How oil & gas states did (and did not) protect land and water in 2020

2020 presented multiple challenges for the oil and gas industry and state regulators, including the twin shocks of an OPEC price war and a steep decline in demand due to the COVID-19 pandemic. Nevertheless, many states showed strong commitment to ensuring environmental integrity by adopting critical new rules across a variety of topics.

Here are the big things we saw in 2020.

Better management practices for idle and orphan wells

The most prominent trend of 2020 was addressing some of the direct consequences of high supply and low demand head-on, including operator bankruptcies and increasing concerns about orphan wells — unplugged, non-producing wells that can leak methane to the atmosphere and contaminate groundwater. Because they have no solvent owner of record, the liability of orphan wells falls to the state or implementing federal agency. In 2020, several states strengthened their orphan well programs and updated their bonding rules.

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There are 57,000 documented orphan wells in the United States, hundreds of thousands of undocumented orphan wells and large populations of non-producing wells that are at risk of becoming orphans.

Over the past few years, many oil and gas producing states have enhanced their requirements for bonding, plugging and abandoning of wells incapable of producing in paying quantities. Coupled with high supply/low demand conditions, the COVID-19 pandemic presented challenges and opportunities related to orphan wells.

Many operators filed for bankruptcy, which greatly increased the risk of operational wells being abandoned without being properly plugged. Operators are required to put up bonds that can be used by the state to plug wells if the operator fails to do so. However, bond amounts and other mechanisms like orphan well funds have proven in many cases to be inadequate to current plugging and remediation costs — leaving taxpayers to cover the amount in excess of the bond needed for a proper plug job, or leaving wells unplugged and sites unremediated.

In 2020, many states responded to the threat of increased orphaning by updating bonding requirements and penalty structures.

• Utah passed legislation establishing and increasing penalties for improper orphaning or abandoning of wells. The state plans to take on bonding reform in summer 2021.
• Pennsylvania increased its well permitting fees, which are used to fund the state’s orphan well program.
• North Dakota’s biennial rulemaking in 2020 included provisions sharply limiting the number of idle wells that can be covered by a blanket bond.

Many states have stated a need for more contractors to plug orphan wells, and a few have implemented or are looking into new initiatives to accomplish this goal. Oklahoma previously accepted the lowest bid to plug a well, and the contractor had a year to complete the job. Under a new initiative, the state now sets the cost for plugging and sends out a solicitation to vendors. Once a vendor is selected, it has 30 days to complete the job. Illinois is working to start a landowner plugging program, which would allow for landowners to be reimbursed by the state for the cost of properly plugging a well. Michigan also overhauled its orphan well program and plugged many wells in 2020.

Trailblazing water-protecting rulemakings

A few states passed rules that will have a huge impact on human health and environmental safety.

Colorado approved new, nation-leading well integrity rules designed to prevent oil and gas wells from leaking methane to the atmosphere, befouling groundwater resources and causing explosions that can harm workers and communities. Highlights include a universal yearly annular pressure test requirement and monthly annular pressure monitoring for all wells. These procedures tell operators and regulators whether there is leakage (or risk of leakage) of methane or traditional pollutants to groundwater and the atmosphere, providing an opportunity for rapid identification and remediation of problems at oil and gas wells. The rules also contain considerable upgrades on casing and cementing requirements, well control and related issues. Colorado also adopted sweeping “mission changes” across its rulebook that reorient the state’s priorities around environmental protection.

Ohio refined and improved its well plugging rules — most notably through a new requirement to submit a written well plugging plan. Details provided by the operator will allow for state regulators to ensure that wells across the state are properly plugged in perpetuity. In addition to the written plugging plan, the rules also add detailed performance requirements for plugging materials and methods, which will significantly increase the likelihood that a well will be properly plugged.

New Mexico became the first state in the nation to require reporting of the source and quality of hydraulic fracturing makeup water. The intent of the rule is to make clear who is recycling produced water within the oilfield and how much, which will inform important public policy decisions about oil and gas related water use, management and disposition in the state.

Coming up in 2021

We expect 2021 to be another busy year.

California’s oil and gas agency, CalGEM, plans a major rulemaking centered around public health, covering many aspects of its regulatory program.

Kansas plans to update its Class II oil and gas wastewater injection program, following the recommendations laid out in the Groundwater Protection Council’s peer review of that state’s program.

Pennsylvania will likely tackle rules specific to its large “conventional” oil industry, with a focus on water management and environmental protection.

As part of a five year review cycle, Ohio will move forward with a variety of rulemakings covering well integrity and produced water management.

Texas is expected to be in the spotlight for produced water reuse in 2021, as recent reports from the Texas Senate foreshadow various legislative efforts to spur on reuse practices in Texas. Close scrutiny will be vital to ensure these actions don’t encourage risky practices without further research.

Finally, EDF expects to see more momentum on the state and federal level to tackle both the existing orphan well problem – likely through stimulus funding of orphan well plugging and remediation, and the future orphan well problem, i.e. by preventing wells from becoming orphans or setting aside sufficient funding to pay for plugging those orphans. Such policy reforms can include changes to bonding and financial assurance, how long and under what circumstances wells can remain idle, guardrails on well transfers, and alternative funding mechanisms for properly closing and remediating end-of-life assets.

By Adam Peltz

Nichole Saunders and Jenna Graham contributed to this blog.