Colorado regulators consider stronger financial requirements to cover clean-up of oil, gas wells

Proposed reforms to ensure taxpayers don’t get stuck cleaning up oil and gas sites could actually give the public billions of dollars in costs, say environmentalists and local governments.

The Colorado Oil and Gas Conservation Commission, which regulates the industry, is considering new rules to ensure companies have the money to properly close wells, remove equipment, and clean up the site. But the latest draft of the rules is a big step backwards, local officials, community and environmental activists told the commission in recent hearings.

A third version of the proposals is due to appear on December 7th, with hearings scheduled for January and February. The focus of the proposals is to ensure that companies have the money to close and rehabilitate wells, or that resources are available to cover costs if a company goes bankrupt or has not done the job.

An update of what the commission calls financial pledges from oil and gas companies is mandated in Senate Act 181, a 2019 act that revised state rules and prioritized public health and the environment in regulating the industry .

Critics say that revisions by COGCC staff to previous proposals do not comply with the guideline of SB 181, according to which every operator guarantees that he is financially able to meet all of his legal obligations.

“In short, with the latest draft, they have really returned to the same illegal practices that got them into trouble,” said Mike Freeman, an attorney at Earthjustice who represents environmental and community groups before the commission.

Freeman pointed to a proposal to maintain the current practice of allowing companies to issue a so-called “blanket bond”. Operators were able to put on a $ 100,000 bond to cover all of their wells across the country, an amount that critics say would likely not cover the cost of closing a single well.

Environmental and community groups, as well as some local governments, support the demand for loans for every single well to cover the full remediation costs. Alternatives are individual bonds for new wells and those that are transferred to other companies.

During the November 9 COGCC hearing, Boulder County Commissioner Matt Jones said he had sponsored bills as a state senator to address financial guarantees to oil and gas companies and noted that the rules were “a hot mess.” ” are. He was among the elected local officials who urged state officials to strengthen the proposed rules.

“An operator can meet all interconnection and operational requirements and still avoid the expense of properly plugging and rehabilitating wells,” said Jones. “The edge operators can and do use this current rule as a business strategy to get even more profit from the wells while avoiding responsibility for the costs and damage.”

The proposed rules would significantly increase the flat-rate bonds. However, at the recent hearings, speakers said that when a company has hundreds or thousands of wells, there is still not enough money.

Wells and oil and gas reservoirs whose owners cannot be found or which are left behind without proper decommissioning and reclamation are referred to as “orphans” by the state. The current backlog is 254 orphan wells and 547 orphan well sites.

Although Colorado has a small number of orphan wells compared to other states, environmental and community groups point out the large number of so-called “zombie wells”. These are wells that produce little or no oil or gas and whose owners may not have the money to plug or close them.

A report from Carbon Tracker, a London-based nonprofit that analyzes financial issues related to climate change and fossil fuels, said Colorado’s liability for its roughly 50,000 active wells could be at least $ 7 billion. The group puts the price at $ 280 billion nationwide and says the bonds issued by the industry only cover 1% of the estimated cost.

“We’re not saying that the state will pay to plug all of these wells. Many of these wells will certainly be blocked by the operators. The question is how many, “said Rob Schuwerk, Executive Director of Carbon Tracker North America.

It is about showing the potential liability and that states are not doing enough to ensure that taxpayers don’t pay the bill, Schuwerk said.

The COGCC estimates that it costs an average of $ 82,500 to plug and reclaim an orphaned borehole, while Carbon Tracker’s numbers range from $ 140,000 to $ 150,000, depending on the borehole depth.

So far, Colorado taxpayers have not paid, according to COGCC. A mill levy to oil and gas companies and income from fines for operators help fund a program to cover decommissioning and remediation costs for orphaned wells and sites.

The proposed rules for financial pledges would increase the money for the orphan well program from $ 5 million from an annual registration fee per well to $ 10 million.

“There is no orphan well emergency. According to COGCC statistics, less than 1% of the wells in Colorado are orphaned, ”said Dave Neslin, an attorney representing PDC Energy, Occidental Petroleum and Noble Energy, which Chevron Corp. were taken over.

There is also no upcoming orphanwell crisis, Neslin, a former director of the COGCC, said in a recent hearing.

Neslin and attorney Matt Lepore, another former COGCC director who also represents the three major oil and gas companies, found the industry plugged and cleaned a total of 8,473 wells from 2017 to 2020.

Neslin and Lepore said they agree that the financial requirements should be updated but do not support the imposition of a bond on each well.

The problem is, “We have a lot of really low-producing oil and gas wells in the state of Colorado,” said Matt Sura, an attorney who represents environmental groups and local governments.

Data from the COGCC and analyzed by WildEarth Guardians, an environmental group, showed that 9,585, or 20% of the state’s wells were producing nothing in 2020, Sura said. Another 17,284, or 33%, were producing less than the equivalent of 1 barrel of oil per day.

The fear is that financial pressures could drive companies into bankruptcy and orphan the wells, Sura said.

Jackson County resident Barbara Vasquez said her area has a large field of stripper wells that are producing less than 15 barrels a day. She said the revision of the draft financial regulation appears to offer small operators more protection, rather than public health, the environment and taxpayers’ money.

The proposed exemption from state financial requirements for state wells would be against the law, said Tom Delehanty, who represents the Sierra Club, Earthworks and the League of Oil and Gas Impacted Coloradans. He noted that the state issues drilling permits for federal states.

Susan Noble told oil and gas commissioners in a November 9 hearing to follow Commerce City’s lead by asking for a cash loan of $ 95,000 per well and not allowing blanket loans.

“We are no longer in the era where I am a little teapot pump jumping on the horizon. We are looking for industrial sites with a number of above-ground facilities and in residential areas, ”said Noble, a member of Commerce City Council.

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