Commentary

Climate of Resistance: Ensure companies cover the costs of orphaned wells

June 3, 2021 5:10 am

A fracking site in Greeley is pictured on June 24, 2020. The facility is located 828 feet from the soccer field at the Bella Romero Academy. (Andy Bosselman for Newsline)

This is the third in a three-part series of commentaries about how better regulation of the oil and gas industry should be a part of Colorado’s response to climate change.

History will judge this generation primarily on its response to climate change, and so far it’s failing.

Average temperatures on Earth are rising, and the warming trend is accelerating. The warmest two years on record are 2020 and 2016, and the last seven years are the warmest seven years on record, according to NASA, which ties climate change to human activity.

Temperatures are rising fastest in the Arctic, where the minimum extent of ice, which expands and recedes with the seasons, is decreasing by 13% every year. The minimum extent was 7.7 million square kilometers in 1980, but in 2020 it had shrunk to 3.9 million square kilometers. The ice reflects sunlight, and when less ice is present more sunlight is absorbed into the ocean as further warmth. Ice sheets in Greenland and Antarctic are vanishing so fast they’re on track to match the worst-case scenario contemplated in a report from the Intergovernmental Panel on Climate Change. This could result in substantial sea-level rise. 

Climate change increasingly poses a direct, immediate threat to human life due to its role in causing extreme weather, such as flooding, heat waves and hurricanes. Even the Pentagon warns of the implications of a warming planet. “The pressures caused by climate change will influence resource competition while placing additional burdens on economies, societies, and governance institutions around the world,” the Quadrennial Defense Review said in 2014. “These effects are threat multipliers that will aggravate stressors abroad such as poverty, environmental degradation, political instability, and social tensions — conditions that can enable terrorist activity and other forms of violence.” 

Oil and gas extraction and consumption, more than any other activities, produce the greenhouse gas emissions that cause climate change. Oil and gas production itself, such as occurs in Colorado, releases methane and other harmful pollutants into the air, and the burning of those fossil fuels for energy generation, transportation and utilities emits the majority of heat-trapping gases that have clogged the Earth’s atmosphere.

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The state can’t simply shut down extraction operations, but it does have an administrative and moral duty to regulate the oil and gas industry at least to the extent that it protects residents from immediate risk and taxpayers from industry abuse. To whatever degree such regulation also favors a transition to a green economy, it will further benefit residents.

Available to Coloradans are at least three avenues by which to better resist this destructive industry — local fracking bans, robust severance taxes, and more money for environmental clean-up. Each of the commentaries in this series discusses one of these topics.

Regulations in Colorado related to “financial assurance” and “orphaned wells” are remarkably weak. They reflect the degree to which the state has lived up to its historical role in fostering, rather than regulating, energy development.

Financial assurance is the money, usually in the form of bonds, that oil and gas companies post to cover the cost of site remediation in case operators abandon their wells, such as after a bankruptcy. Oil and gas companies are required to provide financial assurance of $10,000 or $20,000 for each well, depending on well depth. A company that operates fewer than 100 wells in the state can choose to post a blanket bond of just $60,000, and a company that operates 100 wells or more can post a blanket bond of $100,000. Some companies manage many hundreds of wells, and the average per-well bond for the largest companies in the state can be as little as about $100.

This is ludicrously low. The average cost of safely plugging and remediating a site is about $80,000 per well. The Colorado Oil and Gas Conservation Commission manages more than 500 orphaned oil and gas sites, and, as of April, well more than 200 had yet to be plugged. In other words, when oil and gas companies go bankrupt or abandon wells, leaving a dangerous, polluted mess behind, taxpayers are forced to pick up the tab.

Members of the commission, as part of a process to transform the mission of regulators in accordance with a landmark state law adopted in 2019, are preparing this year to rewrite the financial assurance rules. A primary result of the rulemaking session must be a mandate that companies obtain bonds that cover the cost of remediating every well they operate. This is a straightforward and legitimate provision, and it should be non-negotiable.

During a recent hearing on financial assurance, oil and gas company representatives dismissed the notion that major change is needed, in part, they argued, because most of the more than 50,000 active wells in the state will not end up orphaned. But this ignores some inconvenient facts. The state’s orphaned well program shelled out $4.7 million to clean up 102 sites in fiscal year 2020 alone, and just 10% of that cost was covered by bonds. The rest was covered by state money.

Furthermore, the oil and gas industry is growing more volatile. The threat of orphaned wells accumulating became urgent when the pandemic started to push extraction companies toward bankruptcy, and the much needed transition to green energy exerts ever-increasing pressure on the industry.

Taxpayers should not have to pay for corporate-caused environmental degradation in Colorado, particularly when it’s perpetrated by an industry that is responsible for a larger catastrophe people the world over are paying for in so many other ways. The cost of global climate remediation is incalculable. It is not too much to ask that companies cover well-site remediation costs in one state.

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