When it comes to oilfield plugging obligations, industry voices contend that industry has the problem in hand.[1] And where it doesn’t, orphan well funds, paid for by industry, can make up the difference.[2]

A cursory glance at the Colorado Oil & Gas Conservation Commission (COGCC) data seems to support this claim.  With 50,882 wells in the state that will need to be plugged,[3] only 215 wells and 454 sites were listed as orphaned (as of July 2020).[4]

The problem is that the orphan well fund represents only the tip of the iceberg.  Beneath the surface lies a dizzying array of well categories from drilling through to abandonment.[5]

Basically, these break down into three groups:

  • Pre-producers: wells that haven’t yet produced oil or gas;
  • Producers: wells that are producing oil or gas today; and
  • Post-Producers: wells that are either done commercially producing oil or gas or are used to support production (i.e., injection wells).

The below table shows the break-down of each type of well, according to COGCC:

Type COGCC Category[6] Number of Wells % of Total
Pre-producer DG, WO 1,494 2.9%
Producer PR 36,741 72.2%
Post-Producer AC, DM, IJ, SI, SI-IJ, TA 12,647 24.9%

What do the numbers show?

First, that the orphan well fund is the tip of the iceberg.  The 215 orphaned wells are only a fraction of the 12,647 post-producer wells submerged on company balance sheets.[7]  And while some of those wells are or may be used as injection wells to enhance oil and gas production, 71% of them are shut-in or in some state of abandonment.[8]

These wells aren’t in the orphan well fund, yet.  But it would be a lot cheaper for industry to forfeit the current bonds in place as they represent only a few percent of the estimated liability than actually plug these wells.

Second, the money to close these wells will have to come from future cash flows, given that industry hasn’t yet saved to retire these wells.  But, as the chart above shows there are far fewer of these new, pre-producing wells (under 3% of all wells in the state) than the number that are past their prime (25%).

Third, there is little solace in the fact that three-quarters of Colorado’s oil and gas wells are still producing oil and gas because many are just limping along.  Federal and Colorado law defines a “stripper” well as producing 15 bbls/d or less.[9]  Colorado’s State Auditor has indicated that approximately 58% of the state’s oil wells and 73% of Colorado’s gas wells qualify as strippers.[10]  Nevertheless, these wells can still be bonded as regular producing wells.

The federal government appears to be getting serious about the existential threat posed by climate change; this makes it precisely the wrong time for Colorado to be under-secured on plugging liabilities.

But to be clear, the financial threat posed to the State of Colorado comes not from 215 orphaned wells, but from the two-orders-of-magnitude larger accumulation of inactive, shut-in, temporarily abandoned, ancillary and idled wells sitting beneath the surface.

 

[1] https://www.instituteforenergyresearch.org/fossil-fuels/gas-and-oil/does-america-have-an-orphan-well-problem-on-its-hands/

[2] https://www.rigzone.com/news/orphan_well_stimulus_would_employ_displaced_workers-04-jun-2020-162291-article/

[3] COGCC Website, Daily Activity Dashboard. Page 2. https://cogcc.state.co.us/DAD.html, (accessed January 28, 2021).  The Enverus database on which we rely lists additional wells in Colorado.

[4] See, https://cogcc.state.co.us/documents/library/Technical/Orphan/Orphaned_Well_Program_FY2020_Annual_Report_20200901.pdf (accessed Feb. 9, 2021)

[5] COGCC Website, Daily Activity Dashboard. Page 2. https://cogcc.state.co.us/DAD.html, (accessed January 28, 2021).

[6] Colorado Status Codes: DG:   Wellbore has spud, but not yet completed; WO: Wellbore drilled but not yet completed; PR:  Producing; AC:  Active gas storage or monitor well; DM: Domestic gas wellbore; IJ: Injection (waste/secondary recovery); SI: Shut-in  SI-IJ: Shut-in injection;  TA:  Temporarily abandoned.

[7] Murphy, Julie. Memorandum to the Governor’s Office, “Annual Comprehensive Orphan Wells and Orphaned Sites List as Directed by Executive Order D 2018-12.” Colorado Oil & Gas Conservation Commission. July 01, 2020. https://cogcc.state.co.us/documents/reg/Enforcement/Orphan%20Wells/COGCC_Orphaned_Well_Sites_List_20200701.pdf (accessed February 12, 2021).

[8] COGCC Website, Daily Activity Dashboard. Page 2. https://cogcc.state.co.us/DAD.html, (accessed January 28, 2021).

[9] Oil and Gas Severance Tax Stripper Well Exemption. Colorado Office of the State Auditor.  July 2020. https://leg.colorado.gov/sites/default/files/2020-te22_stripper_well_exemption.pdf.

[10] Id., at 5 (citing FY 2018 data).

 

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