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On March 31, 2021, the Biden Administration released “The American Jobs Plan.” It’s an infrastructure proposal aimed at rebuilding the American economy, putting Americans back to work, while simultaneously addressing important environmental issues. One key problem the plan highlights, and that Biden discussed on the campaign trail, is the large number of idle oil and gas wells across the country’s energy-producing states. Along with abandoned mines, these so-called “orphan wells” pose “serious safety hazards,” the plan’s authors argue, “while also causing ongoing air, water, and other environmental damage. Many of these old wells and mines are located in rural communities that have suffered from years of disinvestment.”
The American Jobs Plan has a big price tag attached to it, which my own senators, Texas Republicans John Cornyn and Ted Cruz, believe should be trimmed. The administration is asking for $16 billion, to be obtained by raising taxes on the wealthiest Americans, to address abandoned wells and mines. This part of the plan, the Biden administration anticipates, “will put hundreds of thousands to work in union jobs plugging oil and gas wells and restoring and reclaiming abandoned coal, hard rock, and uranium mines.”
Idle wells are a serious problem, although no one is exactly sure of the magnitude of it. In 2018, the Environmental Protection Agency (EPA) estimates that are were 3.11 million idle wells in the US. Of those, 2.15 million were unplugged. The Interstate Oil and Gas Compact Commission (IOGCC), a consortium of 31 hydrocarbon producing states, estimates that the number of idle wells that are “orphaned” ranges from 561,000 to 1.1 million.
But the Biden administration also needs to learn more about oil and gas operations, the employment structure of the oil and gas industry, and the legal pathway to remediating an orphaned well.
I have spent my career in the oil and gas industry as a petroleum engineer. I am progressive on many issues, I am conservative on many issues, and I am a registered Republican. But in this case, politics is not the issue, and shouldn’t be. The orphaned well liability issue is a much more complex problem than the Biden administration comprehends—and $16 billion isn’t nearly enough.
I see “orphan wells” from the ground, not from the policy table. I spent 10 years as a well completion engineer and operations manager for Schlumberger, and in 1993, I co-founded Sierra Engineering, a wellbore construction management company. In 2005, I founded Bold Energy, a company focused on exploration, drilling, and exploitation of energy sites, otherwise known as an “upstream” oil and gas company, purchased by Earthstone Energy in 2017 for $300 million.
The energy sector does not remotely look like what you remember from the early days of the environmental movement. Most of us believe that the future of energy, while still involving some extraction, must evolve to address global warming. The integrated oil companies and several of the oilfield service companies are making Research and Development investments in carbon capture and renewable energy. I am presently developing a hydrogen infrastructure and logistics business that will decarbonize the heavy trucking industry in Texas by using durable and sustainable hydrogen fuel cell technology. My business focus is presently directed at building and supplying strategic hydrogen fueling sites for the I-45 and the Port-to-Plains Trade corridors that links the Mexican economy to much of the United States.
But even as we move into a future in which alternative energy becomes a priority, because we are transitioning away from traditional fuels, “orphan wells” will be an ongoing policy issue. It is important to solve the problem as efficiently, and sustainably, as possible.
But first, let’s define what we are talking about when we target plugged, unplugged, abandoned, and orphaned wells as a federal spending priority. To the oil and gas industry, a “plugged and abandoned” (P&A’d) well is what it seems: a well that is no longer producing, has been plugged, and where the surface has been remediated. It is not a hazard to the environment. Wells are considered successfully P&A’d when cast-iron bridge plugs and cement plugs have been set at appropriate depths in the well, isolating and sealing hydrocarbon strata from aquifers and the surface. Properly P&A’d wells pose a negligible risk to aquifers. They are also a negligible source of methane and other noxious gases leaking into the environment.
An unplugged, idle well may—or may not—be a hazard. It may be waiting on completion, or plugging operations; alternatively, it may be orphaned. The first two categories mean the well operator is preparing to put the well in production, or is preparing to P&A the well. Each state has regulatory bodies that oversee the permitting process for drilling, producing, and closing down a well. They have jurisdiction over oil and gas well operators, and ensure (to the best standard they can achieve) that operations are completed safely.
But it is the third category, the orphaned well, that can be hazardous, which is why the Biden administration sees it as a potential area of federal oversight and spending, as well as an opportunity to create well-paying jobs. It usually results from a financially distressed operator having abrogated responsibilities to the well and to the surface owner (a person who owns the surface may or may not own the mineral rights). It has no proper physical barriers above the oil and gas reservoirs, and there may be contaminated surface equipment and soil pollution that requires remediation.
Because the operators of orphaned wells are defunct, state regulatory bodies are powerless to enforce state P&A requirements, nor do they have the human or financial resources to monitor, prioritize, or P&A orphaned wells themselves.
Therefore, because no one is responsible for an orphaned well, it becomes everyone’s problem.
