Anti-fossil fuel advocates have argued that oil and gas operations inherently destroy our planet and should be replaced completely. According to author Alex Epstein in his 2014 book titled The Moral Case for Fossil Fuels, “[t]here is only one way to defeat the moral case against fossil fuels—refute [the] central idea that fossil fuels destroy the planet. Because if we don’t refute that idea, we accept it, and if we accept that fossil fuels are destroying the planet, the only logical conclusion is to cease new development and slow down existing development as much as possible.” The orphaned well situation presents an opportunity for our industry to prove we are not destroying the planet.
Recent headlines blame abandoned wells for greenhouse gas emissions and unresolved sink holes. Estimated orphaned well counts vary from over 2.3 to approximately 3 million across the US. In June 2020, Reuters published an article claiming, “more than 3.2 million abandoned oil and gas wells together emitted 281 kilotons of methane in 2018” with an estimated cost to properly plug and abandon all of them between $60 to $435 billion. Similarly, some estimate there are more than 780,000 unplugged wells across Texas. The orphaned well situation presents an opportunity for the oil and gas industry to prove it can participate in the next chapter of the diversifying domestic energy portfolio. Properly decommissioning orphaned wells provides three measurable benefits: (1) it proves our industry cares about the planet; (2) it puts oil and gas workers back in the field working, boosting both our industry’s image and the country’s economy; and, (3) it puts existing, real property assets, currently unusable, back into the marketplace.
Orphaned wells are the environmental, social, and governance (ESG) opportunity for stakeholders in 2021, and for at least the next two decades. ESG is undisputedly critical for investors as discussed by McKinsey & Company in a recent report. One of the greatest opportunities today is overcoming the obstacles currently in place preventing the proper plugging of every orphaned well throughout the country in a timely manner, as judged by the pubic, the oil and gas industry, and voters.
Orphaned wells are oil, gas, and water wells with no legal ownership or financially responsible party to operate or plug the well. These wells are wards of the state and usually are placed on the state’s cleanup program list, which is funded with revenues coming from the oil and gas industry. The plug and abandonment of orphaned wells is funded by bonding money surrendered from bankrupt operators, which is required by state law, and is held by the bank and released by the bank to the state of Texas, not the Railroad Commission (RRC), in the event of an oil company’s bankruptcy.
Texas may facilitate the sale of orphaned wells and leases to a bonded operator, in which case the wells are no longer considered orphaned. However, if not sold, the wells are turned over to the RRC, and plugged utilizing an organized priority list to decide which are plugged first. Currently, there are over 6,000 orphaned wells on the list in Texas. It is a goal of the Texas Well Protected Energy Foundation (TWPEF) to assist the state of Texas and bring the orphaned well count to zero by year 2040. Because of the unique capabilities TWPEF will bring to bear for the state, it will be possible to properly plug thousands of wells through tax-deductible donations. The savings to the state of Texas and taxpayers will not only be measurable, but will be enormous, as explained below.
Texas allocates approximately $29 million dollars per year for the Oil & Gas Cleanup Program; in 2019, it spent almost $50 million. This allocation of funds is made by the legislature and elected officials every 2 years and fluctuates, but it is made specifically to plug orphaned oil and gas wells and cleanup sites associated with orphaned wells. Funding for the program comes to the RRC from the legislature and is approved by the governor. Unfortunately, the approved amount is not adequate to handle the backlog of orphaned wells. Moreover, Texas does not have legislation allowing for the state-funded plugging of orphaned water wells, which were once drilled as oil and gas wells and pose substantial risks. Current law simply does not allow for state-funded plugging of orphaned water wells, regardless of wellbore history as described in Sec. 81.067 “Oil and Gas Regulation and Cleanup Fund” of the Texas Natural Resource Code.
Therefore, by fiat of regulation, Texas has created an artificial and unique category of orphaned wells. The number of wells in this category is unknown, and the state does not have a database of orphaned water wells formerly drilled as oil and gas wells. It is estimated there are hundreds, if not thousands. Therefore, it is imperative that an accurate count and database of orphaned water wells be developed as soon as possible. This will allow for a scope of work to be defined and liability to be calculated. These wells are swallowing Texas highways and damaging valuable infrastructure. The liability and risk these rogue wellbores pose to the public is monumental because there is no funding allocated for their plugging. Thus, when mechanical integrity failure becomes a major issue for a former oil well now completed as a water well, the state of Texas is left with no way to address it, ever. The public and the oil industry simply cannot afford to ignore the glaring threat and ongoing costly impacts from former oil wells.
