Don’t Leave Taxpayers on the Hook for Oil and Gas Cleanup

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As oil and gas production declines in Texas, we face a growing problem of bankrupt oil and gas operators leaving behind “orphan” wells for the state to clean up. Abandoned oil and gas wells are safety hazards, can contaminate groundwater, and also leak methane and other harmful gases.

House Bill 2868 is up for a hearing in the Texas House Energy Resources Committee this Monday, March 29th.

The bill would require the RRC to assess costs and set new bonding levels for individual bonds and adjust the amount of blanket bonds. Current bonding amounts are far too low, resulting in the Railroad Commission having insufficient funds to pay for plugging orphan wells and cleaning up abandoned sites. That’s putting taxpayers on the hook for nearly 43% of the 2022 - 2023 well plugging and cleanup budget.

Submit a comment to the committee members to support HB 2868 with amendments to the blanket bonding requirements. (NOTE: Select HB 2868 and write your comment. You can use the sample language below or write your own. If you have experience with orphaned wells, we encourage you to tell your story.)

I’m writing in support of HB 2868, with amendments to the blanket bonding requirements. Oil and gas well bonds - including blanket bonds - should cover the average cost of plugging.

Current bonding amounts are far too low. Operators can file a blanket bond for all their wells, which amounts to $2,500 or less per well. Individual well bonding is set at only $2 per foot per well depth, equating to approximately $2,000 per well. This is not nearly enough, as it costs the Railroad Commission (RRC) between $20,000 and $40,000 to plug one well, and deeper wells can cost hundreds of thousands of dollars to plug.  

This year, the RRC asked the Texas legislature for over $48 Million from the General Revenue Fund (i.e. taxpayers) to help plug orphan wells and cleanup abandoned sites.  

HB 2868 (Longoria) would increase the amount of bonding operators are required to put up before they drill, so the cost of plugging wells doesn’t fall on taxpayers.

Normally, the RRC plugs wells with bonds, fees and surcharges paid by industry, but as fewer wells are being drilled, the agency isn’t generating enough revenue to cover the costs of unscrupulous operators. In addition, caps in statutes such as bonding levels and low fines have kept the RRC from raising sufficient funds to plug thousands of wells. To make matters worse, in May 2020, the RRC waived fees and surcharges the industry pays that would normally go toward plugging wells in order to provide “pandemic relief.”

There are three important facts supporting improved bonding requirements:

- The RRC is already behind in plugging orphan wells. There are currently 6,400 orphan wells in the state (and thousands more waiting to be assessed), and the RRC only plugs about 1,800 per year. The RRC and the legislature have set a goal of plugging only 1,000 wells per year in 2022 and 2023.

- More companies are going bankrupt or simply aren’t plugging their wells. From 2015 – 2020, about 125 oil and gas exploration and production companies went bankrupt - more than in any other state. Analysts are predicting another 100 bankruptcies by the end of 2022. Currently, 49% of oil and gas well operators in Texas have at least 25% of their wells inactive and unplugged. Texas taxpayers could be on the hook for plugging thousands more wells if we don’t act fast to hold operators accountable.

-A 2015 analysis found that bonds have only covered about 15% of the total costs of plugging. Bonding requirements haven’t been updated since before hydraulic fracturing became the norm. Modern wells are deeper, which makes them more costly to plug. Moreover, site cleanup includes additional measures to address potential soil and groundwater contamination related to the high volume of hydraulic fracturing flowback fluid that is stored in pits at the wellsite after the well starts to produce.

Please support HB 2868, with amendments to the blanket bonding requirements to ensure that bonds cover the average cost of plugging.