When an oil well is no longer needed operators in New Mexico are tasked with plugging it up, sealing it off and reclaiming the land back to its natural state.
But when a company goes bankrupt or for other reasons becomes insolvent, wells are abandoned leaving that state to take responsibility.
An orphaned well, when there is no present operator on file, can pose environmental and human health risks with unchecked emissions and potential impacts to local groundwater sources.
In recent years, the State of New Mexico and its Oil Conservation Division (OCD) – an arm of the New Mexico Energy, Minerals and Natural Resources Department (EMNRD) – made plugging wells a top priority, hoping to mitigate pollution concerns but also creating jobs.
In Fiscal Year 2020, which ran from July 1, 2019 to June 30, 2020, the OCD reported it plugged 42 orphaned wells at a cost of about $1.6 million.
“This is a large priority for us,” said OCD Director Adrienne Sandoval. “We want to make sure we are plugging as many wells as we can each year. We actually expect to get close to that 42 number if not match or surpass it this fiscal year.”
While the OCD reported it hadn’t seen an “onslaught” of orphaned wells amidst the COVID-19 pandemic and historic decline in oil prices and operations, Sandoval said it could happen “at any time” if the market’s recovery slows and more operators go out of business.
As of March 24 in FY 2021, which ends in about four months, the OCD plugged 14 wells and spent about $588,749.
Sandoval said the apparent decline was caused by the OCD reevaluating its process for plugging the wells to include more procurement efforts to include multiple well-plugging contractors.
“The reason the number has been lower this year, is we had to take a step back and say how do we do this more efficiently? We now have more than one plugging contractor. That allows us to spread out the work,” she said.
“It slowed us down for a bit, but in the long run it’s going to help us be more efficient with the plugging that we’re getting done.”
Helping the OCD pay for plugging wells, operators must take out bonds when wells are drilled. When they abandon a well, the Division cashes those bonds to help pay for plugging and reclamation of the land.
The agency also has a reclamation fund and receives grant funding from the U.S. Bureau of Land Management for work on federal land.
The OCD estimated plugging a well can cost about $35,000 plus an added $50,000 to $80,000 in costs associated with reclaiming the land once a well is plugged.
But a past of environmental damage can bring that cost into the millions.
“There’s the potential for a gas to escape. There’s the potential for an impact to ground water. There are multiple different layers and reasons why it’s important to (plug wells),” Sandoval said.
“When the wells are orphaned, that means that basically there is not operator of record. They’ve disappeared in a way. If they have any bonds on record, we’re able to cash those in to help us. If that’s not enough, we have the reclamation fund.”
She said the OCD hopes for about 50 plugged wells per year with the resources at its disposal and hopes more funding could come from the federal government to help address the problem sooner.
OCD records show the State is aware of 121 orphaned wells on State land, 298 on private land and 293 on federal land in New Mexico.
That’s 712 wells in total. At 50 a year, it could take the Division 14 years to complete the work.
“What we do is try to prioritize the ones that have the greatest risk. A lot of our limitations are due to funding in order to get those wells plugged,” Sandoval said. “We try to do what we can to protect human health but at 50 wells a year, we understand it could take a long time to get there.”
Additional funding would not only benefit the environment and human health, she said, but create jobs for oil and gas workers who might get laid off during downturns in the industry market.
She said a lot of the same skills from well servicing and active operations would likely transfer to well plugging.
“When the industry sees a downturn, often the service industries are the first impacted. Those are the same workers that could work for these plugging companies,” Sandoval said. “In general, a lot of the skills they were likely previously using will be useful in this work as well. It’s transferable.”
With the changing federal administration following the President Joe Biden assuming office in January with a renewed focus on mitigating pollution from fossil fuel industries, Sandoval said she was optimistic New Mexico could receive more support for plugging abandoned wells.
“I think there is interest across the board and with Congress and we hope to be a resource as needed. But we’re optimistic,” she said.
National trade groups agreed with the importance and benefit of plugging abandoned wells during a forum held last week by the U.S. Interior Department amid its ongoing review of federal oil and gas policy.
The Department embarked on the review after Biden placed a pause on new federal oil and gas permits almost immediately after taking office.
Frank Macchiarola, senior vice president of regulatory affairs at the American Petroleum Institute said the trade group that represents more than 600 companies in all sectors of oil and gas production supports increased efforts to plug wells as a way to mitigate extraction’s environmental impacts.
“Our membership looks forward to working with the government. With it being both a priority for the industry and Biden administration we look forward to working on it,” he said. “It would be part of our priority of mitigating emissions within our own operations.”
Wendy Kirchoff with the American Exploration and Production Council said she agreed that abandoned wells could provide jobs.
She said nationwide, most such wells are on state or private land with about 50,000 on federal land across the country.
“Where idled and orphaned wells can provide more jobs that’s great. The good thing about federal land is that the number of idled and orphaned wells are very low,” Kirchoff said. “Most of those idled or orphaned wells are on state or private land.”
Adrian Hedden can be reached at 575-618-7631, [email protected] or @AdrianHedden on Twitter.