Most of us were taught at a fairly young age the importance of cleaning up the messes we make. But unfortunately, many American industries are not held to the same standards we set for our children. Chief among these is the oil and gas industry. Too often, companies are let off the hook for cleaning up the oil wells they abandon, even when these wells threaten the health of our communities.
Instead of oil and gas companies cleaning up the mess, the high cost to plug, restore, and clean up orphaned well sites is left to the state and its taxpayers, even though our tax dollars are desperately needed elsewhere – like for our classrooms, hospitals, and roadways. Of the more than 64,000 inactive wells throughout New Mexico, more than 700 are orphaned wells – meaning the company that built them went out of business before the wells were plugged. And with an average cost of $35,000 per well, the total cost to plug these wells is $24 million. The cost for reclamation – or restoring the land to its original condition – is another $34 million.
Orphaned wells not only hurt our bottom line, but they hurt our health too. Abandoned well sites often have decaying infrastructure that can pollute our drinking water and the air we breathe.
So how are oil and gas companies able to get away with not cleaning up their messes? Well, before they begin drilling, companies are supposed to set aside funds – called bonds – to cover clean-up costs in case of bankruptcy. But state and federal bonding rates are too low. Federal bonding rates have not been updated since the 1950s and ’60s. At the state level, bonding requirements have not been updated since 1970. Currently, a company can post a single bond of just $25,000 for an unlimited number of leases, pipelines, and other infrastructure on state trust lands even though the actual costs for plugging and cleaning them up are much higher.
The problem of orphaned wells will only grow as the oil and gas industry becomes less and less profitable over time. If the price of oil fails to recover to pre-pandemic levels – which seems to be the most likely scenario – as many as 70% of the state’s 57,401 active wells are at risk of being shut-in or orphaned. That would be a total of 40,181 wells, with a clean-up cost of more than $1.4 billion. At the same time, the state will be taking in less and less revenue from the industry, which will put a strain on the state budget beyond just the costs of this clean up.
New Mexico needs to act now to protect our communities and taxpayers. Thankfully, the State Land Office has already launched an effort to strengthen state bonding requirements with a soon-to-be released study on bonding adequacy. Improving these rules will shift the financial responsibility from the taxpayers back to the industry, where it belongs.
With roughly half of the state’s orphaned wells on federal and tribal lands, the federal government also needs to take action to update their inadequate and severely outdated bonding rates. U.S. Senator Michael Bennet of Colorado recently introduced a bill – the Oil and Gas Bonding Reform and Orphaned Well Remediation Act – that would fund orphaned well clean up on federal, state, and tribal lands while also creating jobs and reducing pollution.
By telling our lawmakers we support these changes, New Mexicans can help ensure that our communities are healthier and that our tax dollars are spent in our children’s classrooms, not cleaning up the oil and gas industry’s mess.
