Coalbed methane bust leaves thousands of orphaned gas wells in Wyoming
High Country News | Irina Zhorov
January 1, 2014
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Marjorie and Bill West's ranch in Campbell County, Wyo., sprawls across 10,000 acres of hills, rocky outcrops and steep valleys. Their family has run cattle and planted wheat, barley and alfalfa here for 80 years. But when natural gas companies tapped underlying coalbeds, mostly leased from other mineral rights holders, in 1999, artesian wells dried up and cottonwoods drowned in produced water. Today, about 100 gas wells sit abandoned on the property, making it difficult to work the fields and damaging farm equipment. And though none have blown out, neighboring wells have; some still have gas pressure.
Marjorie West partly blames the state, which regulates the industry but also relies on it for revenue. "They don't care about the people who have spent generations farming and ranching," West says. Wyoming has about 1,200 abandoned wells, mainly from a coalbed methane boom that peaked in the early to mid 2000s, when 2,500 wells were drilled annually.
Then the economic downturn hit. As the wells dried up and natural gas prices fell, many smaller operations declared bankruptcy, leaving unreclaimed wells and waste pits behind. Companies pay regulators bonds before drilling, to be returned once they plug wells and restore the surface to, ideally, pre-drilling conditions. Most operators follow through. If they bail, the bonds pay for cleanup. Abandoned wells on private and state land become the state's responsibility; federal-land wells fall to the Bureau of Land Management. But because bonding amounts often fall below the costs of reclamation, agencies sometimes scramble for funds.
With its number of abandoned wells expected to double or even triple within a year, Wyoming has the dubious distinction of having the worst problem in the West, according to Oil and Gas Accountability Project Director Bruce Baizel. In response, the Wyoming Legislature and governor are pushing state regulators to expedite cleanup of orphaned wells and consider increasing bonds and taxes. "Quite candidly," Wyoming Oil and Gas Conservation Commission Supervisor Grant Black recently told lawmakers, "I don't believe that the commission has paid as much attention to this as they should have."
Since the '60s, the BLM has charged just a $25,000 bond to cover all of a company's wells in a given state, or, alternatively, just $150,000 to cover all the company's federal-land wells nationwide. Meanwhile, the number of new wells permitted has doubled nationwide in the past decade. On private land, the Wyoming Oil and Gas Conservation Commission requires a $75,000 bond per company; on state lands, the Wyoming Office of State Lands and Investments asks for $100,000. California, Washington and Alaska require higher bonds, while New Mexico, Montana and Nevada ask less. Roger Coupal, head of the University of Wyoming's Agriculture and Applied Economics Department, estimates that it costs about $30,000 to reclaim one well. "If (a bond's) not big enough," he says, "it's not going to give the incentive (to clean up)." Wyoming coal mines for example, must provide detailed reclamation plans and bonds adequate to cover them.
Because the BLM doesn't keep the bonds in interest-accruing accounts, they lose value with inflation. Although Wyoming collects interest on them, it doesn't use it for reclamation. Instead, it imposes a conservation tax on operators, but that's inadequate to cover the difference.
"The state is going to have to pay to plug and reclaim a lot of old wells" at a time when it's already lost a lot of money in unpaid taxes and royalties, says longtime industry critic Jill Morrison, with the Powder River Basin Resource Council. Already, the city of Gillette has paid nearly $50,000 to plug coalbed methane wells on its property, abandoned by High Plains Gas, the same company whose wells pock the Wests' ranch.
Another company, Pure Petroleum, went bankrupt in 2011, after years of unpaid bills and violations for spills and poorly maintained well sites, leaving just a $25,000 BLM bond and a $93,045 state bond to cover 106 wells. In a letter to the state, co-owner Greg Karl wrote, "We have given every single dime Pure has made to our obligations and have lost our homes in doing so." To date, Wyoming has spent $552,698 from its conservation tax fund cleaning up just five of Pure's wells. The company also owes nearly $1 million in state and federal taxes and fines. Meanwhile, Luca Technologies declared bankruptcy this year and is almost $2 million short in bonds for just its 900 state and private wells, leaving the fate of those and its 400 federal wells uncertain.
Frustrated with the agencies' slow response, the governor's office has proposed its own plan. It estimates it will require $4.6 million to $8 million per year to plug all the abandoned wells, depending on how quickly the state tackles the problem. But regardless of the time frame, the effort may have to draw from other sources of funding besides the conservation tax to cover costs.
Marjorie West hopes the wells on her land will be reclaimed soon. But she says she's wary because regulators already told her not to worry when she first expressed concern about development, assuring her that, "All these companies are very well managed. None of them will ever do something like that."