A 2022 study by the Bell Policy Center, a Denver-based organization that focuses on Colorado economic issues, found the state budget could be overwhelmed if forced to take on a large chunk of that liability, accumulated over 150 years of oil and gas production.
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A tiny fraction of the full cleanup cost of all Colorado’s unplugged wells is currently secured in bonds: 2%, according to a 2020 estimate by the climate-focused nonprofit Carbon Tracker. A concrete plug is sunk into the drilling hole, and infrastructure such as flowlines and water tanks is removed. Plugging wells is a time-consuming process. The state views low-producing wells as a nonviable business model, but that is just not true.” “The COGCC runs the risk of creating more orphan wells if those operators are forced to walk away. “The new rules are difficult for small producers and the COGCC needs to be cautious about unnecessarily exacerbating that problem,” Dan Haley, president and CEO of the Colorado Oil and Gas Association, said in a statement. The oil and gas industry, meanwhile, fears the process could result in bankruptcies if financial assurance requirements are raised substantially.
The estimate suggests Colorado has about $4.6 billion in well plugging costs. Using data from its orphan well program, the state estimates that plugging and fully reclaiming a Colorado well costs $92,710 on average, although the number can vary for a variety of reasons, including the depth of a well. Colorado has about 50,0000 unplugged oil and gas wells. The agency is trying to head off an enormous potential bill. Companies are supposed to pay for the cleanup themselves the bonds serve as insurance, in case of bankruptcy, so that the cost does not fall on the state and, ultimately, taxpayers. The commission is now turning to another mandate originating in the 2019 law: increasing the amount of money operators must put forward, often in the form of bonds, to pay for the plugging and reclamation of their wells. The state estimates that plugging and fully reclaiming a Colorado well costs $92,710 on average, although the number can vary for a variety of reasons, including the depth of a well.
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Since then, Colorado has cracked down on flaring and venting natural gas, in which gas accumulated during the extraction process is either burned off or released, and required drilling operations to be sited at least 2,000 feet from schools and homes. The process started in 2019 with a law that overhauled the state’s relationship to oil and gas by giving local governments more power over operations and changing the mandate of the Colorado Oil and Gas Conservation Commission to prioritize public health. Regulators and experts say the financial assurance process is crucial to the evolution of oil and gas regulation in Colorado, the country’s fifth largest crude oil producer and seventh largest producer of natural gas, according to the U.S. “If a company doesn’t have a viable plan to plug all its wells, it shouldn’t be doing business in Colorado,” he said. The latter is what worries Mike Foote, a former Democratic state representative who’s now a lawyer specializing in environmental and energy litigation. The commission describes the new financial assurance rules as “the strongest in the nation.”Ī Capital & Main analysis of the financial assurance proposals submitted by oil and gas companies found that while some firms are proposing robust bonding increases, others are seeking financial requirements that fall far short of the full cost of plugging and reclaiming their wells. All plans must be approved by the Colorado Oil and Gas Conservation Commission, the state industry regulator. When the process is complete, every operator in Colorado regardless of size is to have a financial assurance plan guaranteeing they can pay for the cleanup. Since October Colorado oil and gas companies have been submitting plans to the state detailing how they intend to pay for plugging and cleaning up oil and gas wells at the end of their productivity. This story was originally published by Capital and Main and is republished here by permission.
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