The number of orphan wells in Colorado has topped 1,000 — a four-fold increase in four years — as the state takes over 358 wells from two defunct oil and gas companies this spring.
The Energy and Carbon Management Commission, which regulates the oil and gas industry and operates the state’s orphan well program, is adding the 339 wells of Dallas-based Omimex Petroleum and 19 wells from Centennial-based Chemco Exploration.
The ECMC is also seizing $205,000 in bonds from Omimex — about $604 per well — and $60,000 in bonds from Chemco, equal to $3,158 for each well. The commission estimates that on average it takes $10,000 to $40,000 to plug and abandon a well and $100,000 for site remediation.
The orphan well program spent $10.2 million in 2023 including plugging 61 wells. It is plugging and abandoning an average of 63 wells a year. At that rate it will take 16 years to plug the 1,007 wells now on its list.
“This is a burden that should not fall on the state,” said Kate Merlin, an attorney with the environmental group WildEarth Guardians. “We cannot afford it and we know there are more orphan wells out there.”
A large number of low-producing wells have been transferred from larger companies to smaller ones, according to ECMC data. Those smaller operators are more vulnerable to failing and leaving abandoned wells to the state, Merlin said.
To counteract this and provide more money for the orphan well program, a bill in the legislature would enable the state to go after former owners of abandoned wells for funding.
The legislation, Senate Bill 159, is better known for its controversial goal of ending the issuing of new oil and gas drilling permits in 2030, effectively ending drilling in Colorado.
The orphan well provision would enable the state “if the current owner or operator cannot be identified or refuses to pay” to seek funds from “any prior owner or operator, regardless of whether the prior owner or operator violated any provision of law.”
Oilfield workers plug an orphaned oil and gas well on Aug. 23, 2023 in Broomfield. (Andy Colwell, Special to The Colorado Sun)
“It is a nonstarter for us,” said Kait Schwartz, director of API-Colorado, an industry trade group. “It’s retrospective in nature and so violates the state constitution.”
Schwartz said the new financial assurance rules prevent the transfer of low-producing wells without adequate financial guarantees and they also raise new funds from the industry for the orphan well program.
The Superfund run by the federal Environmental Protection Agency has long had the policy of going after former “responsible parties” for cleanup costs, Merlin said.
The bill is slated for a hearing before the Senate Agriculture and Energy Committee Thursday afternoon.
Under the state’s previous financial assurance rules, operators had to post bonds to guarantee the plugging and cleanup of their operations. The ECMC holds 1,827 active bonds totaling $299 million.
In March 2022, the commission adopted new financial assurance rules aimed at ensuring that there are funds to plug all wells in the state. The ECMC estimates that the rules will increase the amount to $641 million.
However, an analysis by the environmental group Carbon Tracker contends that the ECMC is overestimating the amount of financial security the new rules will raise and underestimating the cost of plugging and abandoning wells.
“The orphan well list does not reflect all the wells that the state will likely have to plug — many operators have no reasonable prospect of plugging all of their wells today because they simply don’t produce enough oil to pay for them and the state has not forced them to save,” Robert Schuwerk, executive director of Carbon Tracker North America, said in an email.
“These wells are not currently deemed ‘orphaned’ wells, even though they will likely become orphans,” Schuwerk said.
In addition to the bonds and other financial guarantees by operators, the new financial assurance rules created an orphan wells mitigation enterprise fee — an annual per-well paid by operators, designed initially to raise $10 million.
“This is a robust fund financed by the industry,” API-Colorado’s Schwartz said. “There should be no need for general fund money because they can adjust the funds upward if there is a need.”
In addition, the ECMC raises money from industry fees, fines and a severance tax on oil and gas production. In 2023, $3.8 million of these funds were applied to the orphan well program.
The state will also likely receive $100 million to $110 million in federal orphan well funds over the next five years, according to the ECMC.
“The enterprise fund has been put into place, with nearly $10 million a year, and we do have federal funds and we are using all of our funds to address this situation,” said Megan Castle, ECMC spokeswoman.
There was concern that pressing operators to come up with new financial resources would itself push marginal companies to abandoned wells.
“This is a risk we warned about that there would be some operators with small margins, that is the point of the orphan well fund,” Schwartz said.
A shut-in oil pump jack owned by oil and gas operator K.P. Kauffman Company stands adjacent to both current and under-development homes and across the street from The Children’s Courtyard day care center and Thunder Valley K-8 in Frederick on Aug. 14. (Alex McIntyre, Special to The Colorado Sun)
As of Feb. 27, there were 649 orphan wells, and 1,410 associated orphaned well sites, up from 236 wells and 547 associated sites in July 2021. The Omimex and Chemco associate sites are still being evaluated, Castle said.
Omimex had submitted a financial assurance plan before it ceased doing business. Chemco had not. But Castle said both were troubled companies facing notices of alleged violations even before the new rules had passed.
K.P. Kaufman, which also has a string of alleged violations, submitted a financial assurance plan that was rejected by the ECMC. The commission calculated the company needs $133 million to cover 1,089 largely low-producing wells.
The company, known as KPK, has taken the ECMC to court over the commission ruling.
“When the ECMC levied a $3 million fine, KPK said it couldn’t afford to pay it,” Merlin said. “If it can’t afford the fine, how are they going to plug 1,000 wells?”
There are also about 90 companies — mostly small ones — with a total of 2,393 wells that have not submitted a plan.
“This problem was created long ago by failing to require financial assurance in the first place,” Carbon Tracker’s Schuwerk said. “As states like Colorado act, it will begin to reveal the extent of the past damage.”
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