Farewell gift from dying oil companies: millions in cleanup costs

When Weatherly Oil and Gas filed for bankruptcy in February 2019, the company was walking away from several hundred wells in Texas. Many had not produced a drop of oil in years. Companies are legally required to “plug” wells they no longer use to extract oil and gas by pouring concrete into all their openings and cracks; this prevents them from letting fossil fuels or harmful pollutants escape into the air and nearby water sources. But many companies that abandon wells say they no longer have the financial means to do so, leaving government regulators to bear the cost. The problem is huge: there are around 2.1 million unclogged abandoned wells across the country.

The Texas Railroad Commission, or RRC, which oversees the state’s oil and gas industry, tried to ensure Weatherly would pay, opposing the state’s bankruptcy plan because it did not include enough information on the amount of money that would be set aside. for cleaning the well and for the various creditors of the company. In the end, Weatherly made a deal with the agency that the company would pay the Commission $ 3.5 million to cover the costs of plugging abandoned wells for which it could not find buyers. The agency agreed and the bankruptcy court approved the deal. When Weatherly turned over 173 abandoned wells to the state, it officially became the company responsible for Texas’ most orphaned wells.

Sadly, the $ 3.5 million the RRC was able to squeeze from Weatherly does not even cover a third of the estimated $ 13.3 million in cleanup costs. Indeed, the state is now responsible for almost all of the shortfall of $ 10 million.

Although Weatherly insisted he couldn’t find the money to meet his hook-up obligations, senior executives at the company received a total of $ 8.6 million in the year before the bankruptcy. The former Weatherly CEO later became a paid bankruptcy expert for FTI Consulting, a public relations firm with a history of launching deceptive front groups for oil companies. (Former company executives did not immediately respond to requests for comment.)

It’s a vivid example of how environmental responsibilities go unaddressed when companies go bankrupt, according to a report released Tuesday by the new nonprofit Commission Shift, which advocates for reform of oil and gas regulations. in Texas. The Lone Star State currently has more than 6,000 orphaned wells on government lists, and the RRC estimates they will cost more than $ 300 million to clean up. The report blames a number of state regulatory policies, including waiving hook-up requirements during the pandemic, infrequent and low-dollar penalties, and low financial insurance requirements for businesses. The volatility of the oil market hasn’t helped: Price swings and a long-term market collapse caused bankruptcies to spike in 2019, and sagging demand due to the pandemic has accelerated the pace. Last year alone, 31 companies worth more than $ 50 billion filed for bankruptcy in Texas, leading with them to a wave of well abandonments.

“The Railway Commission has not put in place the proper systems to recover industry fees for plugging wells,” said Virginia Palacios, executive director of Shift Commission. “Taxpayers are going to be forced to plug these wells.”

In an attempt to avoid this, the DRR collects financial assurances called bonds from oil companies before they start operating in the state. The value of the bond depends on the number of wells the company has. Companies like Weatherly that operate 100 or more wells are required to post a bond of $ 250,000, or about $ 2,500 per well. But, given that a typical abandoned well costs between $ 20,000 and $ 40,000 to plug and clean up, these obligations often cover only a fraction of the cost of plugging a given company if it does end up abandoning one. large number of wells.

“That’s just nowhere near the amount of money you need to actually cover what operators might be leaving behind,” Palacios said. “The Railway Commission needs to apply best practices from the start so that we can completely avoid the bankruptcy process and the orphan law process. “

RRC did not respond to a request for comment in time for publication.

Hookup Costs Are Rising: Over the past decade, state data shows cleanup costs have risen 30 to 300 percent in various parts of the state. In RRC District 8, which oversees the Permian Basin – the largest and most productive shale area in Texas – plugging costs per plant were less than $ 9 in 2010. By 2020, they had doubled.

Conservationists say cleanup costs are set to rise even more as new frack wells, which are drilled deeper and often involve long horizontal drilling, are abandoned. The average depth of wells in the Permian is approximately 15,000 feet. An analysis of Texas data by Kelly Mitchell, senior analyst at the Documented Business Watch Group, found that the average RRC plugged well between 2015 and 2020 was only 2,231 feet deep. A separate report released last year by Carbon Tracker, a climate-focused finance think tank, estimated it could cost as much as $ 300,000 to plug a modern 10,000-foot shale well.

Palacios said that as more companies file for bankruptcy and signs point to the oil and gas industry shrinking in Texas, the need for effective DRR oversight becomes more urgent. . His organization hopes to push the RRC towards policies that better protect taxpayers and the environment. In addition to the issue of orphan wells, the Shift Commission will target campaign finance and ethics reforms in RRC, she said.

“RRC is going through an energy transition,” said Palacios. “We need our state agencies not to sit back and forth on this and start managing how this transition unfolds.”

About Keith Tatum

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