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Unplugged and Abandoned

The growing orphan well crisis facing the Railroad Commission of Texas.
As investment moves away from oil and gas companies in favor of businesses with a better return, the state of Texas faces a significant economic threat. Combined with declining demand from depressed commodity prices, shifting consumer preferences and the global COVID-19 pandemic, the state faces a surge in oil and gas company bankruptcies and declining revenue from fees it collects from the industry. Meanwhile, the Railroad Commission of Texas—the state’s oil and gas regulator—has been asleep at the switch.

Insolvent or financially distressed operators exacerbate the potential economic risks, public health dangers and environmental hazards posed by unplugged and abandoned oil and natural gas wells. As the wellbore deteriorates, it can leach oil, gas, and residual drilling fluids into groundwater supplies. Unplugged and abandoned wells also can release methane, a powerful greenhouse gas, into the atmosphere and open pits for collecting wastewater or other byproducts of the drilling process can leak and pose threats to groundwater as well.

The Railroad Commission has had opportunities to confront the transition occurring in the energy business and better prepare for the declining revenue and rising environmental risks it poses. So far, however, it has failed to do so.

Observations

The Railroad Commission has ignored the issue of increasing abandoned oil and gas wells across Texas and the threats they pose to people and the environment.
As economic factors like price wars between OPEC nations and the pandemic drive bankruptcies in the oil and gas sectors, thousands of abandoned “orphan wells” are left across the state and become the Railroad Commission’s responsibility.
Texas used to have a well-funded program to make sure the state was protected from the cost of plugging orphan wells and cleaning up sites but the scale of the challenges has outpaced the revenue stream, leaving taxpayers on the hook.
Texas has a diverse economy, but a significant portion of our state’s revenue has traditionally come from the oil and gas sectors, making it critical that the Railroad Commission and state leaders look ahead to manage our resources effectively in a way that supports the state budget.

Solutions

There are three things the Railroad Commission can do to reduce the taxpayer liability for well plugging and cleanup:
Review and make improvements to financial assurance requirements and processes, including bonding requirements.
Review and potentially increase fees and surcharges that create a revenue stream for the Oil and Gas Regulation and Cleanup Fund.
Evaluate and make changes to the process for tracking operators with inactive wells, holding them accountable to plugging their wells before they go bankrupt.
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