The continued cost of Wyoming's orphaned wells
Heather Richards 307-266-0592, Heather.Richards@trib.com
Aug 11, 2016
Wyoming’s oil and gas regulators are in the process of plugging thousands of orphaned oil and gas wells in the state, many left in the wake of coal-bed methane’s steep rise and precipitous fall.
Regulators updated lawmakers on the Joint Minerals, Business and Economic Development committee, which met Thursday in Casper, on the process and cost of filling the pocked landscape of Wyoming. Environmentalists took the opportunity to tell lawmakers that the issue of orphaned wells is ongoing.
Though rule changes have allowed the Wyoming Oil and Gas Conservation Commission to more aggressively monitor companies’ idle wells, as well as hold higher bond amounts to cover the eventual cost of reclamation, not all orphaned wells are fully bonded to the cost of reclamation.
But the bill left behind by companies gone bust is significant.
The accumulated cost to fill 1,258 orphaned wells since the commission began an accelerated orphan well project in 2014 was $4.6 million more than the bond money available to the commission.
The state regulation agency pays the difference between the insurance on the wells and the cost of filling them.
The money to cover that comes from the conservation tax levied on operators.
It’s important that adequate bonding be maintained going forward, said Jill Morrison of the landowners group Powder River Basin Resource Council.
Morrison told the committee Wyoming is not out of the woods in terms of companies defaulting on their liabilities before paying the tab.
This is of particular concern in the current climate of low oil prices.
“At some point, companies are going to try to shed those liabilities when well production starts to decline significantly,” Morrison said. “Then we’re gonna be trying to plug or get bonding for idle wells that are 10,000 to 15,000 feet deep. I don’t think we’re over the hump on this in the future.”
But the issue of bonding is not just one of orphaned wells — wells whose operators went bust. There are also wells that have been taken out of production but are still owned by a producer.
Companies may be required to post additional bonding for wells after one year of being idle, at a rate of $10 per foot.
According to the commission’s report Thursday, 8,881 idle fee wells have been idle for more than a year, requiring either a plan for continued operation or idle well bonding. If the total bond amount was immediately collected, it would add up to about $211 million. In reality, about $60 million is not currently held by the commission.
The explanation for that discrepancy is that producers are able to submit a plan to the commission to either plug idle wells or bring them back to production rather than pay the idle well bonding fee, according to the commission’s report. The commission also allows some leeway to operators, who can submit a cost estimate justifying a fee less than the $10 per foot of the well bore, accounting for some of the difference.
Much of the commission’s work now is made possible by increased bonding requirements, updated in the commission rules late last year. The requirements were considered a compromise both from environmentalists, who wanted a $150,000 blanket bond, and industry officials, who argued for significantly less.
This does not include reclamation costs. $10 per foot is ONLY for plugging. This still leaves behind equipment and bare ground and roads on the surface. Reclamation is restoring the surface to what it was before drilling. Plugging a hole does not do that. This estimate is hundreds of millions of dollars off. Try again.
The WOGCC plugs and reclaims orphan wells with bonds from abandoned wells. If bond is not sufficient for total restoration, oil and gas mill levy is used. No state funds. includes surface restoration.
How ‘Orphan’ Wells Leave States Holding the Cleanup Bag
Wyoming has to deal with abandoned wells seized from would-be mogul and his Gazmo device
Ed Presley stands by an idle well in Wyoming's Powder River Basin, one of thousands that state regulators seized from his company, High Plains Gas, to ensure they didn't pollute groundwater or soil. Photo: Ryan Dorgan for The Wall Street Journal
Dan Frosch and
Russell Gold Feb. 25, 2015 10:30 p.m. ET
GILLETTE, Wyo.—After a natural-gas boom in the Powder River Basin here petered out several years ago, few energy companies were interested in the leftover wells pockmarking the prairie. Then Ed Presley came along.
The burly, bearded speculator acquired roughly 3,000 idle wells, many for a few dollars. With a salesman’s charm, he vowed to revive the wells with a contraption called the Gazmo.
