Dying oil companies’ parting gift: millions in cleanup costs

When Weatherly Oil and Gas filed for bankruptcy in February 2019, the company was walking away from several hundred Texas wells.”

Though Weatherly insisted it couldn’t find the money to fulfill its plugging obligations, the company’s top executives were paid a combined $8.6 million in the year preceding bankruptcy. Weatherly’s former CEO later became a paid bankruptcy expert for FTI Consulting, a public-relations firm with a record of launching duplicitous front groups for oil companies. (The company’s former executives did not immediately respond to requests for comment.)

It’s a stark example of the way that environmental liabilities are going unaddressed when companies go belly up, according to a report released Tuesday by the new nonprofit group Commission Shift, which advocates for reform of oil and gas regulation in Texas. The Lone Star State currently has more than 6,000 orphan wells on government rolls, and the RRC estimates they will cost more than $300 million to clean up. The report lays the blame on a number of the state’s regulatory policies, including waiving plugging requirements during the pandemic, infrequent and small-dollar penalties, and low financial assurance requirements from companies. The volatility of the oil market hasn’t helped: Price fluctuations and a long-term market slump caused a spike in bankruptcies in 2019, and sagging demand due to the pandemic accelerated the pace. Last year alone, 31 companies worth more than $50 billion filed for bankruptcy in Texas, bringing with them a wave of well abandonments.

“The Railroad Commission doesn’t have the proper systems in place to recover fees from the industry for plugging wells,” said Virginia Palacios, Commission Shift’s executive director. “Taxpayers are going to be on the hook for plugging those wells.”

To try to prevent this, the RRC collects financial assurances called bonds from oil companies before they begin to operate in the state. The bond value depends on how many wells the company has. Companies like Weatherly that operate 100 or more wells are required to submit a $250,000 bond — approximately $2,500 per well. But, since a typical abandoned well costs between $20,000 and $40,000 to plug and clean up, these bonds often cover only a fraction of a given company’s plugging costs if it ends up abandoning a large number of wells.

“It’s just nowhere near the amount of money you need to actually cover what operators could be leaving behind,” said Palacios. “The Railroad Commission needs to enforce better practices upfront so that we can avoid the bankruptcy process and the orphan law process altogether.”

Palacios said that, as more companies file for bankruptcy and signs point to the oil and gas industry shrinking in Texas, the need for effective oversight by the RRC is becoming more urgent. Her organization hopes to push the RRC toward policies that better protect taxpayers and the environment. Aside from the orphan wells issue, Commission Shift will target campaign finance and ethics reforms at the RRC, she said.

“RRC is going through an energy transition,” said Palacios. “We need our state agencies to not keep their heads in the sand on this and to start managing how that transition happens.”

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