Data & Analysis

An update on orphaned wells and funding to plug them

By Tim Brown

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In late August, the Railroad Commission of Texas announced it will plug about 800 extra abandoned oil and gas wells – non-functional and potentially dangerous oil and gas wells – thanks to the approval by the U.S. Department of the Interior of the state's application for $25 million in grant funding. The funding comes from part of the federal infrastructure law that set aside $560 million to plug, cap and reclaim orphaned wells across 24 states.

That level of state and national funding is necessary since the eligible states have identified more than 10,000 high-priority well sites ready for remediation. In Texas alone, as of July 31, 2022, the RRC lists 7,934 orphaned wells (Map 1), although not all are high-priority wells.

County Information Program, Texas Assocation of Counties

Not all orphaned wells are captured on this map. The 2022 list includes 115 orphaned wells in the Gulf of Mexico with P-5 reports, reports that are required of wells by the RRC, at least 12 months delinquent – up from 69 in the 2018 list. In 2022, orphaned wells are located in: Brazos LB (36), High Island LB (26), High Island SB (11), Matagorda Island LB (24), Matagorda Island SB (6), Mustang Island LB (10) and Mustang Island SB (2).

As well as maintain this list, the RRC administers Texas' Oil Field Cleanup Program (OFCP) to plug abandoned wells.

Historically, the OFCP has plugged more than 42,000 abandoned wells across Texas since the state first established the program in 1984. Of those, 1,453 wells were plugged in fiscal year 2021 at a cost to the state of $36.2 million. However, the agency also reported that the total number of abandoned wells increased by 808 during the same fiscal year.

Of the 7,934 wells on the 2022 list, 1,974 were more than 240 months – or 20 years – delinquent with their reports.

To put that delinquency into perspective, the Petrohawk Energy Corporation (now part of BHP Billiton) drilled the initial Eagle Ford Shale discovery well in 2008 in La Salle County. Petrohawk announced their findings in October 2008. That means they found the first new natural gas field discovery in the Eagle Ford Shale approximately 165 months prior to July 2022 – well within the 240 months delinquency period.

Nevertheless, the 2022 list includes 3,496 wells that were at least 120 months delinquent with their required P-5 reports. Map 2 shows the number of wells per county in this category.

County Information Program, Texas Assocation of Counties

The number of wells per county in Map 2 is down significantly from that shown in Map 1 in part because 13 counties that have orphaned wells in Map 1 do not have any wells in the 120 months or more category. Similarly, the number of orphaned wells in the Gulf of Mexico decreased from 115 to 97.

Why worry about these abandoned wells and why do they occur? The state defines an orphaned well as any oil or gas well that is inactive and not backed by an operator's financial assurance represented by a P-5 report with the commission. To get on the RRC's list of orphaned wells, the P-5 must be at least 12 months delinquent. However, the number can change daily as, for example, wells are plugged, new wells are added to the list or late P-5 reports are submitted.

As noted in our 2018 article on orphaned wells, studies have shown that unattended oil and gas wells can leak methane and other contaminants into groundwater and create other environmental problems. For example, methane is the second-largest contributor to climate change after carbon dioxide and, according to the Department of the Interior, methane is 25 times more potent than carbon dioxide at trapping heat in the atmosphere.

Orphaned wells can even lower property values.

While the well operators should plug the well once production ceases, sometimes this does not happen. As well production decreases, the leaseholder may sell the lease to another company that may then go bankrupt or simply abandon the well for financial reasons since the plugging cost can be tens of thousands of dollars. As a result, the state often ends up as the payor of last resort.

Thus, the reason to worry is because orphaned wells can be a significant cost to the state and to local communities.

For example, as previously stated, the state spent $36.2 million in FY 2021 plugging 1,453 orphaned wells. Thus, the cost for plugging the wells was around $24,914 each on average.

A similar calculation shows that, with the $25 million grant, the agency will be able to expend up to an average of $31,250 each to plug 800 extra orphaned wells. The increased expenditure may be required since the wells to be plugged are considered high priority.