But Mr. Presley’s plan never produced any gas. He says he couldn’t raise enough money for his company, High Plains Gas Inc., to follow through. Last year, Wyoming seized most of his wells to ensure they didn’t pollute groundwater or soil, declaring them abandoned.
On one ranch near Gillette last month, several of Mr. Presley’s former wells peeked from the snow. Inside the flimsy sheds covering them, jumbles of rusting pipes protruded from the ground, worn company signs dangling nearby.
Wyoming is now stuck cleaning up these deserted wells from a bygone boom, and thousands more owned by Mr. Presley and others, at a cost state regulators estimate will be tens of millions of dollars. State officials say the responsible parties never paid enough in regulatory fees to reclaim the wells.
Wyoming’s troubles with Mr. Presley’s wells are a cautionary tale for states amid the energy rush. Drilling booms historically leave legions of idle wells that become state or federal wards. Yet agencies in some states, and federal regulators, aren’t adequately equipped to clean up so-called orphaned sites at a time when shale drilling is raising the prospects of still more.
Hydraulic fracturing has, for example, brought new drilling in the Marcellus Shale that lies under states like Pennsylvania and West Virginia. The potential for more orphaned wells “is certainly a concern of ours,” says David Belcher, assistant enforcement chief for West Virginia’s oil-and-gas office. “It could be considered a liability for the state.”
Jay Parrish, Pennsylvania’s state geologist from 2001 to 2010, says he is concerned Marcellus drilling could leave that state with a surge in environmentally hazardous wells without enough funds to clean them up.
“We run the risk of doing what we did with the last two iterations of lumber and coal,” he says, “where we allow the industry to walk away from problems and the state is faced with having to fix it later.”
Who pays to plug a well?
Abandoned wells can deteriorate underground over time, a process that can go unnoticed without inspection. A 2011 study by the Groundwater Protection Council, a nonprofit made up of state water agencies, found orphaned wells caused about one in five incidences of recorded oil and gas groundwater contamination in Ohio and Texas.
Plugging a well—removing equipment and filling holes with cement—costs $25,000 to $100,000 for conventional sites, by some state regulators’ estimates. Horizontal wells, typical in fracking, will likely cost more to plug, they say.
Mr. Presley’s High Plains wells, which are shallow, will cost about $7,500 each to plug, says Bob King, Wyoming’s orphan-wells project manager.
“It is irresponsible to leave them abandoned without dealing with them,” says Wyoming Gov. Matt Mead of his state’s problems with orphaned wells. “We shouldn’t have to pay for it.”
To avoid having to pay steep costs, most states and the federal government have policies to lay aside funds to clean up orphans, primarily by requiring companies to post bond before prospecting. But bonding often sets aside too little, leaving some agencies struggling to clean up tens of thousands of wells.
There is little nationwide data on orphaned wells or on which states face the greatest funding shortfalls for plugging. Lucas Davis, an associate economics professor at University of California, Berkeley, says current bonding levels are “unreasonably low” and should be raised in anticipation of abandoned wells from fracking.
“Given the sheer number of wells that are being drilled by companies, many of which are small and medium sized, states really need to be worried about situations where no company is around anymore,” he says. “Without increased bonding levels, these cleanups will be financed by the state and federal government.”
Many energy-rich states are already saddled with having to plug thousands of abandoned wells from past booms. Pennsylvania’s bonding ranges from $2,500 per conventional well to a $600,000 blanket bond for multiple unconventional wells. In 2014, the state plugged 48 wells from a list of 8,371 orphans, state records show.
Mr. Parrish, the former Pennsylvania state geologist, says the “bonding is outrageously small” in the state. A spokeswoman for Pennsylvania’s environmental-protection department says the adequacy of that bonding is under review.
Louisiana from 2008 through 2013 plugged an average 95 wells annually but added an average of 170 a year to its orphans list, a 2014 state audit showed. The audit found that, because of antiquated regulations and exemptions, 75% of the state’s wells had no bonding on them.
