Waiting for a boom

Horizontal wells use oil rigs like this one to recover oil from seams more than a mile below the ground. This drilling technique involves turning the wellbore horizontally through the oil-bearing formation and could greatly increase the supply of recoverable oil in Wyoming.

Members of the Wyoming Legislature’s Joint Minerals, Business and Economic Development Committee hope to create jobs while reclaiming land in the state’s oil fields with a proposal that would double the funding for the state’s orphan well program. 

The group voted at a June 1 meeting to draft a bill that would authorize the Wyoming Oil and Gas Conservation Commission to spend an additional $7.5 million from its reserves on orphan well projects in the fiscal year that begins July 1. 

As oil prices fell to historic lows this spring, the number of rigs operating in Wyoming collapsed – from 26 at the beginning of the year to just one today. Thousands of workers in the mining and oil and gas extraction sector have filed for unemployment, according to the Department of Workforce Services.

“The governor directed the (Department of Environmental Quality) and the Oil and Gas Commission to increase the number of reclamation and orphan well projects slated for the near future,” said Randall Luthi, the governor’s chief energy adviser. “What we do next will shape Wyoming’s energy economy and revenue picture for the remainder of this decade and beyond.”

Almost 90% of the 2,785 wells listed by as orphaned by the commission are coalbed methane wells in the Powder River Basin. Wells that are simply capped, rather than plugged with cement, are more likely to leak gas or toxic fluid into the surrounding environment. Areas in which wellpads or reservoirs have not been reclaimed can diminish wildlife habit and mar private property.

Wyoming isn’t the first state to take action on orphan wells amid the recent industry downturn. In May, North Dakota appropriated $33.1 million from its federal CARES Act funds for well-plugging work in that state.

Citing the North Dakota decision in an interview, Pete Obermueller, president of the Petroleum Association of Wyoming said that expanding the orphan well program “holds a lot of promise and could even be expanded to include more reclamation programs within (the Department of Environmental Quality) and others.”

State lawmakers said expanding the program could be both a way to create jobs and to get ahead on the state’s reclamation responsibilities at a time when labor prices might be lower due to decreased demand for services.

“We’re interested in moving this stuff forward so we can do this during the downturn and keep our contractors busy,” said Sen. Jim Anderson, R-Casper.

The Oil and Gas Conservation Commission considers wells to be orphaned if their operator has either filed for bankruptcy or is out of business and no other company has expressed interest in taking over operations. In those situations, it falls to the commission to  plug the well and restore the land around it.

The work is paid for, in part, through bonds that operators are required to pay either before drilling or as an additional assurance to the state if wells remain idle for more than a year. The bond money is supplemented by revenues from the commission’s conservation tax of 0.5% on production. 

Since 2014, the agency has plugged an average of 500 wells a year. Sen. Chris Rothfuss, D-Laramie, asked what it would take to raise that figure to 1,500.

Commission supervisor Mark Watson expressed reservations about accelerating the program so rapidly. He mentioned several potential “chokepoints,” including the availability of cement from the commission’s current contractor and the capacity of the commission to contact landowners and complete title work before new projects could begin.

He said the commission had already been focusing on plugging projects in the western part of the state because there were no idle contractors in the Powder River Basin.

At the meeting, Obermueller said expanding the program could help keep people employed and accelerate work on the state’s long-term reclamation responsibilities.

“We’re in a very different position now with so many rigs laid down,” he said. “Oilfield service companies may be interested in bidding for these programs, particularly if we’re willing to really put time and resources behind making a significant acceleration in plugging and abandoning.”

Getting ahead on the state’s current responsibilities could prove important if the economic downturn causes more wells to become orphaned. Still, some agencies and lawmakers have discussed lowering bond rates or deferring their payment to help struggling companies.

Shallow coalbed wells can cost as little as $5,000 to plug, the commission’s deputy director, Tom Kropatsch, told the committee. However, some deeper wells have cost the state as much as $400,000 to plug and reclaim. The commission currently holds about $159 million in idle well bonds, he said.

Even for the cheaper wells, the costs to clean up after a single bankrupt operator can add up quickly. In one local example, last month the Bureau of Land Management filed a $67.5 million protective claim in the US Realm Powder River bankruptcy case. The figure represented the agency’s estimated cost to reclaim the thousands of federally managed wells, reservoirs and associated infrastructure if the company were to go under. US Realm currently also has thousands of wells on state and privately owned mineral deposits, which would fall under WOGCC responsibility in that scenario.

“The present disarray in the industry makes this just the time when Wyoming absolutely must require idle-well bonding,” wrote Jill Morrison, executive director of the Powder River Basin Resource Council, in comments submitted to the committee. “Wyoming should continue to require financial assurance or bonding that will ensure cleanup, plugging and reclamation of abandoned wells, which are becoming more numerous every day.” 

In an interview after the meeting, Obermueller acknowledged the challenges mentioned by Watson but called the chance to invest in the orphan well program an “exciting opportunity.”

“If we put our mind to it and our money behind it, I think we could knock out a lot of those wells and that would just be a win-win,” he said.

 

Mara Abbott joined the Bulletin as Report for America corp member in 2019. She covers energy and natural resources. Mara’s work has appeared in the Wall Street Journal, USA Today and Runner’s World.

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