook for cleaning up after failed oil companies, a court case in Alberta is being watched carefully by all sides. The case involves Redwater Energy, a very small oil company that went bankrupt last May. The company handling the receivership wants to sell the 19 active wells Redwater owned, but dump the 70 inactive wells onto the Alberta government. Regulators countered that they would block the sale of any Redwater assets until part of the proceeds went toward capping the abandoned wells.
This case is being seen as setting a precedent that government agencies responsible for cleaning up old wells would be put ahead of creditors for a portion of the proceeds when a failed drilling company is liquidated.
Letter of the Law
Sometimes, efforts to have abandoned wells capped fail, even when the owner is known. In Los Angeles, citizens appealed to the city to condemn over a dozen natural wells that had lain idle for years. City code states that any well that is inactive for a year or more must either be reactivated or plugged.
The owner of the wells, Freeport McMoRan, shocked residents when they reactivated the wells instead of capping them. Some of these wells are across the street from a high school. Opponents who were pressing for the wells to be capped due to safety concerns believe that Freeport only reactivated the wells to avoid the expense of capping them. One resident said "if Freeport is reactivating the well, they're doing it only as a temporary measure to try and avoid the expense of plugging the wells." Area residents fear that the city will be on the hook for plugging the wells (which could cost as much as $500,000 each) if heavily indebted Freeport declares bankruptcy.
An All-Around Mess
With insufficient funds to cap abandoned oil wells and avert a hazard to groundwater and nearby residences, state agencies can only do so much. With the economic hardships in the oil industry, the problem will only grow. Since many of these wells are in tax-averse states, the lack of funding may mean that these wells will go uncapped for decades more.
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