“Not requiring sufficient financial security amounts may provide an incentive for operators to abandon their wells since forfeiting the financial security may be more economical than paying plugging costs,” the audit said. A Louisiana Department of Natural Resources spokesman says regulators are working to strengthen bonding requirements.
Texas, which grappled with orphan wells in the 1990s, has required operators since 2001 to post a $2 bond for every foot of depth or $250,000 to cover numerous wells. Still, the number of abandoned wells in Texas has grown 25% during the past two years, state figures show. Texas has roughly 9,300 wells it considers orphans. It plans to plug about 290 this fiscal year.
A spokeswoman for the Texas Railroad Commission, which oversees drilling, says there aren’t plans to review bonding requirements and that the state’s program is working, noting that the number of abandoned wells has dropped about 44% over roughly a decade.
In 2011, West Virginia established stronger bonding for horizontal drilling used in fracking: $50,000 per well or a blanket $250,000 per driller, compared with $5,000 to $50,000 for conventional drilling.
But the West Virginia Surface Owners’ Rights Organization, a landowners’ group, says blanket bonding in particular is still far too low and that the rush to drill the Marcellus could lead to a wave of abandoned wells.
Mr. Belcher, the West Virginia oil regulator, says conditions of such wells will ultimately vary but “on an average case, you may have an issue with the funding.” He says the state is now calculating the cost of plugging horizontal wells.
Wells like Mr. Presley’s often end up orphaned after passing from large companies to smaller ones without wherewithal to plug them.
Describing himself as a longtime oil man, Mr. Presley, 68, tells of working drilling jobs in Ohio and West Virginia before heading for the natural-gas rush sweeping the Powder River Basin.
Shortly after arriving in Sheridan, Wyo., in 2001, he says he met Kit Jennings, a Wyoming-state senator at the time who had patent rights to a technology that purportedly drew methane from coal seams more effectively. Christening the technology ‘The Gazmo,’ Mr. Presley told investors he, Mr. Jennings and another partner had a way to rejuvenate idle wells that larger companies had left for dead. Mr. Jennings confirms that account, declining further comment.
In 2004, Mr. Presley filed for Chapter 11 bankruptcy shortly after a lending company wired him $550,000 for what proved to be a nonexistent drilling rig. The lender sued him in federal district court in New Mexico, where the judge ruled he and several others had committed fraud, awarding the lender $550,000.
Mr. Presley says that he wasn’t aware the rig was fictitious at the time and that he knows he must pay the award at some point.
He says he was certain the Gazmo would succeed, helping him settle debts. His original plan, he says, was: “We’ll just go out there and take wells over and get them for nothing to put them into production.”
Rancher John Hines, a former Wyoming state-senate president, has on his property roughly 50 idle High Plains Gas wells that the state seized and declared abandoned. Photo: Ryan Dorgan for The Wall Street Journal
With natural-gas prices sinking around 2010, he had little trouble finding operators happy to unload coal-bed-methane wells in the Powder River Basin that were now idle. The first company he acquired, High Plains, owned about 1,600 idle wells it obtained that year from Pennaco Energy, Securities and Exchange Commission filings show. Pennaco is a subsidiary of Marathon Oil Corp. , which didn’t respond to inquiries.
Mr. Presley says High Plains owed Wyoming at least $10 million in fees for idle wells, compliance fines and unpaid royalties. When Mr. Presley offered to take on the wells in 2013, High Plains’ owners agreed to give him the company at no cost, he says. A lawyer who represented High Plains at the time declines to comment.
Mr. Presley soon after bought wells from Colorado-based Patriot Energy Resources originally drilled by Devon Energy Corp. , a large Oklahoma City company.
In 2013, Patriot’s parent, Luca Technologies Inc., filed for Chapter 11 bankruptcy. Luca agreed to sell Patriot and its approximately 1,350 wells to Mr. Presley for $10 last March, bankruptcy-court records show. Matt Micheli, then Luca’s general counsel, says Mr. Presley’s offer made sense, given the company’s problems. “We didn’t have any real choice.”
