Colorado Oil & Gas Commission examining industry’s financial obligations to orphan wells

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Colorado’s Oil & Gas Commission this week started the process for changing the rules regarding the financial obligations drilling companies must comply with to clean up “orphan wells.”

An orphaned well is one that is no longer operating for whatever reason, and that must be “plugged, remediated and reclaimed” by the state. Often they’ve been abandoned by bankrupt companies, or left behind when state regulators shut down a bad operator.

There are 215 orphaned wells in the state, and 454 “associated orphan sites” as of July 1, according to the Commission’s 2020 report. By way of comparison, Wyoming has about 2,700 orphaned wells that need to be addressed, according to the Casper Star Tribune. 

Then Gov. John Hickenlooper signed an executive order in 2018 requiring the annual report of number of wells and remediation efforts. It also increased the budget for the state’s program from $445,000 to $5 million, which allowed the commission to increase the number of full-time employees to four.

That order upped the amount of financial assurances, or bonding, oil and gas companies must put up with any drilling permits. Those bonds range from $2,000-$5,000 per “surface well,” or $10,000 to $20,000 for drilled wells, depending on depth. Additionally, companies must “maintain general liability insurance of $1,000,000 per occurrence” to cover any property damage or injuries.

Commissioners started the process by issuing 17 questions they’re looking to answer before changing any bonding rules, including:

  • What should be the appropriate goal of financial assurance?
  • What are other municipalities doing, like states, counties or cities?
  • What’s working well and where are the challenges?
  • Equity issues between small and large companies.
  • Ways to incentivize operators.

The state estimates it costs about $82,500 to remediate an orphaned well, including $35,000 to plug it. To reclaim a site without wells, it costs about $47,500.