SOURCE: High Country News
DATE: March 11, 2021
SNIP: When an oil or gas well reaches the end of its lifespan, it must be plugged. If it isn’t, the well might leak toxic chemicals into groundwater and spew methane, carbon dioxide and other pollutants into the atmosphere for years on end.
But plugging a well is no simple task: Cement must be pumped down into it to block the opening, and the tubes connecting it to tanks or pipelines must be removed, along with all the other onsite equipment. Then the top of the well has to be chopped off near the surface and plugged again, and the area around the rig must be cleaned up.
There are nearly 60,000 unplugged wells in Colorado in need of this treatment — each costing $140,000 on average, according to the Carbon Tracker, a climate think tank, in a new report that analyzes oil and gas permitting data. Plugging this many wells will cost a lot — more than $8 billion, the report found.
The first western oil well broke ground in Colorado in 1860. Drilling has been an important part of the state’s economy ever since; as of 2019, Colorado ranked in the sixth and seventh in the nation for oil and natural gas production, respectively.
When it comes to cleanup, Colorado uses a tiered system known as blanket bonding. Small operators can pay ahead with bonds on single wells. Drillers with more than 100 wells statewide pay a fixed reclamation fee of $100,000, regardless of the number of wells. A similar system also applies to wells on federal public land in the state. Large companies pay a single $150,000 bond, which covers unlimited federal public land wells throughout the country. There are about 7,400 public-land wells capable of producing oil or gas in Colorado, according to the Bureau of Land Management.
When a driller walks away or cannot pay for cleanup, the well enters the state’s Orphan Well Program, which works to identify and plug these wells. There are about 200 wells in the program right now, according to the state. But a closer look at state data reveals a large number of wells at risk.
There are also inactive wells: Nearly 10% of the state’s wells have not produced oil or gas in at least two years, according to a Carbon Tracker analysis of state permitting data. Unlike some of the neighboring oil states, Colorado requires that companies pay a single bond on each inactive well of this sort. This costs either $10,000 or $20,000, depending on the depth of the well. In theory, these payments protect the state, in case the well owner goes bankrupt. But in Colorado, it’s still far cheaper for energy companies to pay the cost of that single, unused well — and the small annual premium payments on the bond — than to actually plug it. “Colorado clearly makes it cheaper to idle a well than to clean it up,” Williams-Derry said.
In Colorado, just two companies are responsible for nearly 70% of the bonds for currently inactive wells. One is Noble Energy Inc., which was purchased by the global oil giant Chevron in October 2020. The other is Kerr-McGee, a subsidiary of Occidental Petroleum. Kerr-McGee was responsible for the 2017 home explosion in Firestone, Colorado, that killed two people. Last year, the COGCC fined the company more than $18 million for the accident, by far the largest fine in state history. Both companies still own large numbers of wells in the Denver-Julesburg Basin, the prolific oil and gas formation beneath central and eastern Colorado. And the mass desertion of wells is not hypothetical: In fall of 2019, a small company called Petroshare Corporation went bankrupt and left about 90 wells for the state to cleanup. That alone will cost Colorado millions of dollars. Last summer, when California’s largest oil driller filed for Chapter 11 bankruptcy protection, it left billions in debt and more than 17,000 unplugged wells.