- New Mexico’s abandoned oil and gas wells could risk billions in taxpayer dollars.
- Fossil fuel industry supported amended bonding rates in 2018.
- Calls continue for regulators to demand more money from oil and gas companies to pay for cleanup.
Abandoned oil and gas wells in New Mexico could mean billions in financial liability for the state’s taxpayers, per a recent study.
Published by New York-based Carbon Tracker Initiative, the study analyzed unproductive but unplugged wells in New Mexico, determining the amount of financial liability the issue posed to the state.
Thirteen oil-producing states were included in the study which showed New Mexico had about $10.6 billion in financial risk stemming from 73,750 unplugged wells.
That ranked New Mexico fifth among the states studied in financial risk, behind $12.2 billion in Pennsylvania, $12.5 billion in Ohio, $31.4 billion in Oklahoma and $96.6 billion in Texas.
The study showed 23 percent of New Mexico’s unplugged wells were producing as the data was published on Thursday, tying for fourth with Colorado and behind Wyoming at 32 percent and North Dakota and Alaska with tied for first with 47 percent of wells producing.
The higher the percentage of producing unplugged wells, the lower the risk a state’s taxpayers have in footing the bill for cleanup, said Rob Schuwerk, executive director at Carbon Tracker.
“The key thing we’re focusing on right now is the productive ratio. What we’re looking at is really how many of these wells are producing oil and gas outside of a stripper level,” he said. “The idea is that if you have a good regulatory regime, then you’re plugging wells that are old and keeping the ones that are productive.”
But even though New Mexico ranked toward the top in its productivity rate, Schuwerk said there was still “substantial” financial risk in the state and argued regulatory agencies should enact reforms to ensure the companies themselves pay for cleanup – not taxpayers.
Aside from fiscal liability, he worried abandoned wells could risk environmental harm as they could leak unmonitored pollutants into the air, land or water.
“That is a substantial risk for the people of New Mexico,” Schuwerk said. “If companies don’t pony up that money, the wells are going to sit there and contaminate the land, or the state of New Mexico’s taxpayers are going to pay it. These are obligations that sit with the companies that operate those wells.”
Schuwerk said state bonding requirements should be amended to include what he called “full-cost, single-well bonds, that would assess the full cost of clean up based on the exact number of wells a company operates.
He said many states use “blanket bonds” that allow companies to purchase bonds for a set number of wells, meaning they have little incentive to pay for cleanup before reaching the number of wells bonded.
What are New Mexico’s rules for plugging oil and gas wells?
State statutes show New Mexico’s Energy, Minerals and Natural Resources Department (EMNRD) – the state’s main oil and gas regulator – has a bonding schedule for active and inactive wells.
For active wells, EMNRD offers $50,000 bonds for one to 10 wells, $75,000 for 11 to 50 wells, and $125,000 for 51 to 100 wells.
For more than 100 wells, operators can take out a bond for $250,000.
If a well is categorized as inactive, bonding rates increase to $150,000 to one to five wells, $300,000 for six to 10 wells and $500,000 for 11 to 25 wells.
For an operator to bond more than 25 inactive wells, it must provide $1 million in financial assurance, per state law.
If an operator is deemed to have abandoned a well and refuses to plug it and remediate the land to its original state, state law shows EMNRD’s Oil Conservation Division (OCD) can hold a hearing and determine the wells must be plugged.
That means the operator would forfeit its financial assurance to pay for the work.
If that assurance isn’t enough cover the cost, the law provides an option for the OCD to seek additional compensation through litigation.
“If it is determined at the hearing that the operator has failed to plug and abandon the well and restore and remediate the location as provided for in the financial assurance or division rules, the director shall issue an order directing the well to be plugged or abandoned and the location restored and remediated in a time certain,” read the statute.
“Such an order may also direct the forfeiture of the financial assurance upon the failure or refusal of the operator, surety or other responsible party to properly plug and abandon the well and restore and remediate the location.”
Should New Mexico raise the rate on oil and gas bonding?
The current rates were set in by the New Mexico Legislature through amendments in 2018 with industry support, and Robert McEntyre with the New Mexico Oil and Gas Association – the state’s largest fossil fuel trade group – said there hasn’t been adequate time to see if they are adequate.
He opposed further reforms until there was “enough data” on the current rates as to how they supported the state’s Reclamation Fund used to pay for the work, since the rates were approve three years ago.
“At this point, we believe it’s premature to evaluate bonding adequacy when we haven’t had time to see these new rules really take effect,” McEntyre said. “Often times, proposals to increase bonding requirements and are intended to discourage production. We enacted responsible bonding requirements that create a level playing field.”
McEntyre said most operators adequately plugged their unused wells, and value protecting the environment from the risks they pose.
“Ninety-nine percent of operators do address issues on their own. Less than 1 percent of wells go unplugged and un-remediated,” he said. “Plugging and remediating non-producing wells is part of being a good neighbor.
“Wells that are not properly plugged and remediated do pose risks and we want to do everything we can to ensure well sites that no longer produce also do not produce risks to those in and around the sites.”
But many critics of the oil and gas industry contend the amount of money is not enough to pay for the work. That concern led to multiple members of New Mexico’s Congressional delegation bringing forth bills to either increase public funds to plug wells or raise the rates.
U.S. Sen. Ben Ray Lujan (D-NM) introduced the Revive Economic Growth and Reclaim Orphaned Wells (REGROW) Act in April to provide about $4.3 billion in grant funding for orphaned well cleanup on state and private lands, along $400 million for cleanup on federal and Tribal lands.
Another $32 million in the bill would be dedicated to funding related research.
The REGROW Act was referred to Senate Committed on Energy and Natural Resources and was awaiting further action, per the latest reports.
U.S. Rep. Teresa Leger Fernandez’s Orphaned Wells Cleanup and Jobs Act introduced the month also sought federal funds for the work – $7.24 billion for cleanup state land and $400 million on federal land – but also targeted bonding rates.
The bill proposed raising the minimum bonding amounts on federal land to $150,000 for all of an operator’s wells on an individual lease and $500,000 to cover a company’s wells in an entire state.
That bill was passed by the House Committee on Natural Resources in May and was awaiting further action as of Thursday.
“Their leaks into the air and groundwater pose serious public health risks, especially to rural, Tribal, and communities of color. When we clean them up, we create good paying jobs and reinvest in the communities abandoned by these fossil fuel companies,” Leger Fernandez said in a statement upon introducing the bill.
“The bill also makes the legitimate demand that oil and gas companies currently taking hydrocarbons out of the ground have enough money set aside to do their own cleanup, so this doesn’t happen again.”
Adrian Hedden can be reached at 575-618-7631, [email protected] or @AdrianHedden on Twitter.