The COVID-19 pandemic and corresponding collapse in energy markets have wreaked havoc in the oil and gas sector. An estimated 76,000 direct oil and gas jobs were slashed across the U.S. from February to June. The number of workers still employed in the sector hit a low not witnessed since around 2006. Though oil prices have rebounded in part, thousands of energy workers remain without work.
But a new report compiled by Resources for the Future and Columbia University’s Center on Global Energy Policy proposes a potential solution.
The team of energy experts concluded a federal economic stimulus program focused on plugging 500,000 abandoned and orphaned wells across the country could generate upward of 120,000 jobs for unemployed oil and gas workers. Orphan wells are oil and gas wells with no responsible owner.
“We were interested in looking for policy options that would create work and help the communities where they live, and also maybe provide some environmental benefits at the same time,” said Daniel Raimi, a senior research associate at Resources for the Future and one of the report’s authors. “Essentially, we were looking for win-wins.”
Cleaning up old oil and gas wells at this scale is an expensive job and requires a significant labor force. By accelerating the reclamation of orphaned wells, the country could generate hundreds of thousands of additional jobs for unemployed workers, the report predicted.
Executing stimulus programs like the ones Raimi and his fellow researchers propose would take political will. And Raimi admitted technical and administrative challenges abound.
For one, the program could range from roughly $12 billion to $24 billion, due to the incredible variability in restoration costs from well to well.
The report points to a larger problem too: Existing bond rates are often far shy of the actual costs for fully reclaiming orphaned and abandoned wells as it is. Bonds paid by the oil and gas operators help avoid the liability of orphan wells from falling onto taxpayers’ shoulders.
On a national level, the Government Accountability Office found a vast majority of bonds (84%) covering wells on federal public land and tribal land were insufficient to cover the full cost of reclamation.
“The research shows us very clearly that the level of bonding and other financial assurance that many states and the federal government have is simply too low to cover the costs properly,” Raimi explained.
The financial shortfall on reclamation funds has become only more of a problem during the shale era as firms use hydraulic fracturing. They are often drilling deeper, creating long horizontal links and contending with higher subsurface pressures. The technique can make reclamation work more expensive, he said.
In Wyoming, blanket and idle well bonds exist as forms of financial assurances for the state in case a company goes bankrupt or walks away from a project. Additionally, if a well is considered idle — shut-in and not producing, injecting or disposing — an operator is eventually required to pay into an idle well bond ($10 per foot of well bore). The bond fund protects the state from footing cleanup costs of wells down the road.
For its part, Wyoming Oil and Gas Conservation Commission holds about $159 million in idle well bonds. But it still needs to clean up nearly 2,550 wells identified as orphaned, according to the commission‘s database.
Wyoming Oil and Gas Conservation Commission finished remediating 87 wells in June, bringing the total number of wells removed from the orphan well list this year to 294, according to supervisor reports provided by the agency.
This month, Mark Watson, supervisor of the commission, told the Star-Tribune the agency had accelerated cleanup efforts where it could since the COVID-19 pandemic hit. But supply and contracting limitations made it difficult to scale up the existing plugging program much more than it already has.
Another important component of any stimulus or bill would also be instituting guardrails in the form of enough bond requirements, the recent report from Columbia University and Resources for the Future noted. This measure would ensure oil and gas companies do not come to rely on taxpayer money to fund the majority of future well cleanup.
Jill Morrison, executive director at the Powder River Basin Resource Council, a landowners group, has been tracking Wyoming’s bonding and well cleanup regulations for years, continually advocating for the state to hold companies liable for cleanup.
Morrison pointed to the country’s existing problem of inadequate bonding requirements for oil and gas companies and the risk of letting “industry off the hook,” if a federal stimulus program went into full swing.
Raimi’s report acknowledges this risk but leaves many of the policy specifics to lawmakers.
Abandoned wells can have environmental and public health consequences if left unplugged. If a wellbore deteriorates, it can potentially leach oil, gas or fluids into nearby water supplies. Wells left unplugged can spew out about 0.13 metric tons of methane on an annual basis.
“Federal funding could exacerbate this problem if states and companies see it as alleviating their responsibility to plan for future remediation costs adequately,” the report states. “To avoid this, a federal program could prioritize plugging wells abandoned decades ago that were not subject to modern regulatory frameworks.”
Follow the latest on Wyoming’s energy industry @camillereports
Concerned about COVID-19?
Sign up now to get the most recent coronavirus headlines and other important local and national news sent to your email inbox daily.