When the deal closed, Mr. Presley became an abandoned-well mogul.
He held a pancake breakfast for landowners, vowing to make High Plans wells on their land productive again. Some attendees who had seen drillers come and go had doubts. “He was a good talker if you believe in fairy tales,” says one, Bill West, a local rancher.
Mr. Presley says that he understood the skepticism but that his interest was different from bigger companies’. “We are not carpetbaggers. We’re locals.”
Abandoned wells multiply
Still, he couldn’t raise $6.75 million in additional bonding, which Wyoming’s Oil and Gas Conservation Commission required because the wells had been idle for so long. In November, the commission seized High Plains’ wells.
For Wyoming, Mr. Presley’s sites add to a growing list of abandoned wells. Orphans on state and private land more than doubled last year to nearly 3,900. State officials estimate it could cost from $22 million to more than $40 million to clean them up. State figures show about $9.7 million in bonding for those wells.
Wyoming’s oil-and-gas commission hopes to plug more than 650 abandoned wells in 2015. Last year, the state allocated an additional $3 million to deal with the problem. Wyoming officials say they expect eventually to consider raising the energy-production tax on operators and increasing bonding amounts, to help fund plugging.
“It is important to plug these wells quickly so that there are reduced opportunities for groundwater contamination,” says Tom Drean, the state geologist and a commission member.
The U.S. Bureau of Land Management, meanwhile, faces 651 idle High Plains wells it hasn’t taken possession of yet on federal land in Wyoming. The company owes it over $15 million in bonding, civil fines and penalties on those wells, some from before Mr. Presley took over, BLM officials say. Mr. Presley doesn’t dispute the fees.
The BLM hopes an operator takes over the wells before it deems them fully abandoned, says Duane Spencer, who manages its Buffalo, Wyo., field office. The BLM bonding on file isn’t enough to plug all of them, he says.
With more than 11,000 inactive wells on federal land, the agency hasn’t changed its bonding rates since 1960—from $10,000 a well to a blanket $150,000 for all a driller’s wells nationwide—even for inflation. Steven Wells, chief of the BLM’s fluid-minerals division, says the agency is considering proposing an increase.
At his ranch near Gillette, John Hines, a former Wyoming state Senate president, points out several of the roughly 50 abandoned High Plains wells on his land. An earlier owner left pipes strewed around and cattle get into the well huts. “Each one leaves it to the next one,” he says. “The major companies sell it to companies and individuals that don’t really have the means to reclaim things.”
Mr. Presley says he is sympathetic to landowners’ frustrations.
He hopes to acquire more wells but doesn’t expect to revive High Plains. “High Plains dies on the vine,” he says. “And all those collection efforts and everything, they die on the vine, too.”
Danger Below? New Properties Hide Abandoned Oil And Gas Wells
A contractor prepares to cut off the top of a coal bed methane well near Gillette, Wyo., in 2015. It's one of thousands of abandoned, plugged wells sprinkled throughout Wyoming and Colorado. Stephanie Joyce/Wyoming Public Media
In 2007, Rick Kinder was working for a contractor, building a house in southern Colorado. The workers had just finished putting in all the doors, windows and sealing the house. Kinder and a colleague were working in the crawlspace, hanging insulation.
"And we just heard this big roar and then a big boom, and it threw us against the walls, and it just blew the whole top of the roof off," Kinder says.
In 2007, Rick Kinder was building this house in Trinidad, Colo., when it blew up. An abandoned gas well leaking methane was underneath the house. Colorado Oil and Gas Conservation Commission
He and his colleagues didn't know it, but they were building on top of an abandoned gas well that was leaking methane — an odorless and highly explosive gas. No one was killed in the explosion, but the blast sent Kinder into cardiac arrest. He ended up having a quadruple bypass.
"And I lost probably a third of my heart, the muscle," he says.
