The recent op-ed by Alexandra Merlino about the methane hotspot hovering over the Four Corners contained a number of inaccurate allegations. Here is the reality of the situation.
First, let me concede that oil and gas facilities do have some methane emissions, and that methane is indeed a greenhouse gas. Ignoring any cost-benefit analysis, it would be arguably better for the environment and better for the bottom line if that methane were captured. However, the devil is in the details and the devil’s name is math. In that regard, here is the other side of the equation.
1. The methane hotspot is not due to oil and gas operations, but to natural emissions from the Fruitland Coal outcrop. The oil and gas equipment on older wells in the San Juan Basin is exactly the same equipment that is on older wells in Appalachia or Kansas or Texas or Southern New Mexico, where they have many, many times the number of wells that we have here. If the wells were causing the hotspot, you would have similar hotspots over each of these regions. The one thing the San Juan Basin has that they don’t have is an exposed outcrop of a major gas-bearing coal. To further underline this point, Merlino made the comment that Colorado already has stringent methane emission rules and that New Mexico needs to come to the table. Why, then, is the hotspot centered over the Colorado/New Mexico border where the outcrop comes to the surface? If the hotspot was due to emissions from older wells in New Mexico, it would be located more to the south over the center of the basin on the New Mexico side.
2. Air quality aside, the BLM – which has no jurisdiction over air quality – is claiming the rule is all about saving an estimated $180 million per year in lost royalty payments. Sounds like a lot, but numbers by themselves have little meaning until they are put into perspective. In 2012, the feds collected $12.2 billion in royalties. So this punitive regulation is all to increase royalties by approximately 1.5 percent?
3. The expense of retrofitting wells with vapor recovery units and non-pneumatic controls will cost as much as $50,000 per well. Emissions per well site are estimated at 0.7 MCF – thousand cubic feet – per day per well. At the current $3.00/MCF gas price, that is $756 per year, of which the feds get 12.5 percent, or $95 per year. Asking industry to invest up to $50,000 with a 66-year payout, all to make the feds $95 per year is one ridiculous cost-to-benefit ratio.
4. How many wells will be plugged and abandoned? There are plus or minus 30,000 active wells or completions in the San Juan Basin producing plus or minus 2.8 BCF (billion cubic feet, or 1 million MCF) per day. However, 0.76 BCF per day of that production comes from 21,000 wells making less than 90 MCF, a production rate the feds consider marginal. Most of those wells are barely, or barely not, economic, and this will be the stake in the heart.
5. Because the rules will cause thousands of wells to be abandoned, the new rules will result in a drastic reduction in royalty payments to the taxpayers, not an increase. Based on the above ratios, two-thirds of the wells producing 25 percent of the revenue on federal lands are in jeopardy. That is a potential loss of $775 million in royalties compared to $180 million in purported “savings.”
6. Let’s bring this conversation closer to home. With only six rigs running, if there is anything sustaining local jobs, it is the manpower it takes to operate 30,000 wells. Shut (off) many of those 21,000 marginal wells and Farmington can go back to farming as its primary employer.
Of course, this is not about cost-to-benefit ratios because that would require someone to, uh, calculate a ratio. But ignoring the facts doesn’t change the facts. And the fact is, the BLM’s rule is another example of ill-thought-out regulations that will have negligible benefit at an exorbitant cost, particularly locally, where we can least afford it.