Opinion: Colorado’s new cleanup and financial obligations of the oil and gas industry

Unless you have an oil well in your backyard, most of you will probably not be aware of the current serious effort being made in Colorado to finally require the oil and gas industry to clean up its operating oil and gas wells and to accept responsibility for reclaiming the land after use.

For federal mineral rights managed by the Bureau of Land Management, several bills are currently being considered in the House to address the enormous reclamation funding gap. At the state level and for privately owned mineral rights, this effort is largely being carried by the Colorado Oil and Gas Conservation Commission and the Colorado Department of Public Health and Environment.

It does not make for exciting news, but it should because of the resulting cleaner air in the future and lower impact on both the federal and Colorado budgets: 1) The air emissions from these operations are invisible but contribute to toxins and ozone-precursors; and 2) the unfunded liabilities for cleanup of the impacted properties is estimated by the COGCC at more than $18 million (215 declared orphan wells at $82,500 per cleanup as of July 2020) for Colorado. This cost estimate addresses only the officially orphans.

There are multiples of these that are unlikely to ever produce again and will not have viable and identified operators but are not yet declared orphans, so the real costs to Colorado are expected to be much more. Until now, the oil and gas industry has gotten a largely free ride in impacting our health, welfare and environment, and leaving their trash when they are finished for us, the public, to clean up. This is changing.

Regarding the environmental impacts, in the past two years, through Colorado’s SB 19-181, the industry is now required to install emission control technology, which has been available for more than two decades, that minimizes the emissions of toxins, other ozone-forming hydrocarbons and methane, a major greenhouse gas. Operators are now required to capture the useful gas product that they were previously free to vent (with or without flaring) to the atmosphere at no cost to them. They did not pay royalties on any gas that they vented; any gas not captured and sold was free to them.

Operators are now required to regularly scan the wells for leaks with special hydrocarbon-sensing cameras and to repair them quickly. Frequent scanning is particularly important because hydrocarbons are “slippery,” in that they seep out of joints, connectors and valves easily and cannot be seen without that camera.

There are many more regulatory changes, too numerous to list here, that move the tradeoff of production cost versus impact on the public more toward the public’s interest.

Regarding financial obligations for wells on non-federal minerals, currently our COGCC is in the process of establishing rules for requiring the industry to fully fund the cost of plugging old wells, removing obsolete equipment and restoring the well sites back to pre-well-use condition. This involves posting of bonds or other forms of financial value committed at the time of well permitting in an amount needed to fully restore the sites.

An associated part of these new regulations is defining a clear trigger for declaring a well as abandoned and requiring cleanup. The industry has become proficient at never declaring a well dry and abandoned, so they never have to spend the money to clean it up. Similar financial obligations for wells on federal minerals are being considered by BLM through federal level legislation and under different political forces — not addressed in this article.

A funding mechanism for wells on non-federal minerals is also being considered by COGCC in the current rulemaking for the more difficult issue of cleanup and restoration of the many orphan sites — sites that still have trash equipment, often still leak hydrocarbon gas and have no identifiable and financially viable owner. Restoration of these sites involves properly plugging the well, removing trash equipment and restoring the surface, including access roads, which are also considered the responsibility of the current industry to fund.

In the past, a common business model of the industry was to pump a well nearly dry, then sell that well in order to dodge the financial obligation to restore it. The purchasing company would collect and sell the remaining oil, then declare bankruptcy, causing the well to be orphaned. We look forward to new rules that will eliminate these unacceptable business practices in Colorado.

Rodger Steen is a 40-year resident of Colorado, currently residing in Routt County. During those 40 years he worked for industry and government agencies as an air-quality engineer, primarily specifying the proper air pollution control equipment for industry. He currently serves as chair of the Western Colorado Alliance’s Oil and Gas Committee.

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