When the oil market and economic craters are hampered by a new coronavirus pandemic, environmental groups and grassroots are worried about a potential surge in abandoned oil and gas wells, but state regulators state that risks appear to be limited.
The Colorado Oil and Gas Conservation Commission held a meeting Monday to review the status of oil and gas operations in Colorado and regulatory oversight of these activities.
COVID-19 IN COLORADO
The latest from a coronavirus outbreak in Colorado:
- MAP: A known case in Colorado.
- TESTING: This is where to find community testing sites.
- WRITING, COLORADO: Tell us your coronavirus story.
- STORY: The Colorado region with the highest level of coronavirus infection is now in Eastern Plains
“I want to dispel the myth that operations are not safe during the economic crisis,” said COGCC Executive Director, Jeff Robbins.
However, groups such as Conservation Colorado and the League of Oil Impacted Coloradans say the country will be poorly prepared – logistically or financially – to deal with the rise in abandoned wells.
“The Commission does not have sufficient insight into the financial health of operators in the state, and reports and submissions submitted by operators are not enough to provide a clear picture of environmental risks and public safety that are becoming market turmoil for the people of Colorado,” Andrew Forkes-Gudmundson, LOGIC deputy director, said in an email.
Of course there has been market volatility when oil prices, first hit in a price war between the main producers of Saudi Arabia and Russia and then burdened by economic recession caused by a pandemic, have plummeted.
Spot prices for West Texas Intermediate crude, the US benchmark, fell from a high of $ 60.05 a barrel at the end of 2019 to a low of $ 16 a barrel in April. It closed Monday at $ 24.65 a barrel. Colorado oil prices, due to limited transportation, are slightly lower.
This has led to widespread investment cuts by operators and bankruptcy concerns. The first company to file for bankruptcy reorganization was Whiting Petroleum Corp. based in Denver on April 1.
MORE: The Colorado oil and gas drilling hedge will make money flow – for now – because prices have plummeted
Howard Boignon, COGCC deputy chairman and an oil and gas lawyer, said industry sources said the glut of oil had made it difficult to find takers for their production and that had caused the company to not complete the well and close the newly drilled.
The number of drilling rigs operating in the state has dropped to four on May 4 from 22 at the end of 2019, according to the COGCC.
Notice for drilling new wells or hydrofracture wells, to release oil and gas from shale rocks, cut in half between March and April to a little more than 50 for each. In April 2019, there were 160 notices to be drilled and 186 notices.
The number of temporary wells abandoned was also 2,049 in April, an increase of 37% from April 2019.
But the decline in drilling actually poses less risk to public health and safety, the state regulator told the commission.
“Spills originate from flow lines and tanks,” said Mike Leonard, commission field operations manager. “If there are no products or less products moving through them there is less risk.”
Robbins said that despite the limitations created by the pandemic, commission staff continued to inspect the well.
Inspectors conducted 4,193 well checks in April and 4,685 inspections in March – up 45% from inspections in March and April 2019.
“There is nothing less noticeable today than the strict surveillance that took place before this pandemic,” Dan Haley, president of the Colorado Oil and Gas Association, a trade group, wrote in a statement to The Sun. “The industry adheres to these controls while taking appropriate safety precautions in the field to prevent coronavirus infections.”
Already registered? Enter here to hide these messages.
Leonard also made a difference between the various ways the operator stopped production. The well can be closed, which basically means shutting down the valve and leaving everything in place so that it can be quickly put back into production.
The operator temporarily leaves the well by removing the main equipment, making the well unable to produce. The well can also be drilled but not cracked, leaving it a hole in the ground.
For example, Extraction Oil and Gas Inc., one of the most active drillers on the Front Range, said in an earnings call with analysts Monday that they released a drilling and fracking crew and did not drill wells again until prices improved. The company also made a closure plan aimed at closing the most unproductive wells.
The wells that are the biggest concern for environmental groups and the community are wells that are completely abandoned. Most of these wells are plugged in, according to COGCC specifications, by operators who no longer use them.
The number of blockage operations in Colorado in March and April fell by around 18% to 485 compared to the same period in 2019.
Leonard said most of the blockage operations were focused on old vertical wells in areas where new horizontal flake wells were drilled. When new drilling fell, so did the clogging activity, he said.
One operator also turned off the plugging crew because its members tested positive for COVID-19, a disease caused by coronavirus, he said.
An even greater concern from environmental activists and community advocates is that wells can be left unplugged and abandoned, or orphaned, if the operator goes bankrupt or leaves the country.
There is 275 orphan wells and 422 related orphan well sites in the state and there is an annual budget of $ 5 million to deal with these sites, according to the COGCC annual orphan well report. The average cost to install a well is $ 82,500.
Even with next year’s budget reduction for this program, as part of efforts to reduce the country’s budget deficit, there will still be around $ 5 million to spend as a result of money rolling in from previous years, the COGCC said.
MORE: Colorado is the only state without funds for rainy days. Now coronavirus means paying the price.
Conservation Colorado, in a letter to the commission, noted that the US Energy Information Administration projects that 2020 will experience the largest year-on-year decline in global oil consumption since 1990. “This event will cause a wave of oil bankruptcy in America. the coming months, “the group warned.
Commission staff acknowledged that he did not have the capacity to monitor and identify operators who might be at risk. By the end of 2019 there were 42,153 active wells operating in Colorado and 421 operators – but only 40 drillers controlled 90% of the wells, Robbins said.
“COGCC does not have access to operator confidential financial information or fiduciary expertise needed to determine whether a solvent operator is bankrupt,” the staff said in the white paper.
Robbins said the commission depended on monthly production reports submitted by each operator to assess the status of their operations. The COGCC also tracks bankruptcy filings and press reports.
“COGCC is wise to re-examine the urgent problem of orphan wells in our country, the problem of millions of dollars that can only grow due to external economic pressures and poor financial and oil industry financial decisions before this public health crisis,” Kelly Nordini, executive director of Conservation Colorado, said in a statement. “Major polluters must be held accountable for the full costs of the impact of their business without leaving Coloradans.”
Already registered? Enter here to hide these messages.
The latest from The Sun