TWPEF is led by a group of oil and gas professionals from Texas and is seeking public support from organizations and individuals who understand the risks all orphaned wells pose to not only our environment, but to our industry and its record of responsible operating. The oil industry must not allow a bureaucratic labeling issue such as arbitrary technical well classification of orphaned wells to cause issues with the public and jeopardize the industry’s publicly granted license to operate. The industry will act in concert with the current ESG movement and help Texas move ahead of the curve on orphaned wells through tax-deductible organizations. Notably important, the raising of bonding amounts for new drills could only be justified if the cost of plugging was indeed rising, and this is not the case according to plug and abandonment providers. There is no argument to be made for the raising of bonding amounts for new wells to pay for the plugging of current orphaned wells when future bonding money is only accessible by the state in the event of a company’s bankruptcy.
The answer to the orphaned well issue is clear. Texans must plug more orphaned wells now before mechanical degradation increases and the cost to plug them due to a massive mechanical failure ends up costing the taxpayers and government money it has not budgeted for. Orphaned wells must also be plugged regardless of the wells’ technical classification, whether the well is a water well, an oil well, or anything in between, which leaves the RRC sitting on the sidelines due to the current law approved by the legislature. The only way to achieve the goal of protecting the public, critical infrastructure, and the environment at the same time is to support organizations that plug orphaned wells using professional well abandonment engineers who have the experience needed to do the job right the first time.
TWPEF works with professionally licensed engineering firms who specialize in well abandonment and have done so for decades. These individuals typically have decades of plugging experience, and their knowledge of well control, operations, water aquifers, and experience working with groundwater authorities to protect the environment puts them among the best in the world. Collectively they have plugged tens of thousands of wells and have experienced almost every scenario a plug and abandonment engineer could fathom. Their interest and passion for proper plug and abandonment is reflected in their career and life’s work.
Every well that is plugged reduces the burden on the state of Texas, which in turn reduces the overall burden on the taxpayers. For example, if the state of Texas did not have to operate an orphaned well program with more than 5 million dollars per year (currently around $30 million per year), it could utilize approximately $25 million in funds it has been allocating to accomplish other critical missions, such as healthcare and homeland security.
TWPEF has set aggressive goals to try and achieve the 2040 goal of zero orphaned wells in Texas. Texans have the opportunity to show the nation how we take care of our own backyard, and the time to show them is now.
Thomas Slocum is the founder of non-profit organization Texas Well Protected Energy Foundation (TWPEF). During the 2020 downturn, Slocum began collaborating with other industry leaders to create TWPEF with the mission to insure every orphaned well in Texas is properly plugged and abandoned, as well as to educate Americans about the true number of wells the oil and gas industry responsibly plugs and abandons each year. The organization will document the plug and abandonment process of each orphaned well it plugs and report back to the public all the positive impacts their donations have made to the community through job creation, land conservation, and savings to the Texas taxpayers. Slocum holds a BS degree in political science, concentrating on energy policy. After a summer job at CSI Technologies oilfield cement lab and an internship with Senator Kay Bailey Hutchison, he began working as an in-house project manager for the offshore plug and abandonment decommissioning team at Apache Corp.’s Gulf of Mexico Shelf Division in Houston. Slocum has since moved onto compliance and wellsite consulting, working with C-suite executives at several small startup operators advising on a wide range of compliance-related upstream projects.
Sarah Stogner is the founder of Stogner Legal, a law firm based in Midland, Texas. She helps energy-related businesses understand, mitigate, allocate, and manage risk. She is licensed to practice in Louisiana, Texas, and Colorado and routinely advises companies in the upstream and midstream sectors, as well as those in the petrochemical manufacturing and processing industry, in a variety of commercial litigation matters, including toxic tort and land contamination cases, pipeline and servitude disputes, and products liability litigation. Stogner is actively collaborating with other oil and gas industry leaders to develop smart contracts and utilize blockchain technology to avoid legal issues.
The article was sourced from the authors by TWA editor Stephen Forrester.