GILLETTE — Some state legislators, officials and interest group representatives spent much of Tuesday and Wednesday morning wrestling with a mounting problem in northeast Wyoming — orphaned coal-bed methane wells.
At the state Legislature’s Joint Minerals, Business and Economic Development Committee meeting in Gillette, state lawmakers heard testimony about the state’s 1,200 orphaned or abandoned wells — basically, wells that have not been plugged and reclaimed appropriately.
“We’ve been presented with this topic a couple of times,” said Rep. Jim Byrd, D-Cheyenne. “If I remember correctly, the first presentation was that this has the potential to happen. Now I’m hearing it has happened.”
Legislators took testimony on the issue from industry representatives, a landowner group and one of the state’s biggest landowners, Anadarko Petroleum Company.
Anadarko and a representative of Powder River Energy Corporation each told the panel of lawmakers that sales of coal-bed methane have dropped precipitously since about 2009. Anadarko said the drop was, in part, because the gas field in the Powder River Basin was mostly played out, with the company having explored about 95 percent of all its economically viable opportunities in the area.
“We don’t foresee another phase of activity,” said Ryan Helmer, coal-bed methane subsurface manager for Anadarko. “We do expect that production will continue to decline moderately.”
Company representatives told the board that they expect to hold much of their assets in the basin, with a planned shift toward oil development. But not all developers can afford to do the same.
Jill Morrison, a representative of the Powder River Basin Resource Council, told the committee that her group has been tracking orphaned wells for years. The council, a landowner and mineral owner group based in Wyoming, has identified about 1,200 orphaned wells and has determined that the Wyoming Oil and Gas Conservation Commission is capable of plugging about 100 wells per year.
In the meantime, Morrison said, landowners with wells on their properties are unable to collect royalties owed by defunct or failing companies. The abandoned wells also hurt their property values.
“If you’re a rancher or landowner and you’ve got these wells on your property, you may be a decade out from getting them plugged and reclaimed,” she said. “This is the unfortunate cycle of the oil and gas industry.”
Grant Black, who started work
May 1 as the state’s oil and gas supervisor, told the committee that he agrees.
“The longer those wells go unplugged, the longer the potential risk for impact,” he said, adding that the “lion’s share” of orphaned wells in the state were drilled for coal-bed methane.
Black told lawmakers that the commission takes a number of steps to address possible orphaned wells. Among them, the commission currently requires a $75,000 blanket bond to do business in Wyoming. The commission also collects a conservation tax that can be used to plug wells, and has the option of raising that tax if it doesn’t seem adequate to cover costs. It last raised the tax in 2008.
The tax raises about $1 million per year for well-plugging, and staff usually target wells that pose the greatest environmental threat first.
At least one senator who represents a coal-bed methane-heavy area said he wants to see action soon. Sen. John Hines, R-Gillette, told Black that a decade is too long a time to leave wells unplugged.
“The people I represent, to a lot of them, this is not acceptable,” he said. “These are things that affect their business. To me, something needs to be done to take care of that process.”
Black said he couldn’t commit to a specific schedule for plugging the masses of wells Wednesday, but that he plans to study the commission’s budget and make adjustments as needed.
Morrison told the committee that her group doesn’t think the state’s bonding structure adequately covers such abandoned wells. She presented studies by the University of Wyoming that suggested one possible solution – requiring upfront, a bond from each company that would cover the cost needed to plug and reclaim each well.
But one industry representative told the committee he thinks the state appropriately covers any potential liability through bonding.
“I think that commission has a great handle on what they’re doing,” said Bruce Hinchey, president of the Petroleum Association of Wyoming. “I think the bonding levels we’ve reached in the state are very adequate.”
Hinchey said the commission does a “good job” of getting appropriate funding to plug any abandoned wells from the producer while they’re still active in the field. And when those producers go bankrupt and leave, he said any raise in the conservation tax is usually paid by the operators left around the state.
“It’s always the good operators that end up paying,” he said, adding that rule-breaking operators get weeded out, brought before the commission and fined. Then they go out of business, he said.
Hinchey said he wouldn’t recommend making any changes to the state’s existing bond structure, and that the commission has done well to adjust to possible future risks. Members of the commission couldn’t attend Tuesday’s meeting due to a monthly commission hearing in Casper.
Mike Easley — chief executive officer of Powder River Energy — presented one risk mitigation strategy to the board. His company started saving a fraction of a cent for each kilowatt-hour generated by coal-bed methane during the gas’s demand peak. The company by 2009 had saved up over $17 million, to be used to retire existing coal-bed methane infrastructure.
Anadarko, on the other hand, said it would pursue oil in the area but would likely have to scrap the low-grade piping used to transfer coal-bed methane in favor of the much higher-pressure and heavier oil. Despite the needed changes, the company said it’s optimistic that the basin will remain a strong resource producer.
“We’re very excited about it, we can see there’s growth potential there” said Nick Schoville, Anadarko’s general manager for the Powder River Basin. “We see it transitioning from a gas province into an oil province.”
The committee didn’t take any action on the matter, but Sen. Chris Rothfuss, D-Laramie, told Black he’d like to see an action plan from the commission by the committee’s next meeting, likely to be in September.
Black said that resolving the orphan well issue, along with natural gas flaring, is tops on his to-do list.
“There’s no question we will continue to stay on top of this,” he said. “It will be one of the commission’s highest priorities.”
Reach energy reporter Adam Voge at 307-266-0561, or at firstname.lastname@example.org.