Replies to This Discussion

Permalink Reply by John Matherne on February 25, 2020 at 6:43

And the state governments spent all the revenue that came in!

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Permalink Reply by Skip Peel - Mineral Consultant on February 25, 2020 at 8:54

In both cases, the amount set aside from the fee(s) paid by O&G companies intended to cover proper plugging and abandoning of orphan wells is insufficient to cover the costs.  It's not the state governments spend all the revenue.  It's that the revenue was insufficient for the requirements of the programs.  In other words, the O&G companies are not being assessed an amount that accomplishes the aims of the orphan well programs.  The public is subsidizing the industry for the proper plugging and abandoning of orphan wells.

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Permalink Reply by Steve P on February 25, 2020 at 9:12

I didn't reserve any of my royalty payments to cover an obligation that the well operators incur for the plug and abandon, and site clean up costs.  Those responsibilities belong to the operator, not the land or mineral owner.   Abandoned wells means that the original operator is no longer in business, and the only option for the State is to put a claim against the bond for those activities.  The bond amounts are clearly insufficient.  

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Permalink Reply by Skip Peel - Mineral Consultant on February 25, 2020 at 9:26

Yes, the LA program accomplishes the plugging and abandoning of fewer wells than are newly added to the list annually.  The backlog continues to grow.  There is a little more to the abundance of orphan wells the program is meant to P&A.  It is common practice within the industry for wells to change operators over their productive life span being transferred to smaller and smaller operating companies.  Of course the financial ability to cover the cost to P&A a well also declines accordingly.  A lot of the orphans were the property of operators no longer in business but a significant number are the responsibilities of companies and individuals easily located but that have simply refused to perform the P&A.  This should be an outrage to the average Louisianian.  They should all watch this video.

https://www.fox8live.com/story/36750057/zurik-orphan-wells-and-the-...

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Permalink Reply by Dion Warr, CPL on March 3, 2020 at 16:52

Skip:

Steve P raises a valid point here - the State (in fact, many of the oil and gas producing states and related governmental entities) takes in revenues and severance taxes and simply deposits them into the general fund to be spent by the government at large without a notable wit of directing any of it to a related program to plug orphan wells.  Nowhere in the state regs does it dictate that the orphan well program must be self-sustaining.  The three-legged stool (direct taxation, regulation-derived cost policy, and industry investment) is woefully broken.  Performance bonds stand as "insurance" to pay in lieu of non-performance by the operators - these requirements should be raised commensurate with P&A costs (at least in broad brush; not all wells and situations are the same - perhaps a cost-derived, depth-connected minimum bonding level?) and are not tied to bankruptcy / inactive operators.  A portion of severance tax inflows to the State should be earmarked to dealing with identified orphan wells in addition to emergency plugin / rehabilitation operations.  If necessary, fees earmarked to the orphan well program should be instituted and/or collected for new permits.

The other item that gets lost in this is that the federal government from time-to-time will fund orphan well P&A operations provided that matching state funds are made available, which can be a multiplier in terms of numbers of P&A wells addressed.  "Promised" funding from the state is not a substitute for actual dollars [much like the Highway Trust Fund or federal infrastructure bills, local funding must be both "identified" and "actual" (available for timely contribution) in order to secure federal funding.

One other thing to mention here - many older wells and/or wells that are drilled on a lease basis may be long-term "inactive" which the uninformed sometimes count as idle, "abandoned" and/or (potential) orphan wells.  This is not the case with respect to these types of wells in that the State is loathe to intervene into a validly operating contract (lease wells can hold "all", "part" or "some" of a lease depending upon the terms of the lease) - in these cases, it only takes as little as *ONE* producing well to hold the lease, while the operator has the right to reenter, deepen, plug back and/or recomplete any well on the lease (again, within the terms of the lease) in order to continue to maintain its rights.  There are more than a few "33" wells of long standing that fall into this category for which State will refuse to intervene until the last well ceases to produce and the land / mineral owner complains - they are not "abandoned" for these purposes, nor are they "orphans" [the correct term for wells for which there is/are no financially responsible party(ies)].

