In a report published by Commission Shift, it suggests state policies are allowing rule-bending oil and gas companies to transfer plugging and cleanup costs of their abandoned wells to the state. According to the report, The Railroad Commission of Texas, which oversees oil and gas development, has designed a broken system where the state routinely takes on risks from the industry without collecting enough taxes and fees from the industry to deal with those risks.
“Oil and natural gas companies should clean up after themselves before drilling more wells,” said Virginia Palacios, Executive Director of Commission Shift and co-author of the report, Eliminating Orphan Wells and Sites in Texas. “The Railroad Commission needs to hold companies responsible for well plugging and cleanup on the front-end. The current system that creates orphan wells is by design, not by accident.”
An orphan well is an unplugged oil, gas, or injection well for which no viable responsible party can be located, or where the owner is known but bankrupt. But “orphan well” is just a legal classification. There are legacy wells that oil and gas companies plugged with inappropriate materials or by using practices that are now obsolete. These wells have crashed into public consciousness partly because they are affecting more and more Texans and are difficult to ignore. The oil and gas industry is exhibiting signs of systemic decline, meaning there will be more wells to plug in the near future. Texas needs to prepare for the transition to responsible asset retirement.
“The federal government is making $4.7 billion available to states to pay for orphan well plugging and site cleanup,” said Ty Edwards, Director of the Middle Pecos County Groundwater Conservation District. “We’d like to see the Railroad Commission spend some of those funds to help cleanup expensive disasters like Boehmer Lake -a salt-water lake created by legacy oil and gas wells that is threatening water quality in the Pecos River.”
According to the report, oil and gas drillers also use loopholes to avoid plugging their wells, like keeping wells barely active just to avoid having to plug them. Texas incentivizes this practice by offering tax incentives for low-producing wells and high-cost gas wells. These tax incentives put the burden of potential orphan wells on the state while reducing state revenues available to deal with the aftermath.
The financial impact of orphaned wells is staggering. About 45% of the Railroad Commission’s entire budget goes to well plugging. If companies cleaned up their own messes, then the Commission could invest in monitoring and enforcement. Recent well blowouts in Refugio, Ward, and Crane Counties; leaks and sinkholes in Pecos County; and stranded equipment in the lower Brazos River watershed highlight the need for increased state oversight of legacy wells and reconfiguring the State Managed Well Plugging and Cleanup Programs.
In most years in the past decade, the Railroad Commission has taken on more orphan wells that it has plugged. This is resulting in a never ending treadmill of state-financed asset retirement.
“An orphan well does not just magically appear on a Railroad Commission of Texas field office doorstep,” said Megan Milliken Biven, researcher, oilfield safety advocate and co-author of the new report. “These wells are an inevitable and intentional consequence of the current system. If we want a different outcome, then we require different approaches, different laws, and a Railroad Commission that prioritizes the health and people of Texas above all else.”
Recommendations from Eliminating Orphan Wells and Sites in Texas:
- Tighten eligibility and increase scrutiny of operating permits and drilling permits.
- Require operators pay for financial security that covers the full cost of asset retirement obligations.
- Hold operators accountable to their own decommissioning obligations.
- Repeal inactive well plugging extensions and reduce the marginal well population.
- Revise fees and surcharges deposited to the oil and gas regulation and cleanup fund (OGRC) and the General Revenue Fund.
- Repeal tax exemptions and incentives for wells that operators are likely to orphan.
- Close gaps in the inspection program.
- Develop a strategy to swiftly eliminate orphaned wells and sites.
- Bring the public State Managed Well Plugging and Cleanup Program “in-house.”
- Create a program to oversee perpetual monitoring of plugged wells and locate legacy wells.
Read the full report and detailed policy recommendations here
Commission Shift is a Texas-based nonprofit building public support to hold the Railroad Commission of Texas accountable to its mission in a shifting energy landscape. We educate and organize a wide array of Texans to build support for changes at the Railroad Commission that improve the agency’s function, transparency, and accountability to the many people and places impacted by the oil and gas industry.
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