Earth Protect Blog

CO State commission looks at proposals on getting companies to close or plug wells

By Judith Kohler

The Denver Post

Proposed rules intended to ensure that companies have the money needed to close and clean up oil and gas well sites in Colorado are too weak and won’t protect taxpayers from having to pay the bill, proponents of the reforms say.

However, the industry and its supporters contend the increased demands will force companies to do what the state is trying to avoid: walk away from wells because they can’t afford to restore the sites.

The proposals before the Colorado Oil and Gas Conservation Commission would increase the bonds or other financial assurances that companies have to provide to serve as a guarantee that they will close, or plug, wells and restore disturbed land.

After six days of hearings over the past few weeks, the five-member commission started work Monday on proposed reforms mandated by a 2019 law that overhauled the regulation of oil and gas.

A decision isn’t expected until later in February.

“Our statutory mandate is to ensure that we require every operator to provide assurance that it is financially capable of fulfilling every obligation imposed” by the law, said Jeff Robbins, commission chairman.

The fear is the public will get stuck paying if companies go bankrupt or walk away without cleaning up, leaving what’s called orphan wells.

Another concern is socalled “zombie wells,” ones that produce little or no gas and whose owners might not have the money to properly maintain or close them.

The town of Erie has 130 active wells, 204 plugged wells and miles of pipelines and gathering lines within its borders, said Christiaan van Woudenberg, on the Erie Board of Trustees. “Even if no new wells are ever drilled in Erie, we will forever be dealing with the legacy of this infrastructure.”

Van Woudenberg said companies should be held responsible to minimize the hazards while wells are active and should be responsible for plugging and restoring the sites when they’re no longer producing.

Kirby Wynn, the oil and gas liaison for Garfield County, assailed the “thinly veiled fear mongering about thousands of wells headed to orphan-well status.”

Wynn, who was representing a group of rural counties, said he sees the need to improve the bonding requirements, but many local communities depend on the economic viability of oil and gas production and reasonable, cost-effective regulations.

At the core of the debate is whether companies should provide some kind of financial assurance — a surety bond, cash bond, letter of credit — for each well or allow them to continue paying blanket bonds that cover several wells.

Operators have been able to post a $100,000 bond to cover all their wells statewide, an amount that critics say likely wouldn’t cover the cost of shutting down even one well.

The proposed rules are a combination of approaches that are being criticized by all sides.

Colorado has grappled for a few years with how to handle orphan wells, and now the Biden administration has taken up the cause. The Interior Department said Monday that Colorado is eligible to apply for a first phase of funding, which includes up to $25 million for an initial grant.

The money comes from $1.15 billion in the infrastructure bill passed by Congress in late 2021. State officials estimate Colorado will be eligible for a total of $93 million under the program and have proposed using it for the state’s orphan well fund.

Colorado has about 49,850 active wells and is the country’s fifth-largest oil producer and seventhlargest natural gas producer. There are 625 designated orphan well sites, although more than 200 of the wells have been closed, the oil and gas commission said.

Tackling orphan wells

Revenue from a mill levy on oil and gas companies has been used to clean up orphaned sites. The industry and supporters have said throughout the hearings that no orphan-well emergency exists.

But in a 2017 letter to legislators, Matt Lepore, former director of the oil and gas commission, warned that costs to take care of orphan wells could be at least six times greater than the financial assurances held by the state for the work.

In 2018, former Gov. John Hickenlooper directed a working group to recommend ways to strengthen the state’s regulations.

And in 2019, the Colorado General Assembly passed Senate Bill 181 to revamp oil and gas regulations to prioritize protecting public health, safety and the environment.

The proposed rules don’t meet the law’s mandate of requiring each operator to demonstrate that it’s financially capable of meeting all its obligations, said Mike Freeman, an attorney for Earthjustice who is representing community and environmental groups in the hearings.

Freeman said the industry wants to expand the number of companies that could still post blanket bonds rather than bonds for each well.

The proposed rules limit the provision to companies with higher-producing wells.

Companies with lowerproducing wells would have to provide financial backing to cover the cleanup costs of each well, an approach favored by some cities and counties, community and environmental groups.

But another option that would allow companies to propose their own financial plans “would create a situation where the loophole could just swallow the entire rule,” Freeman said.

“The real bottom line is that the commission for years has let companies avoid posting adequate bonds to cover their operations and what you see here is industry pushing to keep that arrangement,” Freeman said.

Industry representatives denounced the single-well financial assurance requirement as a one-sizefits-all approach.

Mark Mathews, an attorney representing the Colorado Oil and Gas Association, said the proposals don’t consider whether mid-sized or small companies could obtain millions of dollars in bonds in a tightening market.

Trevor Gilstrap with the insurance broker Assured Partners said the bond market has become tougher for oil and gas companies because of “a handful of massive losses” in the industry. If the proposals are enacted, once-stable companies might not be able to keep operating in Colorado.

“Instead of decreasing the number of orphan wells, we’ll see a precipitous increase,” Gilstrap said.

Wes Wilson, with Be the Change, a group advocating stronger regulations, said demanding full bonding up front won’t cause a company to be insolvent, but might expose financial problems.

“If they can’t pay their operating costs, of which proper well closure is one, then they aren’t solvent,” said Wilson. “We shouldn’t pass those costs to the public through regulatory inaction.”

Judith Kohler: This email address is being protected from spambots. You need JavaScript enabled to view it. or @JudithKohler