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NM oil and gas bonds inadequate for cleanup

An oil pumpjack east of Artesia. An independent study found a $8.1 billion gap between financial assurance available to New Mexico regulatory agencies and the estimated cleanup costs of oil and natural gas sites. (Jim Thompson / Albuquerque Journal)

Copyright © 2021 Albuquerque Journal

New Mexico regulatory agencies do not have sufficient financial assurance to fund cleanup of oil and natural gas sites if companies go bankrupt, according to a study released Thursday.

A Center for Applied Research report estimates total cleanup costs for wells, pipelines and other energy infrastructure on state and private lands at $8.38 billion.

State regulators have about $201.4 million available in financial assurance from companies.

Chad Linse, a Center for Applied Research economist, said state bonding requirements were last updated long before New Mexico’s latest oil boom.

“Wells have changed quite a bit in the Permian especially,” Linse said. “A lot of wells in the Permian currently are horizontal and often deeper wells. The level of effort needed to properly complete the downhole abandonment side of things is much higher than for wells that were put into place 20 or 30 years ago.”

About 480 operators manage more than 28,000 active wells on state and private lands in New Mexico.

Financial assurance helps agencies clean up sites if a company goes bankrupt or doesn’t clean up a site to state standards.

Current requirements mostly cover well plugging to prevent leaks.

“Those costs are not necessarily intended to cover surface reclamation that would bring the land back to pre-extraction condition,” Linse said.

A “regressive” system structure also fuels the funding gap.

The State Land Office requires energy companies to pay bonds of up to $25,000, which can cover an unlimited number of leases.

Oil Conservation Division requirements max out at $250,000 for more than 100 wells.

Companies with more wells, therefore, pay less per well, while small companies with fewer sites pay more per well.

State Land Commissioner Stephanie Garcia Richar

State Land Commissioner Stephanie Garcia Richard

d said the $8.1 billion gap in financial assurance is “staggering.”

“I am committed to ensuring we get to a place where responsible parties are adequately bonded,” Garcia Richard said.

The study found cleanup costs ranged from $152,000 to $218,000 per well.

OCD estimates the state has more than 700 orphaned or abandoned oil and gas wells.

That number may be even higher. The agency granted temporary well shut-ins in spring 2020 during a historic oil market downturn.

A state House Memorial that called for a review of energy bonds “to avoid having excess expenses fall on taxpayers or state land trust beneficiaries” died in the 2020 regular session.

The State Land Office is planning public meetings to discuss oil and gas bonding.

“Enormous sums of taxpayer money and money meant for public schools, along with the long-term health of our lands, are on the line,” Garcia Richard said.

Theresa Davis is a Report for America corps member covering water and the environment for the Albuquerque Journal.

 


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