Abandoned oil and gas wells threaten Texas’ environment. Will taxpayers foot the bill?

·6 min read

Molly Rooke’s family always knew there was a chance that abandoned oil and gas wells on their Refugio County ranch could leak methane and other volatile organic compounds into the air. Her father tried for years to get the Railroad Commission to clean up wells left behind by bankrupt operators.

Then, in April 2019, billowing clouds filled the air and killed vegetation after one of the property’s old wells blew out. After making frantic calls to the commission and posting videos of the incident online, staff arrived and shut the well in by the next day.

“Long-abandoned and deteriorating wells are like ticking time bombs, becoming more and more fragile and more likely to leak or blow out, putting our air, water, land, climate and communities at risk,” Rooke said during a virtual event this month. “You can’t quickly just shut it off. You don’t really know what you’re going to be dealing with.”

Rooke is not alone in her concerns about bankrupt operators and the rising number of abandoned oil and gas wells in Texas. With demand for crude low during the COVID-19 pandemic and investors shifting their money to other ventures, 107 companies filed for bankruptcy last year, according to the Dallas-based law firm Haynes and Boone.

The rising number of bankruptcies — totaling more than 500 since 2015 — stands to affect more than just the Texas economy. In a report released this month, environmental advocacy group Commission Shift details a growing crisis of inactive oil and gas wells, thousands of which have fallen out of compliance with state standards and may pose public health risks from methane emissions and groundwater contamination.

As oil and gas development declines, the report argues, Texas may be forced to either pull back on their plugging program or request more money from the taxpayer-funded General Revenue Fund, which includes sales, utility and tobacco taxes as well as natural gas and oil production taxes.

“If we don’t recognize that these bankruptcies are going to continue and do something both to prevent the bankruptcies and hold the operators accountable on the front end, then we’re going to be leaving this state with a huge mess to clean up,” said Virginia Palacios, the executive director of Commission Shift. “That’s going to fall on the taxpayers’ shoulders.”

146,000 inactive gas wells in Texas

Charged with regulating the industry and running the state’s well cleanup program, the Railroad Commission of Texas has identified about 146,000 inactive, or abandoned, wells concentrated in west and south Texas. There are about 2.1 million of these unplugged wells across the country.

More than 6,000 in Texas are considered “orphan” wells, defined as wells that have been inactive for a year or more and are not being properly maintained by operators. The “vast majority” of operators fulfill their obligations to plug wells when production ceases, Railroad Commission spokesman Andrew Keese said in an email.

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High-risk orphan wells are monitored by the commission for public safety reasons and plugged immediately, Keese said. In fiscal year 2020, the commission plugged 1,477 orphan wells to exceed the Texas legislature’s target of 1,400, according to Keese.

“RRC’s program is funded through industry revenue including, but not limited to, well plugging reimbursements, fees and financial securities paid by the industry,” Keese wrote. “No general taxpayer money is used.”

While the state’s Oil and Gas Regulation and Cleanup Fund has grown its revenue from $64.1 million in 2015 to $139 million in 2020, the Railroad Commission must set aside revenues from bonds and other financial assurances, according to the Commission Shift report. This limits access to cleanup funding, leading the commission to request funds from the Texas General Revenue Fund for well plugging and remediation in 2022.

Operators are not explicitly required to plug and permanently shut down inactive wells, and do not have to remove wellhead equipment from the surface until the well has been inactive for 10 years, according to Commission Shift.

Rising costs from fracking wells

Palacios, who launched Commission Shift this month after several years as an environmental analyst, said the problems surrounding abandoned wells are likely to outgrow the commission’s existing funding sources.

One reason is that wells drilled with hydraulic fracturing or horizontal drilling methods leave larger amounts of chemicals behind and are much deeper than traditional oil and gas wells.

“The cost of plugging a hydraulically fractured well and a deeper well is much higher, and we have not updated the bonding program to account for that higher cost,” Palacios said.

Her organization is pushing for reforms to push companies to take care of their inactive wells themselves before the cleanup costs are passed to the Railroad Commission. Those recommendations include potentially increasing fees and bonding requirements for companies, which Palacios argues would deter operators from leaving inactive wells unplugged and shedding liability if they go bankrupt later.

Oil and gas industry groups have argued that these recommendations would put too much financial pressure on small producers, which the Commission Shift report found to be more likely to cause environmental incidents.

Todd Staples, president of the Texas Oil & Gas Association, said in a statement that companies are following some of the “most stringent laws in the nation related to plugging wells,” leading companies to pay to plug 7,375 wells last year.

“The industry also pays fees to the Railroad Commission of Texas and significant taxes and royalties to the state far in excess of any amounts the agency uses to fund plugging of abandoned wells,” Staples said by email. “A vibrant energy industry will ensure there are ample resources from operators, not taxpayers, available to manage well assets.”

With more operators folding and fewer new production permits being issued in Texas, Palacios and fellow environmental activists argue that the Railroad Commission must prepare for an energy market transformation in which oil and gas taxes will not account for as much of the state’s revenue.

“We’re in the middle of an energy transition, and I think it’s happening faster than people realize, faster than the commission is willing to acknowledge,” Palacios said. “We need to restructure the ways that we hold operators accountable for doing what they’re supposed to do. But we also need to think about how to fund the Railroad Commission going forward with a decelerating instead of accelerating oil and gas industry.”

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