By David McMahon
Orphaned oil and gas wells have always been a problem. Wells need to be plugged at the end of their useful lives to prevent oil and gas and surface pollution from leaking into groundwater and onto the surface and into the air. The very existence of these wells and the threat of these issues devalues surface owners’ land.
One way that wells become orphaned is when a driller with lots of assets (generally a driller that is drilling new wells and who can therefore pay for the plugging of old wells), transfers their old wells to a driller who will just milk what gas production the old wells have left and then go out of business, instead of plugging the wells that are barely producing themselves.
This is largely how we got the current 4,500 orphaned wells. (And there are 8,000 additional wells that still have a bonded operator, that have not produced gas in a year, and that should already, by law, have been plugged. Many, many of these will become orphaned.) This can happen because under current law drillers are not required to plug wells if they are producing any gas at all.
Drillers only have to post a $50,000 “blanket bond” for all their wells no matter how many they have; for some drillers this is only $25 per well.
The problem got potentially worse when a company called Diversified began doing business in West Virginia. It (and its subsidiaries including Alliance and Core) is exploiting these weakness in our laws and using them as an exploitive business model. Diversified is buying up declining, older, conventional vertical wells from the drillers developing horizontal wells to the Marcellus and other shale formations.
Diversified is promoting to its investors on a stock exchange in Great Britain that it can keep milking these wells for 15 years. After that its wells will no longer be “commercial” — i.e. not even producing enough gas to pay to operate themselves — let alone pay for plugging. It has purchased 17,000 wells in West Virginia alone and we estimate about 10,000 of those wells will become orphaned starting in 30 years — 2049.
Three bills were introduced that would have provided enough money to begin to plug orphaned wells and at least put dent in the problem.
House Bill 2779
House Bill 2779 was introduced to provide money to plug orphaned wells; it would have generated enough money to plug 200 orphaned wells in the first year or two and 30 or so a year thereafter. The bill would have used money held by the circuit courts for missing and unknown mineral owners in the partition cases to plug orphaned wells. It also would have used money held for missing and unknown mineral owners in missing and unknown owner lease cases.
After passing the House, and being approved by two committees in the Senate (all without a whiff of opposition), HB 2779 was ambushed on the last night of the session on the Senate floor.
There are speculators (the ones that usually make a living buying minerals at tax sales) who go to surface owners who don’t know they might someday get those royalties being held in circuit court. These speculators offer to buy the unknowing surface owner’s land without telling them that they could be coming into lots of money plus title to their underlying minerals.
This legislative ambush was organized mostly by these speculators, and came with only 6 or 8 hours left in the session and not enough time to find any middle ground or clear up the confusion, ultimately killing the bill.
Senate Bill 665
The second bill introduced was an expedited permitting bill. It would have plugged maybe 40 to 70 wells a year. It had the next best chance of passing. The horizontal drillers wanted it. It would have given the drillers the option to get a faster permit if they paid an extra $20,000 permit fee for the first well on the pad, $10,000 for the permits for other wells on the same pad, and a $5,000 permit modification fee. As a result of our advocacy the big horizontal drillers put in the bill that half that money would go to plug orphaned wells, while the other half would go to increase Department of Environmental Protection permitting staff.
However, some of the big drillers played games in the House and got the fees reduced to $10,000, $5,000, and $5,000 respectively, even after the House Energy Committee chairman offered a compromise of $15,000, $7,500, and $5,000. As a result the Senate, voted to amend the fees to $30,000 for the first well, and $15,000 for each addition well on the same pad. Everyone expected the House Energy Chairman was going to concur with further amendment back to $20,000, $10,000, and $5,000.
Instead, the House leadership refused to concur and rejected the Senate amendment bumping the fees back to $10,000, $7,500, and $5,000. It is unclear whether this would have been enough to fund the staff increases needed because this meant more drillers would take advantage of it but pay less money to increase staffing. The House’s last action was communicated to the Senate with only an hour or so left in the session, killing the bill.
House Bill 2673
A third bill that would have provided money to plug orphaned wells was proposed by the Independent Oil and Gas Association (IOGA). Last year they proposed a bill to just eliminate the 5% severance tax on their low producing wells that were being made unprofitable by the Marcellus Shale drillers. Because of our advocacy on orphaned wells, this bill this ended up reducing the severance tax on “low producing” from 5% to 2.5% and dedicating that remaining 2.5% severance tax to plugging orphaned wells. The average cost to the Department of Environmental Protection to plug an orphaned well is $65,000. Industry estimated the bill would generate $3.5 million, and plug 53 wells a year. The Finance Committee estimated $8 million, and 125 wells per year. This bill passed! We were just about to send out an update highlighting this, when without warning, the Governor vetoed the bill.
Veto and Special Session
For a time it appeared that HB 2673 would be considered as part of a special session. Rumors to this effect proved to be unfounded as the bill did not appear on the Governor’s list of bills to be considered in the special session.
In the end there was lots to be disappointed about. No bill moved that would have prevented more wells from becoming orphaned. On the other hand, thanks in parts to the contacts some of you made when we asked you, we may get some money from at least one bill to start plugging wells and putting a dent into the existing problem.
Importantly we did enormous consciousness raising causing the small and big drillers to put orphaned well plugging money into THEIR bills. We had the pro-business State Journal running a front page article and even an editorial that supported us. We also have two Energy Committee chairs that are really upset with industry not only on these bills, but on other bills including one that mineral owners wanted that would make it easier to clear up courthouse records of expired leases of their minerals, and another that would have altered the way partition suits are used against mineral owners.
So we may yet get something this year. And we are well positioned for next year. In our lobbyists’ experience it takes three years to get a bill passed in West Virginia. The first year just gets attention to it and is used to deflate opposition by alarmists. The second year the bill moves, but problems emerge and lessons are learned. The third is the charm. This year was the second year for the bill that passed and was vetoed (HB 2673), the second year for WV-SORO’s that died in the Senate on the last night (HB 2779), and the first year for the expedited permitting money bill that died on the last night. And even if it is the first year for the bill to require “plugging assurance” to prevent future orphaned wells, we are encouraged for it passing next year.
Note: A slightly longer version of this story previously appearead in Surface Owners’ News, a publication of the West Virginia Surface Owners’ Rights Organization. It has been updated to reflect developments since the date of publication.