Colorado Taxpayers Will Pay For Oil Well Cleanup

Old wells that operate on the margin of profitability cost less to abandon than to clean up after they are plugged. According to a new study. The cost of decommissioning 48,000 unplugged wells across the state will cost between $6.8 to 8.5 billon not including the cost of reclamation of surface disturbance for thousands of other wells.  Six years of study by the state of the problem has produced no more financial assurance than existed before the study commenced.  Production peaked five years ago, and attempts to redevelop oil fields outside of one basin north of Denver have largely failed.  These wells have produced declining amounts of oil and face eventual abandonment by an industry willing to cut operating costs as much as possible.  Operators in "legacy" areas plug only 0.4 of their wells every year.  Legacy areas represent 57% of the statewide total of oil and gas wells. To compound the problem, marginal wells are often sold by large producers to small, independent operators that do not have the capital needed to properly decommission a non-productive well.  According to the state's regulator, a single well can cost $110,000 or more to close down.  A well may become an "orphan" that has no responsible owner; about 120,000 such wells exist across the USA.

The study concludes that something must be done quickly if the public is to be protected from becoming the deep pocket of last resort.  These legacy wells will generate about $1 billion in revenue, but decommissioning  will cost $4-5 billion.  Unless properly plugged a well can leak methane and other toxic gases into the environment.  Colorado attempted to solve the problem in 2022 by revising bonding requirements for drilling. But the gap between bonding amounts  and clean-up costs continues to increase.  Colorado is not alone in having inadequate assurance provisions from the industry.  Fifteen of the major oil producing states have funds on hand for less than 2% of costs according to analysis by Pro Publica. [photo credit: Texas Observer]

Colorado made some sweeping reforms in 2019, giving its regulatory authority, Energy and Carbon Management Commission (ECMC) a mandate to protect human health and environment above industry profit.  The reforms included revising the financial assurance requirements, restricting transfer of wells to smaller, less capitalized companies, and imposing a fee on producers. There are just three publicly traded companies currently operating in the state: Occidental, Chevron and Civitas that have the means to properly decommission their wells. The rest of the operators do not.  KP Kaufman, the largest owner of marginal wells in Colorado, has already told the state it cannot afford to pay a $2 million fine for environmental violations, and has sued ECMC to reduce the fine. Compared to next door New Mexico, which has struggled to pass more stringent requirements, Colorado is better off, but not by much. Its fee arrangement only generates about $10 million annually.  This pathetic situation exists in a period of record industry profits.  Colorado will need to look elsewhere for funds to protect its citizens from abandoned oil wells.  Taxpayers, open your wallets!