Oil producing states see surge in 'orphan' wells

  • Market: Crude oil, Natural gas
  • 06/02/20

North Dakota, New Mexico and other oil producing states are seeking federal funds to plug and remediate hundreds of new "orphan" wells owned by companies that have gone out of business since oil prices collapsed earlier this year.

The US already had more than 56,000 orphan wells before lockdowns sparked by the Covid-19 outbreak devastated fuel demand and helped caused oil prices to crash. But state officials are bracing for thousands of newly orphaned wells as smaller producers go bankrupt, leaving the states with the task of figuring out how to pay potentially hundreds of millions of dollars to plug wells and reclaim drilling sites.

"We have everything we need except the budget," North Dakota Department of Mineral Resources director Lynn Helms told participants yesterday at a virtual roundtable hosted by Democrats in the US House of Representatives.

North Dakota two months ago had no orphan wells but now in the wake of the oil price crash has 366, Helms said.

The state is seeking to use $33mn in federal coronavirus aid to plug hundreds of abandoned wells, and it is holding a 10 June hearing to confiscate 368 wells to be plugged. The average cost of plugging a well and reclaiming the site in the state is $150,000.

New Mexico now has 708 known orphan wells, and there is a risk that number will increase as oil producers struggle to survive. Orphan wells in the state cost an average of $35,000 to plug, with another $30,000-$80,000 needed to remediate the drilling sites. Just plugging the wells would cost $24mn, far in excess of the $2mn the state has collected in clean-up bonds from operators, the state's top oil regulator Adrienne Sandoval said yesterday.

Cleaning up orphan wells would retain jobs at oil service companies that have had to lay off workers because of the downturn in prices, state officials say, while avoiding environmental problems such as spills and methane leaks at abandoned wells.

Plugging orphan wells in North Dakota could sustain 600 high-skilled service jobs for six months, Helms said.

Democratic lawmakers say they support using federal money to plug orphan wells. House Natural Resources Committee energy panel chairman Alan Lowenthal (D-California) said doing so would create thousands of jobs for unemployed workers and be a "win" for the environment and states. But he said the federal government and states need to fix the cause of the problem by requiring operators to post bonds large enough to cover the cleanup costs.


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