In many parts of the country, areas that are now full of houses and schools and shopping centers were once oil and gas fields. You wouldn't know it by looking, but hidden underground, there are millions of abandoned wells.
New development happening on top of those old wells can create a dangerous situation.
No Systematic Monitoring Of Leaks
In most states, there is no requirement for homeowners to be notified about abandoned oil and gas wells on their properties.
Jeff Parsek bought his house in a neighborhood of cul-de-sacs and suburban ranch homes on the south side of Fort Collins, Colo., in 2004. He had no idea that state records show there is an abandoned well in his driveway until he was asked by NPR.
But unlike other homeowners who responded with curses and slammed doors, Parsek was unfazed by the news. "If it started to emit something, then I might [be worried], but to this point I'm not concerned," he says.
The trouble is that it might be hard to know if the wells were emitting something. When a well stops producing commercial quantities of oil and gas, companies "abandon" it, usually by filling the well with cement to stop the flow of gas and fluids. The industry considers that the end of a well's life.
"It's not rocket science to plug these wells," says Mark Watson, Wyoming's oil and gas supervisor. "It's a hole in the ground that's pretty deep. You set cement, and cement lasts a long time."
The belief that a well is dead once it's plugged means there is no systematic monitoring for leaks. We simply don't know what percent of abandoned wells are leaking — but we do know that at least in a handful of cases, it's happened, as it did to Kinder.
Locations Of Old Wells Poorly Mapped
Kinder had worked in the oil and gas industry for nearly 30 years. If anyone were going to recognize an old well site, it would be him.
"There were no signs, no nothing there that would give us an indication that somebody had built there or had done some work," he says.
Three maps by Inside Energy explore the locations of abandoned wells in Colorado and the expansion of residential areas into historical oil and gas fields. Inside Energy
Across the U.S., from Pennsylvania to Texas to California, there are millions of abandoned wells. But their locations are either unmapped or poorly mapped. Rob Jackson, a researcher at Stanford University, says keeping track of them is a low priority.
"When a state sees a well is plugged, they typically put a check mark by that well in a database, or in a file somewhere, and they don't do anything for the most part," he says.
Unless a well starts leaking fluids or a house blows up, the assumption is that everything is fine. Jackson says it's partly an issue of states not having the resources to monitor the wells.
A map by Inside Energy shows abandoned wells in Wyoming. Inside Energy
"But I also think the states aren't that interested in some cases, in many cases, in the data," he says. "I'm not sure that they really want to know."
A No-Build-Zone Around Old Wells
In the Canadian province of Alberta, it's a different story. Theresa Watson, an engineering consultant and former Alberta energy regulator, started pushing for better tracking, monitoring and regulation of abandoned wells back in the early 2000s. That was when people started to move into rural areas that were once oil and gas fields.
"If you don't measure it, you don't know what kind of risk you have," Watson says. "I mean, ignorance is bliss, I guess, but I think most people will tell you that they'd want to know."
Watson recommended not only monitoring abandoned wells near homes, but also outright prohibiting construction on top of them.
"From the public safety perspective, even a slow leak into a building can cause an explosion hazard," she says.
Alberta now has a 15-foot no-build zone around abandoned wells. Similar rules are lacking in most of the U.S., even as new development is encroaching on old oil and gas fields in places like the Front Range of Colorado.
State oil and gas regulators say the situation is out of their hands.
"We really try to discourage the construction on top of old wells," says Stuart Ellsworth, engineering manager for the Colorado Oil and Gas Conservation Commission.
But he says any actual prohibition is up to local governments that permit development. In turn, many of those local governments see abandoned wells as the state's problem.
For those who can potentially be affected by these wells, just having rules that will protect them is a priority. Kinder says he doesn't care who ends up making rules about building on top of abandoned wells — he just wants somebody to do it.
"Somebody needs to be held accountable for it," he says. "To me, the most important thing is it doesn't happen to somebody else. It doesn't need to happen to somebody else."