NewsCovering Colorado

Actions

Colorado’s costs to plug abandoned oil and gas wells shifting from taxpayers to companies

The state's financial assurance rule holds companies more accountable for cleanup costs
Biochar Carbon Sink
Posted at 9:08 PM, Aug 09, 2023

DENVER — The deadly explosion in Firestone a few years ago is a tragedy Colorado never wants to relive. Two men died because of an old, leaky gas line left uncapped by the company after the well stopped producing.

Last year, Colorado passed new rules for the oil and gas industry known as financial assurance. Before companies can drill new wells, they need to give the state money upfront to cover more of the costs of capping and cleaning up old oil and gas wells that aren’t producing anymore, including wells abandoned by their owners.

“The new rules are definitely a step in the right direction,” said Heidi Leathwood, a climate policy analyst for 350 Colorado, a grassroots group organizing to solve the climate crisis. “All of those uncapped wells are contributing to that ozone problem that we have with the smog and the toxic pollutants that affect communities,” she said.

Colorado’s top agency in charge of regulating the oil and gas industry, the Energy and Carbon Management Commission or ECMC, says the financial assurance rules are the “strongest in the nation.”

The new rules could help protect Coloradans’ health, safety and the state's natural beauty, without taxpayers having to foot the bill, Leathwood said.

“It's supposed to put aside enough money for well-plugging so that the taxpayers don't have to bear the brunt of it,” she said.

But she worries the money collected from companies will fall short of what the state needs.

Right now, there are more than 1,500 well locations considered “orphaned” by operators who walked away from their responsibilities to plug and reclaim their wells and well sites.

On federal and tribal land in the state, there are another 125 orphaned well sites.

Leathwood is concerned that even with financial assurance, “it costs a lot less for [oil and gas companies] to just let the wells sit there producing nothing at the end of its life instead of plugging them.”

But oil and gas industry representatives in Colorado say companies are cooperating with the updated requirements.

“Colorado’s oil and natural gas operators have robust plugging and reclamation schedules, and they also fully fund the state’s orphan well program,” said Dan Haley, the president of the Colorado Oil and Gas Association, which represents the state’s industry.

Kait Schwartz, who directs Colorado’s chapter of the American Petroleum Institute, a trade association representing the oil and natural gas industry, said companies are mostly on board with the rules so far.

“It's a mixed bag,” Schwartz said. "The industry is really proud that we advocated for this orphan well fund. And then it's also really difficult.”

Schwartz said the new rules are onerous and the process is still in its early stages. Just over a year after Colorado finalized its financial assurance updates, “operators are still going through the process of financial hearings,” Schwartz said.

The ECMC is currently holding hearings to determine how much each company will need to pay. The ECMC estimates that well-plugging costs an average of $92,000. Right now, Colorado collects less than 1 percent of that in financial assurance: as low as $1,500 and as high as $30,000 per well.

As Colorado moves to hold companies accountable for more of the costs of capping old wells, the federal government is making similar rules.

The Biden administration proposed a new rule last month to “increase returns to the public and disincentive speculators or less responsible actors.”

“Colorado is certainly a leader in shifting its approach to oil and gas companies,” said Alan Zibel, who researches energy and the environment for Public Citizen, a nonprofit consumer advocacy organization.

Zibel wrote a new report looking at how much abandoned wells could cost taxpayers on federal land. Many of the wells near the end of their productive lives across the West are owned by private equity-backed companies.

“Private equity-backed drillers made up 78% of Colorado’s approved federal drilling permits since 2017,” Public Citizen found. That could leave Colorado with the “largest potential cleanup bill from private equity-backed drillers on federal lands at up to $161 million,” the report said.

Zibel said that with “private equity-backed drillers increasingly buying up troubled oil and gas operations,” companies are consolidating, rebranding and often making short-term plays, which raises concerns about how they're going to handle their obligations.

Although the United States is in “relatively financially robust times for oil and gas companies, that doesn't mean that that era will last forever,” Zibel said, pointing to the bankruptcies that came with the recent pandemic-era slowdown in oil and gas production.

“Regulators need to be as alert as possible to the risk that some of these companies do play to taxpayers,” Zibel said.