Conservation

Oil Market Woes Raise Concerns That More Wells Will Be ‘Orphaned’

When energy companies go bust, taxpayers are often on the hook to clean up abandoned wells that pose environmental hazards.

An old, familiar rule applies to the more than 96,000 active oil and gas wells that pock our federal lands: If you make a mess, clean it up. But the fossil fuel industry sometimes breaks that rule. Oil and gas operators occasionally go bankrupt or abandon their cleanup duties, and the government can’t always track down a company to hold accountable. Untold thousands of these “orphaned” wells—perhaps more than 1 million of them—linger across the country, threatening public health and degrading what should be wildlife habitat.

Critics say that industry regulators, and in particular the U.S. Bureau of Land Management (BLM), haven’t adequately tracked the problem or been tough enough on operators to hold them responsible for reclaiming wells. And now, with oil prices coming off their deepest single-quarter plunge ever, conservationists worry that more companies will walk away, sticking taxpayers with the cost of cleanup. 

“The problem is only going to get bigger,” says Jill Morrison, executive director of the Powder River Basin Resource Council, which advocates for stricter regulation of energy development in Wyoming. “This recent downturn in the industry and the glut of oil and natural gas that the drill-baby-drill policy led us towards is really going to cause problems.” 

When they’re finished producing oil or gas from a well, operators are required to plug it, remove all surface infrastructure, and restore the landscape’s natural contours and vegetation. Failing to do that work can have significant environmental consequences. Unplugged or poorly plugged wells can leak oil, gas, and corrosive brine, contaminating soil and groundwater. They can also spew methane, a potent planet-warming gas. And without proper restoration, well sites are prone to erosion and remain a source of habitat loss and fragmentation for vulnerable wildlife such as the Greater Sage-Grouse. 

“If we don’t reclaim them, then we don’t have any shot at eventually restoring the landscape that was disturbed in the first place,” says Nada Culver, vice president for public lands and senior policy counsel for the National Audubon Society. A typical unreclaimed well might cover about five acres, she says, so the cumulative impact—both direct loss and fragmentation of habitat—is significant. “We have enough challenges with restoring grasslands in the West from surface disturbance without being in a situation where nobody’s even trying.”

Mandatory restoration work tends to be left incomplete when the energy industry hits a downturn, and right now it’s in a big one. Travel restrictions and other effects of the coronavirus pandemic have wiped out demand while a Saudi-Russian price war ramped up output in an already oversupplied oil market. A tentative global deal reached on Thursday to limit production did not appear to convince traders and analysts that it was enough to end the glut. 

Since 2015, falling prices have caused 215 North American oil and gas producers to file for bankruptcy, according to the Oil Patch Bankruptcy Monitor run by law firm Haynes and Boone, LLP. Seven companies filed in the first quarter of 2020, but the list is likely to grow significantly. “As of early April, there is reason to expect that, just like the COVID-19 virus in the US, it will get worse before it gets better,” the firm’s latest report says.

In theory, bankruptcies, buyouts, and other shakeups at oil and gas companies shouldn’t get in the way of cleanups. Before operators can start developing a well, regulators require them to post a bond that will only be refunded when reclamation is complete. Trouble is, those bonds typically come nowhere near covering the cost of reclamation.

In a report published last fall, the Government Accountability Office (GAO) found that the BLM held bonds averaging just over $2,000 per well. Yet the cost to taxpayers for the bureau to reclaim orphaned wells averaged around $20,000 per low-cost well and $145,000 for a high-cost well. 

For 82 percent of bonds, the BLM required companies to put up only a legal minimum dollar value—minimum levels that haven’t been updated since the 1950s and ‘60s, the GAO reported. The bureau requires at least $10,000 to cover wells under a single lease, $25,000 to cover all of an operator’s wells in a single state, or $150,000 for all of its wells nationwide. Just to keep pace with inflation, those requirements should be $66,000, $198,000, and $1.2 million. On occasions when the BLM decided to increase a bond requirement, 84 percent of the time it failed to collect the additional money from operators.

“The BLM has only themselves to blame,” says Frank Rusco, a director in the GAO's natural resources and environment team. “To state the obvious, if you wait around until there's a problem and people are going out of business, and you’re asking for more money, you’re not going to get it.”

Asked to address such criticisms, BLM spokesman Derrick Henry said in an email that the bureau “is actively engaged in reducing the idled well inventories to ensure that operators reclaim well sites and that these wells do not become orphaned wells. In December, the BLM issued a memo with guidelines for its field offices to regularly review nonoperational wells and is working on addressing other recommendations from the GAO. Rusco describes the bureau's progress so far as “baby steps.”

The exact number of orphaned wells on BLM land is unclear because the bureau doesn’t have a good system for tracking them, the GAO concluded in a separate report in 2018. Henry said Audubon magazine would need to file a Freedom of Information Act request to learn the bureau's estimated total. 

A year ago the bureau gave the GAO a list of 296 orphaned wells, but Rusco says that number is unrealistically small because it takes a limited view of the problem. “We don’t think it’s at all reasonable or accurate,” he says. “I think the biggest problem is they don’t have a good way to identify orphans.” When oil prices dip, he says, companies commonly leave a well idle, hoping to restart production when markets improve. But if prices don’t go up, the company might never come back. The GAO last year found about 2,300 wells that weren’t part of BLM’s orphan tally but were at high risk of becoming orphaned because they hadn’t produced since 2008, when prices were at record highs. “The feds let wells be in this idle status almost indefinitely and don’t have a systematic way for determining whether a well has reached the end of its useful life and should be reclaimed,” Rusco says. “That’s a big part of the problem.”

Orphaned wells aren't just a federal problem. A recent analysis by the Western Organization of Resource Councils found that no state has bonding requirements tough enough to tackle the issue. Still, the group’s findings show that the typical state bond requirement is about four times higher than the BLM’s minimum statewide bond. In addition to bonding requirements, some states charge production taxes to capture revenue during boom times so cleanup funds are available when things go bust. 

If conservationists want to prevent the current bust from adding to the orphaned-well problem, they should support financial relief to keep oil and gas companies solvent, according to Kathleen Sgamma, president of the industry group Western Energy Alliance. “Ironically, those who call for increased bond rates and other costs are actively opposed to any relief at all, thereby advocating for policies that would do most to put wells at risk,” she said in an email. Sgamma’s group opposes increasing bond requirements because companies are already liable for paying cleanup costs and already pay state production fees.

The GAO has recommended that the federal government consider establishing a well cleanup fund like many states have, but the BLM says it lacks authority to collect revenue for such a fund. Congress hasn’t yet given the bureau that authority, but Rep. Alan Lowenthal (D-CA) has introduced related legislation that would increase bonding requirements.

Like other legislation, that bill has taken a backseat as Congress works to stanch the economic bleeding caused by the COVID-19 crisis, but Audubon’s Culver says she hopes lawmakers will tackle the problem when public life returns to something like normal. “I find it odd that nobody’s fixed it,” she says. “This hasn’t been a particularly partisan question. It’s just common sense.”

This story was updated on April 14 to include comments from the BLM that were requested a week earlier but not provided until after the story published.

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