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Who Should Pay To Plug Abandoned Oil Wells?


Who should be responsible for plugging abandoned oil and gas wells, Big Oil, or the government and taxpayers? That’s the question being raised as the U.S. faces an increasing abandoned oil well problem, with millions of unplugged wells across the country. 

The U.S. has battled with its abandoned oil well problem for years, with experts suggesting there are anywhere between 2 and 3.2 million abandoned wells across the country, of which there are 57,000 documented orphaned wells. The difficulty in coming to a concrete figure is due to the lack of documentation of wells that were abandoned up to a century ago. So long as these wells go unplugged, they may well be releasing methane into the air and causing further climate damage with no energy gain. 

But would new policies mean that the burden to plug these disused wells now falls on the taxpayers instead of the oil companies? A recent policy proposal suggests so. Part of Biden’s giant $1 trillion infrastructure bill may include funds for the plugging of wells across the U.S., effectively subsidizing Big Oil’s operations, on the grounds that it would support the battle against climate change. 

One of the biggest limitations in making oil companies pay for the clean-up is the existence of thousands of orphan wells – abandoned wells with no registered owner. And just who is responsible for these if not the federal government?

However, criticism mainly surrounds the $2-million of proposed funding stipulated for the Interstate Oil and Gas Compact Commission (IOGCC), which works closely with the oil and gas industry. This proposed part of the bill would give the IOGCC the power to consult with the government over the distribution of billions of dollars in funding for the plugging, remediation, and restoring of orphan wells, potentially providing its favored oil companies with state funding to plug these wells.  

We’ve already seen action taken earlier this year to speed up the rate at which abandoned oil and gas wells are plugged, with a U.S. House of Representatives Democrat introducing a bill in April which authorized $8 billion in funding to clean up and plug these wells across the country. 

And New Mexico spent millions in 2020 plugging orphaned wells through the Oil Conservation Division (OCD) if the state’s Energy Department. The reason so many orphaned wells exist across the U.S. is largely because many oil companies have gone bankrupt over decades of drilling, leaving these leaking wells with no one to manage them. 

New Mexico reportedly plugged 42 orphaned wells in the fiscal year 2020, at a cost of $1.6 million. But this is merely the tip of the iceberg, with thousands of wells remaining in New Mexico alone, requiring millions in funding to plug them all. 

Adrienne Sandoval, Director of OCD, highlighted the importance of plugging old oil and gas wells as quickly as possible as, “There’s the potential for gas to escape. There’s the potential for an impact to groundwater. There are multiple different layers and reasons why it’s important to (plug wells).” The environmental and human health impacts are simply too big to overlook. 

But should the state and federal governments not only be designating huge funds to clear up Big Oil’s mess but actually pay oil companies for the luxury of having the situation rectified? 

Landowners across the U.S. accuse inadequate regulations for allowing oil companies to avoid plugging their disused wells. And local citizens of areas with large numbers of abandoned wells are concerned that some have gone decades without being plugged, with unknown damage to the local environment. 

In Colorado, oil producers are required to pay a $10,000 to $20,000 bond for the plugging of abandoned wells once drilled. However, the estimated cost of plugging these wells is, in reality, nearer $140,000, suggesting that oil companies are managing to avoid the costs of leaving these wells safe for the environment and for the health of the local population once they’re no longer using them. 

In Texas, the Railroad Commission is plugging an average of around 1,800 wells every year, with 83 percent of these being plugged by their oil operators. However, the Commission waived fees last year due to the slump in oil prices and increase in bankruptcies across the oil industry. 

In addition, oil and gas majors have been accused of selling less productive wells to local oil companies, many of which go bankrupt. This issue increased during the 2020 pandemic when oil prices plummeted, leading many small oil and gas companies across the U.S. to file for bankruptcy, leaving abandoned wells in their wake. Some believe this is simply a way for oil majors to dodge the costs incurred in plugging non-profitable wells. 

But recent advances in accountability have been made. Fieldwood Energy, a Houston-based oil and gas company, filed for bankruptcy in August 2020, leaving behind hundreds of aging wells in the Gulf of Mexico. However, a lawsuit meant that $7.2 billion in expenses for plugging the wells fell upon their prior owners, including BP and Shell, in a landmark case. 

So, as there seems to be a little option in shifting the responsibility away from the state when it comes to plugging orphaned wells, should the government introduce stricter regulations on oil majors selling less profitable wells to smaller companies by making them liable for the clean-up cost should the new owner go bankrupt, as well as higher bonds for the decommissioning of wells once they are abandoned? With the U.S. going full throttle on its Green New Deal, this seems like an obvious step forward. 

By Felicity Bradstock for Oilprice.com 

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