Orphaned oil and gas wells on the rise in Wyoming

— May 9, 2013

Oil and gas companies are walking away from non-productive or marginally-commercial wells at an increasing rate here in Wyoming.

There are some 1,200 “orphaned” wells in Wyoming that have not been properly plugged and reclaimed, creating potential risks to the environment and human health, according to Wyoming Oil and Gas Conservation Commission data. One case involving California-based USA Exploration & Production involves nearly 150 coal-bed methane gas wells for the state to clean up at an estimated cost of $1.4 million.

The state collected only $154,000 in forfeited bonds posted by the company, and it will go to the orphaned well fund to cover the rest of the plugging and reclamation cost.

Contacted by WyoFile this week, state officials were not able to provide full details about the health of the orphaned well fund, or about the full liability related to the total 1,200 orphaned oil and gas wells across the state.

Wyoming’s orphaned wells are a topic before the Joint Minerals, Business and Economic Development Interim Committee when it begins its two-day hearing Tuesday in Gillette.

The orphan well fund comes from a “conservation tax” mill levy imposed on all oil and gas producers in the state. This time last year, the fund’s balance was $1 million. The commission’s board can vote to increase the mill levy if it appears in danger of being tapped dry.

With the exception of approximately 50 wells, most all of the orphaned wells are part of the Powder River Basin coal-bed methane district in northeast Wyoming, where operators had enjoyed marginal commercial success until the price of natural gas took a dive in 2008. Until then, the Powder River Basin was Wyoming’s single largest producer of natural gas, with approximately 1 billion cubic feet (bcf) of gas produced each day.

While much of the Powder River Basin coal-bed methane facilities remain in the hands of financially-stable operators, such as Anadarko Petroleum, many wells were passed on to smaller operators hoping to cash in when natural gas prices bounce back into the range of $5-plus per thousand cubic feet (mcf) of gas. That hasn’t happened, and a handful of small operators have gone bankrupt while others still flirt with bankruptcy.

This is a common cycle in the oil and gas industry; small operators prove up a field, then bigger companies buy up small pieces to consolidate a large field for primary production. When the play becomes marginal, tracts are sold off to smaller companies that may not have the wherewithal to fulfill maintenance and reclamation liabilities.

Landowner and environmental advocacy groups point to cases such as the Powder River Basin coal-bed methane play as evidence that state and federal regulators ought to increase bonding requirements well beyond so-called blanket-bond levels. Blanket bonds almost never cover the full liability of a company’s operations. While Wyoming’s individual coal-bed methane gas wells of 500- to 700 feet in depth might be relatively cheap to plug and abandon, today’s deep (9,000 feet and deeper) shale gas and shale oil wells pose a greater risk.

In the case of coal-bed methane, Wyoming officials are left with a large number of small wells at risk of being orphaned. Whereas Wyoming typically deals with about 100 orphaned wells in a year, there are now 1,200 orphaned wells. One official noted that not all of those wells pose an immediate environmental and human health risk, so plugging efforts will be prioritized according to risk.

Also on the docket in oil and gas business next week in Wyoming, the Wyoming Oil and Gas Conservation Commission is scheduled to hear two cases regarding potential rules violations related to flaring — or burning — natural gas.

The commission will consider fines and penalties for EOG Resources Inc. for allegedly exceeding flaring limits, and it will consider fines and penalties for Chesapeake Operating Inc. for allegedly exceeding flaring limits, according to state documents.

The commission hearing is schedule to begin at 9 a.m. Tuesday at the commission’s headquarters, located at 2211 King Blvd, in Casper.

— Dustin Bleizeffer is WyoFile editor-in-chief. He has written about Wyoming’s energy industries for 15 years. You can reach him at (307) 577-6069 or email dustin@wyofile.com. Follow Dustin on Twitter at @DBleizeffer

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