What Are Orphan Wells? Their Costs and Potential Threats Explained
By Pegah Jalali, environmental policy analyst
When you hire a contractor to do work on your home, it’s smart to make sure that person carries some sort of protection against the work not being completed – a financial product similar to insurance called a bond. Bonding protects all parties involved from financial distress if someone doesn’t live up to an agreement. Unfortunately, when it comes to oil and gas production, sometimes oil and gas companies leave a big, costly mess for the rest of us to clean up: orphan wells.
What Are Orphan Wells?
“Orphan wells” are a subset of unplugged abandoned wells. They are non-producing wells for which no owner or operator can be found, or the owner or operator cannot or is unwilling to plug the well. This could happen if the owner goes bankrupt due to volatility of the oil and gas industry, or if the well is left unplugged and abandoned prior to the recent plugging standards, and now no legal responsible party can be found for the well.
What Happens When Orphan Wells Aren’t Cleaned Up?
When oil and gas wells go out of operation, they need to be properly cleaned and plugged to prevent adverse environmental and health impacts. Methane and carbon dioxide leakage from unplugged wells intoxicate the air and contribute to climate change: An analysis from the Environmental Protection Agency (EPA) showed methane emissions from unplugged wells are about 100 times greater than emissions from plugged wells. They also emit naturally occurring radioactive materials and air toxins such as benzene, and the migration of gas or fluid from unplugged wells and improperly cleaned sites can contaminate soil and ground water, harming wildlife and livestock.
Who Pays For Orphan Wells?
Oil and gas companies are legally obligated to plug wells once they are no longer producing oil. In reality, however, many operators have abandoned the wells they have profited from without paying for their cleanup and closure. The EPA’s estimate shows that in 2019, there were about 2 million unplugged abandoned oil and gas wells across United States.
When such a well is left unplugged and “orphaned,” the responsibility for closing the well and cleaning up the site falls on the rest of us to pay the costs collectively through our tax dollars. For instance, Petroshare Corporation declared bankruptcy in 2019 and sold its major assets to a creditor, Providence Energy, leaving the state of Colorado with no choice but allowing Petroshare to abandon its unwanted wells without plugging them, burdening Coloradans with the costs to clean it up.
How Do We Hold Negligent Operators Accountable?
Many states have financial mechanisms in place to hold operators accountable. For example, operators are required to obtain bonds, which are a form of financial assurance, to support the costs of plugging a well in case it becomes orphaned. However, these bonding requirements are often based on very low-cost estimates, which makes abandoning a non-operating well significantly cheaper than cleaning and plugging it. For example, in the example of PetroShare’s well that became orphaned, Colorado required bonds in the amount of $425,000, of which $400,000 were designated for plugging and abandonment costs. Based on estimates from independent energy finance think tank Carbon Tracker, that number only represents about 3% of the expected plugging costs.
How Many Unplugged Wells Does Colorado Have?
Colorado has about 60,000 unplugged wells (including currently producing wells, stripper wells, injection wells, temporarily abandoned wells, and zombie wells), and Carbon Tracker’s estimates show that the costs of cleaning and plugging them are about $7 billion. According to the Colorado Oil and Gas Conservation Commission’s Orphaned Wells Program, Colorado has at least 215 orphaned wells and 454 associated sites, which can include well pads, storage tanks, flowline locations and other facilities.
Number Of Orphan Wells Expected To Rise
As the industry naturally declines due to the inevitable transition from fossil fuels to renewable energies, and more and more wells become unprofitable, the number of orphaned wells is expected to rise. In order to avoid burdening Coloradans with billions of dollars in cleaning and plugging costs, states need to require bonding amounts from oil and gas companies that reflect the actual costs of plugging and cleaning wells.
How Legislation Can Help Mitigate Clean-Up Costs
A recently introduced bill from US Senator Michael Bennet will modernize federal oil and gas bonding standards to better reflect the actual costs of dealing with these cleanups. The bill would fund orphaned well remediation on federal, state, and tribal lands as well as increase individual bonding requirements to $150,000 and establish standards for inactivity and cleanup. Currently the bond-per-well requirement in Colorado is only $10,000 for wells less than 3,000 feet deep, and $20,000 for wells deeper than 3,000 feet. Operators with up to 100 active wells can provide a statewide “blanket” bond of just $60,000, while those with more than 100 wells need to pay $100,000 for state-wide blanket bonds. The bill will increase the statewide bonding requirement to $500,000.
A recent editorial from The Durango Herald praised Bennet’s solution to this problem:
The bill also will fund new jobs while reducing methane emissions, which are particularly high in the Four Corners Area. It will modernize long-outdated bonding requirements; individual well bonds would increase to $150,000, while a statewide bond would be $500,000. (The 1960s-era bond amounts currently in place are $10,000 per individual well; $25,000 statewide; and $150,000 nationwide.) This will ensure that oil and gas companies, not taxpayers, fund cleanup in the future.
The bill will also establish standards for identifying inactive wells and when cleanup must start, and what exactly constitutes remediation and reclamation of impacted land and water resources. A publicly accessible database of information about all onshore leases will be created.
Durango Herald editorial, July 14, 2021
Holding Industry Accountable
Increasing the bonding requirement to reflect the true cost of plugging and abandoning wells is an essential step in holding the industry accountable for their environmental pollution and protecting health and safety of our communities. The orphaned well fund proposed in the bill will also create new jobs while mitigating climate change.