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Permalink Reply by Skip Peel - Mineral Consultant on March 3, 2020 at 17:03

Severance taxes are a shrinking revenue source as more and more wells qualify for the "deep" and "horizontal" well exemptions. Yes, I agree the state should be increasing fees paid by the industry to cover P&A costs for orphan wells.  Any available federal funds would be appreciated, but should not be counted upon. I think we would all feel better if the operators highlighted in the above video were targeted for hefty fines and/or jail time.

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Permalink Reply by Skip Peel - Mineral Consultant on March 4, 2020 at 3:23

The Office of Conservation is in a position to prohibit such a move.  The industry gets a black eye from a handful of irresponsible operators and would hopefully support regulatory as opposed to judiciary penalties.  If OOC would refuse to register/recognize a company like Marquis as an approved operator without posting a bond to cover their legacy P&A costs, the industry would be absolved of a PR problem and the tax payers would not get stuck with the P&A bill.

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Permalink Reply by Two Dogs, Pirate on March 4, 2020 at 4:48

I would think there a lot of older wells that are classed as P&A but were plugged by some jack leg contractor that stuffed paper in the hole then poured 6 inches of concrete.

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Permalink Reply by Skip Peel - Mineral Consultant on March 4, 2020 at 4:53

Quite possible and disturbing to consider.  I am unsure of the process as far as OOC field inspectors witnessing such P&A jobs.  The casings in some Caddo Pine Island wells are now well over 100 years old.  Since they are relatively shallow, I'd like to see some tests to see what shape they are in presently.  That might be opening a can of worms but would be a responsible act from an environmental safe guard point of view.  A lot of those shallow wells are in relatively close proximity depth wise to the potable water aquifer.

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Permalink Reply by Two Dogs, Pirate on March 4, 2020 at 5:47

Even when a well has been properly P&A by state standards whose to say that something might not go wrong somewhere down the road. I leased a fellow one time just West of Alexandria that had moved his mobile home on top of a P&A well bore. This well had been drilled back in the 1980's by Shell or maybe Chevron, down to about 19000 feet. Back then there were several operators drilling deep wells across central Louisiana. When oil and gas hit the skids back then these projects were shut down. I think it was Chevron that stacked the big drilling rig on the drill site location just South of Black Lake in Concordia Parish. One of my friends that was from that part of the country told me that a guard was stationed on the site with the rig for maybe 3 or 4 years. He also said that the rumor was that well had real high pressure. Don't think I would want to live on top of that.

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Permalink Reply by Skip Peel - Mineral Consultant on March 4, 2020 at 5:59

Ouch.  Not me.  Nor would I want anyone to have to.

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Permalink Reply by Steve P on March 4, 2020 at 9:07

this is all a big mess, and as I read the responses above, I don't know that there is an easy answer.  My first thought, suggested earlier, was to increase the amount of bond required at some point in the process before the well goes into production.  Doesn't make sense to require a bond at the time the permit is received, because a large % of those permits never result in a well. But how much would be bond amount be?  If a well produces 40 - 50 years, will the insurance company that issued the bond still be in business?  And if the well produced that long, the amount of the original bond would surely be insufficient to cover the actual costs of the P&A.

The other problem is this:  I own a few acres of minerals in DeSoto Parish.  I bought the land in the mid-80's (for the land, not the minerals).  Sold the land but reserved the minerals.  There is a current producing lease on this property from the 1950's, and the lease still has a marginally producing Pettit well, and 3 marginally producing Hosston wells.  The owner/operator has changed hands at least 5 times since the 80's.  Which Party is going to P&A those wells once production ends?  

It seems to me that the only realistic solution is for the Legislature to enact some additional "fee" (if we don't call it a "tax" maybe it will have a better change of passing) on top of the severance tax, and not subject to any exemptions, that creates a fund for P&A and clean-up of all of the orphan wells.  Operators should not be let off the hook, but with 50 year old wells and bankruptcies, there needs to be a pool of funds other than the general revenue of the State of La.

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