Enter the federal government—perhaps. “The American Jobs Plan” proposes to P&A orphaned wells to mitigate the risks they pose to aquifers, to the surface, and to the atmosphere. But each well poses different problems, and it is difficult to accurately estimate a budget that would adequately address the backlog of orphaned wells that already exist. The cost to P&A a well, including surface remediation, can range from $30,000 to $100,000 depending on the mechanical condition of the well and the surface condition surrounding the well. That’s a big gap, particularly when you multiply it by the millions. Based on the Interstate Oil and Gas Compact Commission (IOGCC) count of orphaned wells and the potential cost range to P&A these wells, $16.8 billion is the low end of the price tag, with a high end of as much as $110 billion.
But that’s not all. The policy agenda should include eliminating future orphaned wells, which means that states must address the inadequate financial assurances they require to grant drilling and production permits. Today, all states require that operators put up a surety plugging bond before receiving a drilling permit. However, in most states, an operator can put up a single $25,000 blanket bond that covers multiple wells. If an operator decides to cease operations or becomes insolvent, it can be more economical for that operator to forfeit the plugging bond than to P&A its wells.
Meaningful changes in financial assurances, ones that would adequately fund plugging and remediation of future wells, will likely be opposed by the oil and gas industry, but not because the industry doesn’t care about the environment. Most operators today try not to be polluters. They follow the rules for maintaining well and production equipment, and they immediately report and clean up spills. They fulfill their obligations by properly P&A-ing wells that are no longer economically viable.
The oil and gas lobby will argue against new regulations, state or federal, being imposed because of the bad behavior of a few sketchy players. They need to be brought in as partners with compromise legislation that provides financial assurance discounts to operators with a track record of responsible environmental stewardship. This is well within the mainstream of corporate norms: automobile insurance companies reward accident-free drivers with lower premiums, and state regulatory bodies could reward reputable operators boasting clean environmental records in the same way.
If you haven’t figured it out by now, $16 billion is a woefully inadequate sum to address the orphaned well problem. The minimum cost is $16.8 billion, without considering administration costs. Anyone who has undertaken a construction project knows that it never comes in at the low end, and usually exceeds the high end, of a cost estimate. If the Biden administration genuinely wants to fix the problem of orphaned wells, they need to commit at least $125 billion to the effort.
There are also legal barriers to such a project. When a well on private land is orphaned, the lease held by the operator expires and is released to the mineral owner. The surface rights expire and return to the surface owner (the person who owns the land.) The defunct operator forfeits all rights, and the surface owner is left to contend with the mess left behind alone.
While the Biden plan can address orphan wells on federal land, no government entity has the right to come onto the surface owner’s property to deal with them. An agreement that includes a timeframe must be struck between the surface owner, the relevant regulatory agency, and service contractors. Right of ingress and egress, under the supervision and indemnification of the regulatory agency, must be established to allow contractors onto the property to P&A the orphaned well. The regulatory agency generally possesses the well history data, but must enlist the help of contract land personnel, engineers, technicians, and service companies to accomplish plugging and abandoning orphaned wells.
Is it realistic to imagine that the federal government can coordinate such a complex operation? I don’t think so.
Furthermore, are these “good-paying union jobs,” as the Biden plan suggests they can be? Good paying, perhaps, but there are no union jobs in the upstream oil and gas sector that oversees drilling, completion, production, and P&A operations. Upstream workers are not only some of the highest paid people in the country, they are also the most innovative and efficient. The handful of times that unionization was suggested, oilfield workers summarily rejected the idea. And in a bigger context, industrial workers from other sectors cannot easily be retrained to work in another industry.
This is all occurring in an energy economy that is perhaps less profitable than it was, but greener and contributing more to a more vital American economy. Domestic oil and gas production increased dramatically between 2007 and 2020, causing hydrocarbon unit prices to decline after 2008. Oil dropped from $120 to under $50, and natural gas went from $9 to under $3. At the same time, however, natural gas replaced coal as the primary fuel source in electric power plants, with the result that annual CO2 emissions declined from 6.0B million tons to 5.1B million tons.
Expansion of domestic operations has also made the nation more energy-independent. Imports from Petro-states have been reduced by half, and the United States became an energy exporter. As important, the oil import gap was reduced by 80%. At $50 per barrel, the petroleum trade imbalance was reduced from $500 million per day to $100 million per day, or $146 billion annually, money that stays in the United States. Even better, cheap energy fueled the recovery from the 2008 financial crisis, and consistently low energy prices have put money in ordinary Americans’ pockets.
What all this means is that, with proper incentives and guidelines, the oil industry that reduced the trade imbalance by $146 billion per year, should have no problem plugging a million orphaned wells if asked to do so. The American Jobs Plan should provide goals, guidelines, coordination and resources to the state regulatory agencies. State agencies should be given the latitude to collaborate with oilfield service companies to plug and remediate orphan wells. Federal funds for this effort should be contingent on state agencies enacting adequate financial assurance terms that guarantee funds to plug orphan wells of the future.
But the Biden Administration does not have to redesign the employment structure of the oil and gas industry into the image of Detroit. If the goal is to solve the orphaned well problem, the federal government only needs to provide the resources and objectives: the workers, and the administrative structure, is in place to finish the job.
Joseph Castillo is a petroleum engineer in Midland, Texas with 37 years of engineering and management experience in the upstream oil and gas business. He is currently the CEO of Permian Operating Investments.