Band-aid on a gunshot wound

January 9, 2014

Colorado, oil and gas drilling

Orphaned wellhead in Wyoming's Powder River Basin

Orphaned wellhead in Wyoming’s Powder River Basin

Remember the leaky old well discovered near Debeque last month? Then as you recall the leak turned into a gusher that has been producing the equivalent of one disposal tanker truck (100 barrels, or 4,200 gallons) of fracking fluid for several weeks.

The leaky old well belongs to Maralex Resources, and as it turns out the COGCC and the BLM knew all too well about the problems with Maralex’s old wells months before the latest leak was discovered on December 14. Funny how that never came up in the previous two articles in The Daily Sentinel.

Leaking well, company draw state’s notice [FREE to nonsubscribers]

A state inspector last March determined Maralex Resources was in violation of a requirement for mechanical integrity testing for an oil and gas well where a leak was discovered Dec. 14 southwest of De Beque.

In addition, the Colorado Oil and Gas Conservation Commission in October fined Maralex $50,000 after finding the company had failed to comply with the same requirement in the case of nine other wells in Mesa and Garfield counties.

Also, the Bureau of Land Management says it has required the company to repair about 20 wells with small gas leaks over recent years in western Colorado.

Maralex’s history of problems concerns Commissioner Rich Alward of Grand Junction, who does oil and gas reclamation consulting work. He says Maralex’s problems go even further and he sees them firsthand.

“They’ve got a number of well pads with failed reclamation and that are poorly maintained, they have old equipment lying on their well pads, and that (observation) is from my actual being on the ground, seeing the weed cover, lack of reclamation, lack of revegetation,” he said.

He said that most of the time when he’s working on another project in the field, “I can identify a Maralex (well) pad from a mile away.”

Gas and fluids were discovered leaking around the problem Maralex well on federal land on Jaw Ridge about seven miles southwest of De Beque. It was drilled in 1981 and was shut shortly thereafter but remained capable of production. Authorities are investigating whether the recent hydraulic fracturing of a horizontal Black Hills Exploration & Production well that passed an estimated 400 feet within the Maralex well underground may have triggered the leak.

Some fluids initially ran off the pad, but the BLM says no surface waters appear to have been impacted. The well was opened and flow is being diverted to a containment pit, and work has been ongoing to permanently plug the well based on a BLM order. So far, two, 200-foot plugs have been installed that have isolated the Dakota sandstone target production zone of the well. A plug in the above-lying Mancos shale formation, which the Black Hills well was targeting a part of, probably will be installed today.

The well has leaked thousands of gallons …

Please note the BLM says “no surface waters appear to have been impacted.” However you can be certain that soil and groundwater have been contaminated. Good for the pug mill business, right?

Reclamation is a huge problem that western states are just beginning to grapple with. As the gas boom recedes and small operators go out of business or move to wetter plays they leave behind a costly mess. Across the west, more than 100,000 abandoned oil and gas wells which were developed before modern environmental laws fester like open sores seeping fluids into surrounding soil and groundwater. The public assumes that the oil & gas companies are responsible for the costs of reclamation. But it doesn’t quite work that way. More often than not, the taxpayers foot the bill for plugging abandoned wells and site reclamation.

Wyoming May Act to Plug Abandoned Wells as Natural Gas Boom Ends

Reclamation is a relatively new concept for the oil & gas industry. Prior to 2005, reclamation was either an afterthought or neglected altogether by the industry. Oil & gas operators didn’t take reclamation seriously until 2007, when the BLM revised their Gold Book (Surface Operating Standards for Oil and Gas Exploration and Development) to reflect updated rules and regulations for reclamation. From then on, reclamation teams were established to plan and expedite well site inspections and enforcement. However those teams are spread pretty thin. The Colorado River Valley Field Office in Silt covers the area from Glenwood Springs to Grand Junction.

According to the Gold Book, companies that own leases to drill on public lands are required to post a $10,000 bond (per lease, not per well) to cover reclamation costs in case the company goes bankrupt, or for some reason fails to pay for reclamation work. But it costs around twice that much — about $20,000 on average — to actually reclaim a well, and there can be more than one well on the same lease.

The bonding system works like this: A company with leases throughout a particular state has to post a minimum $25,000 bond, and a company that operates nationwide posts at least a $150,000 bond, which covers all of its wells. How much a company’s bond is depends on a variety of factors, including how many wells it has and where it operates. In Colorado, EnCana Oil and Gas has 3,652 wells, but its statewide bond is $235,000, which amounts to about $64 a well.

For companies that hold leases on wells drilled on private lands, each state has its own bonding regulations. These are the bond requirements according to the Colorado Oil and Gas Conservation Commission, Rules and Regulations, 1 May 2013:

Single-well bond amount: Varies by depth: $10,000-$20,000.

Blanket bond amount: Varies by number of wells: $60,000-$100,000.

Types of financial assurance accepted: Surety bond, guarantee of performance, general liability insurance, or an escrow account or sinking fund.

Conditions for release of bond: Bonds are released when “the Director determines an operator has complied with the statutory obligation.” (Such obligations relate to compliance with regulatory orders and proper restoration of land affected by oil and gas drilling.)

Conditions for forfeiture of bond: “Whenever an operator fails to fulfill any statutory obligation described herein, and the Commission undertakes to expend funds to remedy the situation.”

Other costs subject to financial assurance: Surface damage: $2,000 per-well for non-irrigated land; $5,000 per-well for irrigated land; $25,000 statewide. “Excess inactive wells” require bonds of $10,000 for each inactive well of less than 3,000 feet and $20,000 for each inactive well greater than or equal to 3,000 feet.

Liability insurance requirements: $1,000,000 in general liability coverage.

Loopholes or exemptions: An operator may seek a “variance” from the financial assurance requirements. Must be granted by the Director or Commission. Applicant must show a good faith effort to comply or an inability to comply.

With the cost to plug and reclaim one orphaned well site estimated between $19,000 and $75,000, it’s plain to see that the financial assurance bonds come up far short of covering the costs of reclamation.

By 2005, the Colorado Oil & Gas Conservation Commission had spent more than $400,000 to plug an orphan gas well in LaPlata County. However their efforts were unsuccessful and the failure to plug the well led to an explosion. [Page 19]

On February 12, 2005, Charles Yoakum turned on his stove. All four walls of his trailer blew apart and the roof blew into the air. An orphan gas well, located about 250 feet from Yoakum’s trailer, is the likely source of methane that fueled the [explosion]. The orphan well has a long history of leaking methane and fouling the groundwater in the Bondad area of La Plata County. In 1994, the Colorado Oil and Gas Conservation Commission (COGCC) spent $200,000 trying to plug the well. After the explosion, the COGCC pledged to spend $200,000 more to identify the exact location of the well and of another orphan well in the area, and identify any abandoned pipelines, utility corridors, or other potential conduits for gas migration.

In 2005, Jim Kuipers authored the study, Filling the Gaps: How to Improve Oil and Gas Reclamation and Reduce Taxpayer Liability. The study which was funded by the Western Organization of Resource Councils (WORC) found that in five case studies, bonds fell short every time, to the tune of $120,000 to $6.8 million.

Kuipers is a former mining engineer who has worked as a consultant for environmental groups. “They’re not putting the land back together — they’re putting a Band-Aid on a gunshot wound,” he said. “The major players may be doing some good reclamation, but most wells are drilled by small operators, and the majority are doing a very shoddy job.”

For more information:

2013 report from Environment America Research & Policy Center
Who Pays the Cost of Fracking? Weak Bonding Rules for Oil and Gas Drilling Leave the Public at Risk

reclamation gas wells

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