Responding to concerns about oil and gas producers shutting down wells and possibly walking away amid the industry’s economic upheaval, state regulators said Monday they continue to conduct inspections and enforce regulations to protect the public and the environment.
The Colorado Oil and Gas Conservation Commission issued a paper and held a public meeting via the internet to say that while companies might slow or suspend production, shutting or temporarily abandoning a well doesn’t increase risks.
“I just want to quell the notion that this downturn equates to some sort of environmental issue with more orphaned wells. It’s just simply, from my perspective, not the case,” said Jeff Robbins, COGCC director. “We feel confident with my management team and the professional staff that I have that we will be able to continue to regulate this industry in a manner that’s protective.”
Plummeting demand driven by the coronavirus pandemic and a price war between Saudi Arabia that added to the glut of oil have led companies to cut back or halt production, dramatically reduce spending and lay off employees. Oil prices dropped below zero for the first time ever in April when contracts came due and some people had to pay to unload oil they didn’t want or had no place to store.
Before the coronavirus outbreak, companies across the country had begun scaling back spending because of pressure from lenders to pay down debt and free up cash.
The prospect of companies in Colorado turning off wells has spurred fears of more so-called “orphan” wells — ones that are abandoned without being properly closed down. A COGCC report said there were 275 orphaned wells and 422 associated sites as of July 1, 2019.
It falls to the state to pay to plug the well and restore well sites if the company doesn’t. The cost is usually six times the amount of the bond paid by the company, according to a 2017 letter from Matt Lepore, the former COGCC director.
The average cost of plugging an abandoned well on Colorado’s north Front Range is about $82,500. Former Gov. John Hickenlooper issued an executive order in 2018 allocating $5 million annually to clean up the sites.
In an April 28 letter, four environmental groups asked how the COGCC will ensure that the oil and gas industry’s economic troubles don’t undermine the implementation of Senate Bill 181, passed last year to overhaul regulations.
Robbins said Monday that the COGCC continues to conduct inspections and enforce rules and regulations. In April 2019, COGCC staff logged 2,894 well inspections, compared to 4,193 this year. The difference is partly due to bad weather last April.
Drilling is down in Colorado’s Denver-Julesburg Basin, which has been one of the country’s major oil producers. The COGCC said there are currently only four drilling rigs in the basin, down from a little over 20 at the start of the year.
Out of the state’s roughly 52,000 active wells, 2,049 had been temporarily abandoned as of March. The total was 1,486 in March 2019. A company might temporarily abandon a well when slowing or suspending operations. The company must get COGCC approval and remove production equipment and plug the well. Tests are required to check the well’s integrity.
At the end of March, about 9,000 wells had been shut in. In March 2019, about 9,600 wells were shut in. Wells are typically shut in to allow the operator to repair or replace equipment or because low prices make production unprofitable, according to the COGCC.
“We’re going to be nimble, and we’re going to work with operators, and we’re going to ensure that as wells move into a shut-in capacity or temporarily abandoned capacity all the rules and regulations that are in place will ensure safety first,” Robbins said.
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