State and federal programs currently cover less than 10% of statewide decommissioning costs

New York, June 27, 2024 – Despite having nearly 48,000 unplugged oil and gas wells and at least $6.8 billion in closure and clean up costs, Colorado’s bonding rules and federal programs will only bring in $654 million over the next five years, less than 10 percent of decommissioning costs.

This is a key finding of the report  Rocky Mountain Highs and Lows: Decommissioning Colorado’s Two Oil Industries issued by the Carbon Tracker Initiative today.

“Colorado’s leadership saw this issue coming and launched reform of financial assurance in 2018.  Other studies have shown that the six years of discussion and diligent effort created no more financial security for the taxpayers of Colorado than existed before.  If Colorado’s current leadership wishes to protect taxpayers from inheriting billions of liability, they will have to act promptly and creatively.  Existing types of policies and existing methods of setting policy have already failed,” said the report’s author Dwayne Purvis.

Rocky Mountain Highs and Lows shows that more than half of the unplugged oil and gas wells in the state of Colorado cannot be expected to make enough money to fund their own decommissioning. These low-producing so-called legacy wells lack the funds for closure and clean up. The report finds that legacy areas range across 30 counties and include more than 27,000 wells, 57% of the statewide total. In these areas, our analysis finds a decommissioning cost of at least $4.0 billion but only about $1 billion of remaining cash flow. Currently, operators of legacy areas plug only about 0.4% of their wells each year.

In total, researchers estimate future oil and gas production from existing wells will bring in about $21 billion in future profits, plus drilling will continue for at least a few more years.  Future profits statewide from the oil and gas industry more than suffice to fund statewide clean-up costs, but these profits are not spread evenly. The profits are concentrated in the small number of companies actively drilling—not in the legacy areas—and they are not being used or saved to fund future decommissioning.

The differences across Colorado’s oil sector are stark. Numerous small companies in the state operate a small number of wells, but the top 10 percent of companies account for 93 percent of wells and 95 percent of production. These are almost exclusively private companies with hundreds or thousands of wells.

Only three large public companies remain active in the state, and all three have divested legacy assets in the state and focused on drilling in the single area that remains highly profitable. Most wells in the state are owned and operated by private and private-equity companies with large, concentrated portfolios of legacy wells.

“Although oil production peaked in Colorado only five years ago, the renaissance and ongoing development is concentrated in a portion of only one of the basins in the state.  Attempts to redevelop other areas with modern drilling and fracturing technology did not succeed, and wells from the western slope to the eastern plains have continued their decline,” stated Purvis.

Rocky Mountain Highs and Lows continues Carbon Tracker’s work examining the cost of closing and cleaning up oil infrastructure in Colorado and across the US.  Once the embargo lifts the report can be downloaded here: https://carbontracker.org/reports/rocky-mountain-highs-and-low/ ‎

 

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About Carbon Tracker

The Carbon Tracker Initiative is a not-for-profit financial think tank that seeks to promote a climate-secure global energy market by aligning capital markets with climate reality. Our research to date on the carbon bubble, unburnable carbon, and stranded assets has begun a new debate on how to align the financial system with the energy transition to a low carbon future. www.carbontracker.org