State has lost 23% of its oil and gas jobs in less than two years

BY MARK SCHLEIFSTEIN | Staff writer   Jan 10, 2022 - nola.com

Louisiana is home to 4,605 orphan oil and gas wells, some of them threatening the environment, and now plans to ask the federal government for a Infrastructure Investment and Jobs Act grant to help pay the estimated $401.7 million cost of plugging them. 

It's one of 26 states that told federal officials by the Dec. 30 deadline they want part of the $4.7 billion reserved in the law for plugging abandoned wells and restoring associated property. The effort is aimed at both cleaning up environmental issues at the well sites and, by plugging the wells, stopping the release of methane, the carbon-rich main ingredient of natural gas that's been linked to global warming. 

In requesting the states to apply for the money, President Joe Biden's administration said the plan was aimed at both its environmental benefits, especially for low- and moderate-income residents living nearby abandoned wells, and its expected economic benefits in an era of declining oil and gas service jobs. 

"These legacy pollution cleanup efforts will advance the department’s goals of environmental justice by helping historically marginalized communities address the devastating and long-lasting effects of legacy pollution," an Interior Department memorandum said.

In its Dec. 23 declaration of interest in a grant, the Louisiana Department of Natural Resources estimated the state lost 12,256 oil and gas industry jobs between March 1, 2020, and Nov. 15, 2021, which represents a 23.4% reduction in that sector in Louisiana.  

Based on the state's estimates, it would be asking an average of $87,000 for each well it has listed as orphaned. However, the money set aside in the infrastructure bill would only be enough to pay an average $36,000 per well, if all 130,000 abandoned wells identified by Interior were funded. 

If all of Louisiana's orphan wells were targeted for plugging, the effort could employ about 1,000 people fulltime for a year, and could reduce methane emissions by 558 metric tons per year, according to a 2020 report by Columbia University and Resources for the Future, a Washington D.C. environmental policy think tank. The methane reduction is the equivalent of the annual greenhouse gas emissions of more than 3,000 cars.

The Interior Department said Wednesday that the 26 states seeking grant money reported a total of more than 130,000 orphan wells. That's slightly fewer than the 131,227 documented orphan wells reported in the latest survey of the Interstate Oil and Gas Compact Commission of 32 states through 2020. The commission said its total represented a 23% increase since 2018. 

The Interior and commission tallies do not include 21,211 "idled" or "abandoned" wells in Louisiana and thousands of similar inactive wells in other states that are not considered orphan.

Under Louisiana rules, that includes wells where oil and gas are not being produced for a variety of reasons, including low oil and gas prices. Under a variety of state rules, well owners are not required immediately to plug wells that they are not abandoning, but they remain responsible for assuring the wells are not causing environmental problems.

In the past few years, the number of orphan wells in Louisiana has increased significantly, both because more older abandoned wells have been identified and as small oil and gas companies struggling with lower oil and gas prices have declared bankruptcy or otherwise abandoned ownership of them. 

Th compact commission survey estimated there are an additional 310,000 to 800,000 undocumented orphan wells around the United States, representing "wells the states have reason to believe exist but have not verified."

Many of those wells were drilled during the early days of oil and gas development, around the turn of the 20th century.

The Louisiana Department of Natural Resources said the state has "plugged and abandoned" 3,353 wells determined to be orphan between 1993, the beginning of its orphan well program, and November, at a cost of $141.3 million. That represents an average of more than $42,000 for each well, though some wells found in wetlands or open water may be more expensive. 

The compact commission found that the cost per well nationwide ranged from $2,400 to $227,000, with an overall average, based on three years of costs, of $25,634. That figure includes site restoration, the report said. 

In Louisiana, money for the state orphan well program comes from fees levied on the production of oil and gas in the state, which is collected quarterly. The fund collects about $4.5 million a year. 

An Interior Department spokesperson said its orphan well totals for individual states were not yet available. Louisiana's total was listed on the notice filed by the state Department of Natural Resources with Interior, which the state agency also provided to The Times-Picayune | The Advocate. 

In the next few weeks, Interior will issue a notice announcing how much money each state will be entitled to request under the grant program. States also may apply for an initial grant of as much as $25 million "to begin building out their plugging programs and remediating high-priority wells." 

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I’ve changed the title of this discussion owing to my desire to accentuate the loss of state O&G jobs.  State oil production, not federal Gulf of Mexico production, has been in decline for twenty-five years.  At the current annualized rate of decline, Louisiana onshore and shallow water state Gulf of Mexico production will reach theoretical zero in nine years.

The twenty-five years of declining production is associated with the decline in companies reporting oil production volumes to the state.   In 2020 872 companies reported oil volumes to the state, down from 1713 in 1995.  However, a closer look at the reports of those companies reveals something that is critical but flies under the radar of public perception and goes unacknowledged by politicians and unreported by the media.

Of those 872 companies reporting 2020 oil production to the state, 14 reported negative volumes.  178 reported a volume of zero.  175 reported annual production of less than 1000 barrels.  And 292 reported production of less than 10,000 barrels.  That leaves 228 companies with reported production greater than 10,000 barrels or about $500,000 or greater in net revenue for 2020.  This is the reason for declining Louisiana O&G jobs, not the price of a barrel of crude or regulations.  Without a surprise discovery of an economic unconventional oil play of significant size, geology is destiny and the oil portion of Louisiana’s O&G industry will effectively be history by the next decade.

Not only should our elected leaders be planning how to ease the end of Louisiana oil and the associated jobs that will be lost, they should be actively engaged in discussions on how to protect and incentivize the state natural gas portion of the industry which, managed with rational regulatory measures, should be economic for another forty years.

Thanks Skip.  Historically, Louisiana has been slow to adjust.

LOL!  Yes George, we resemble that remark.  In this case, I would hope that acknowledging the fact that we are fast running out of oil would lead to looking at how to sustain the state natural gas production.  The future of LA O&G is natural gas, not oil.

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