Texas commission studies problems of plugging abandoned wells

Jan. 15, 2002
The Texas Oil Field Clean Up Fund Advisory Commission will meet for the first time Wednesday in Austin to examine how the Texas Railroad Commission can keep plugging 1,400 abandoned wells and cleaning 300 oil field sites annually despite a projected $4 million shortfall in funding.

Sam Fletcher
OGJ Online

HOUSTON, Jan. 15 -- The Texas Oil Field Clean Up Fund Advisory Commission will meet for the first time Wednesday at the state capitol in Austin to examine how the Texas Railroad Commission can keep plugging 1,400 abandoned wells and cleaning 300 oil field sites annually despite a projected $4 million shortfall in funding.

One solution may be to hike the amount of bonds that operators must post to ensure proper plugging and maintenance of wells from the current maximum of $250,000, said TRC officials.

The TRC also recently approved a pilot test program that will use bentonite as an alternative to cement for plugging 19 wells in west Texas. Bentonite is a clay capable of absorbing 7-10 times its own weight in water and swelling up to 18 times its dry volume. If it proves effective, bentonite could reduce plugging costs by 20%-40% in some cases, TRC staffers reported.

The advisory commission was created by the Texas legislature during its last session to review operations under the state oil field cleanup fund established in 1991 and to make recommendations to both the TRC and the legislature.

Through fiscal 2001, the TRC used that fund to plug 13,843 abandoned oil and gas wells and to perform 1,771 cleanup activities at abandoned oil field sites within the state.

As originally set up, some $12 million/year of revenue was generated for the fund from drilling permits fees, application fees, filing fees, cleanup fees, violation penalties, and disposal of abandoned well site equipment. A TRC sunset bill recommended by a committee in the last legislative session was to generate an additional $8 million/year for the fund.

However, a TRC staff report issued Tuesday said the final form of that new legislation "eliminated the flexibility that the Sunset Committee intended and that the Railroad Commission supported." As a result, it said, "It now appears that the commission (TRC) will not reach the projected $20 million in 2002-2007."

Instead, they said, revenue is expected to peak at $18.6 million in fiscal 2003 while averaging $15.6 million/year in 2005-2007.

It costs the state an average $4,500 to plug an abandoned well on land. But that cost escalates to $60,000/well in shallow bay waters and $250,000 for an offshore well. "We estimate the current total plugging liability to the state at approximately $210 million," staffers reported.

Moreover, they said, plugging costs are rising. A larger number of deeper wells "with a higher potential to impact groundwater and surface water" are being added to the plugging program. "As a result, fewer wells may get plugged under the current budget," said the staff report.

There were 24,165 non-producing Texas wells that were not in compliance with state plugging requirements at the start of the current fiscal year in September. That's up from an estimated 21,000 noncompliant wells in 1992 but down from a peak of 25,672 in August 1999, said TRC officials. The site remediation section of the TRC's oil and gas division also has a backlog of 1,600 abandoned oil field sites and facilities that require cleanups.

There are another 71,746 Texas wells that have not produced for more than a year, yet remain compliant either through bonding or the TRC's W-1X extension program that allows operators to pay a $100 fee to delay plugging. That program will be eliminated in September 2004.

Of the 158,859 active Texas oil wells in September, 78,374 were producing an average of 1.04 b/d and may soon join the ranks of those to be plugged and abandoned. Yet with oil production on the decline, major and large independent producers are selling their Texas properties to smaller operators who may lack the necessary finances to assume the future liabilities of plugging wells and cleaning contaminated sites, TRC staffers said.

Bonding has been the preferred method by which operators assure the TRC that wells will be properly plugged when abandoned. However, staff members claim the maximum bonding requirements of $250,000 for 100 wells or more "simply do not meet the potential plugging liability for operators."

They said the TRC might consider a funding program under the Oil Spill Prevention and Response Act to help finance the higher costs of plugging bay and offshore wells.

Members of the advisory commission include Jack Miller, chairman, from Masterson Management Corp., Amarillo; Wayne Hughes, executive vice-president of the Panhandle Producers and Royalty Owners Association; Scott Anderson, executive director of the Texas Independent Royalty Owners Association; State Sen. J.E. "Buster" Brown (R-Lake Jackson), chairman of the Senate Natural Resources Committee; State Rep. Ron Lewis (D-Mauriceville), chairman of the House Energy Committee; Scott Tinker, director of the Bureau of Economic Geology at the University of Texas; Mike Eleya of Burk Royalty, Wichita Falls; Rusty Howell of Howell Oil & Gas Inc., Marshall; Julie Moore of Oxy Oil & Gas, Austin; and Doug Robison of Henry Petroleum Corp., Midland.

Contact Sam Fletcher at [email protected]