Oil and gas wells abandoned during market collapse posing risk to environment, unemployment

New Mexico lawmakers sought increased federal funding to plug abandoned oil and gas wells across the country as the industry struggles to recover from the COVID-19 pandemic and subsequent decline in fuel demands that caused an historic bust in the price of oil.

The state’s Congressional delegation called upon the House Natural Resources Committee Democrats to consider increased federal funding for oil-producing states to plug more wells and reclaim the land used in extraction, which could put laid off oilfield workers back to work.

As of May 5, about 4,100 oil and gas workers had applied for unemployment in New Mexico, records show, leading to $500 million in lost wages across the state and $20 million in lost personal income tax collections.  

A federally-funded well plugging program in New Mexico, congresspeople argued, could put some of those people back to work.

Adrienne Sandoval, director of New Mexico’s Oil Conservation Division – an arm of the State’s Energy, Minerals and Natural Resources Division – said during a panel discussion with the committee that abandoned wells resulting from the downturn could be an increasingly serious problem for the state.

“New Mexico’s long history of oil and gas production makes it especially vulnerable to well abandonment,” Sandoval said. “Operators face tough economic decisions that often result in reduced investment, decreased drilling and production, delayed site remediation and even bankruptcy.

“With limited capital and the possibility of bankruptcy, the oil and gas operators may not be able to plug wells and reclaim facilities effectively.”

She said companies struggling financially could be unable to plug and remediate orphaned wells quick enough to prevent waste of natural resources and damage to the environment.

She said there were 708 abandoned wells known to the OCD, while the State had $2 million in financial assurances from operators to pay for the work and $1 million per year in revenue from the federal Bureau of Land Management.

Typically, wells are plugged by operators. But when a company cannot afford to do so, the state steps in, plugging an average of 50 wells per year, Sandoval said.

She said it costs about $35,000 to plug a well, along with another $50,000 to $80,000 to remediate the land if its is in good condition.

Lands with historical environmental problems can cost millions of dollars to reclaim, Sandoval said.

And with the industry continuing to struggle with lower prices, the state could continue seeing more wells abandoned by operators.

Of the 57,000 wells in New Mexico, Sandoval 70 percent were considered “marginal” or producing less than 60 barrels of oil per day and were more susceptible to abandonment as they were typically the first wells deemed uneconomical by operators.

“These wells are the most at risk in a downturn as they quickly become uneconomic and are typically the first wells to be shut in or orphaned,” she said. “While New Mexico has 708 known orphaned wells, there is the risk for many more during this downturn.

“While New Mexico has some funding mechanisms in place to plug orphaned wells, additional federal dollars will help us further protect the environment.”

Any additional federal funds should go directly to the states, Sandoval said, to assist in plugging wells and remediating land. This would allow the OCD and similar state agencies to contract with local oil and gas service companies and put oilfield workers back on the job.

“Additional funding would allow New Mexico to more rapidly plug abandoned wells and reclaim sites to minimize environmental disturbance and prevent waste of resources for future development,” she said.

“Supporting an increased plugging program would allow the OCD to put in place large contracts with service companies, enabling operators to hire back some of the 4,100 currently unemployed oil and gas workers and help stabilize the greater New Mexico economy while also protecting the land and the resources.”

U.S. Rep. Ben Ray Lujan (D-NM) said increased funding for well plugging could support New Mexico’s workforce, while also working to mitigate environmental issues such as methane emissions and natural gas waste.

He said he and members of Congress recently traveled to the New Mexico oilfields, and used infrared cameras to view air pollution from oil and gas facilities that would normally be invisible.

That experience, Lujan said, showed him the true urgency of solving the state’s air pollution problem.

“Methane emissions is a problem in my state, and the plugging of abandoned and orphaned wells is a major opportunity to reduce methane pollution, which threatens the health and safety of New Mexicans – and also takes taxpayer money away that is rightfully owed to the people of New Mexico,” Lujan said to the committee.

“Additionally, this is a great opportunity to put many who have lost their jobs back to work, and in a way that cleans up our lands and waters. I support this effort and appreciate all of your thoughtful consideration of this important issue.”

Lujan joined U.S. Sen. Martin Heinrich (D-NM) and U.S. Rep. Xochitl Torres Small (D-NM) in a call for federal funds for the plugging of wells be included in future federal economic recovery packages as the nation recovers from the economic fallout of the pandemic.

“With recent declines in revenue, hardworking New Mexican oil and gas workers have lost their livelihoods. At the same time, old, decaying wells and environmental damage threaten communities across the country,” the congresspeople wrote in a statement.

“Congress should respond to this challenge with strong funding for states and tribes to address the current backlog of these orphan wells, put thousands back to work plugging them and restoring the land, and protect groundwater and curb hazardous emissions and greenhouse gases.”