A House bill that would funnel $8 billion toward cleaning up abandoned oil and gas wells nationwide and would increase drillers’ required bond insurance to cover the work made it out of committee Wednesday on a mostly party-line vote.
The House Natural Resources Committee voted 22-17 to send the bill sponsored by U.S. Rep. Teresa Leger Fernández, a New Mexico Democrat, to the floor, where it is sure to be hotly debated.
While both parties agreed that “orphaned” wells pose environmental and health hazards and should be fixed, they diverged sharply on making operators pay more money upfront on bonds to cover the cost of cleaning up messes they might leave behind, either through negligence or going out of business.
A few Republican committee members also objected to a provision to give states grant money to improve regulatory oversight of the derelict wells. They argued it would encourage states to create needless regulations to get funding.
But their attempts to amend the bill failed in a committee where Democrats outnumbered them, resulting in the bill passing with all the key provisions intact.
Leger Fernández pushed back against the criticisms. Orphaned wells are a widespread blight, including in New Mexico, she said, so it’s important to make sure operators will clean up after themselves to prevent the problem from escalating at taxpayers’ expense.
“The operator has a legal obligation to plug the wells, but because these bonds are too low, it’s too easy for them to walk away,” Leger Fernández told the committee. “If we allow a system to continue to go on, which creates these orphaned wells, we’re going to be in the same position five years from now.”
Orphaned wells can leak methane into the air and groundwater and create an explosive hazard. Many abandoned sites also have oil spills and other contaminants that can leach into the soil and water.
New Mexico has about 700 orphaned wells on record and countless idle wells at risk of being abandoned, Leger Fernández said. There are roughly 57,000 orphaned wells across the country.
Aside from raising bond requirements, the bill would earmark $8 billion in grants to clean up orphaned wells on federal, state, private and tribal lands across the nation. New Mexico would receive about $25 million for this purpose.
The work would generate about 120,000 jobs nationally, most of them “good-paying union jobs,” Leger Fernández said.
Leger Fernández noted that federal bond amounts have barely increased in the past 70 years, even though today’s wells often are deeper and more complex, making them costlier to clean up.
The bill would set a minimum bond of $150,000 on any oil or gas lease and $500,000 for a “blanket bond” that covers all wells in a lease or within a state. Larger companies operate hundreds of wells at a time.
In New Mexico, operators now pay $25,000 for one well plus $2 per foot of depth. Blanket bonds vary in cost depending on the number — from $50,000 for 10 or fewer to $250,000 for 100 or more.
But Rep. Yvette Herrell, a New Mexico Republican whose district includes the oil-rich Permian Basin, called the proposed higher bond rates overly burdensome and said they would punish all operators for “a few bad apples.”
“Increasing the bonding requirements would cause small producers to go out of business, creating more orphaned wells, and could result in existing wells being plugged,” Herrell said.
Bumping up the bond rates contradicts Leger Fernández’s claim that the bill will create jobs when it will drive some companies under, Herrell said.
Herrell said a true bipartisan effort to address orphaned wells is a bill co-sponsored by New Mexico Sen. Ben Ray Luján and Republican Sen. Kevin Cramer of North Dakota.
It would provide $4.7 billion for well cleanup, most of it for state and private lands, and it contains no new requirements for operators.
Herrell proposed an amendment to strip Leger Fernández’s bill of the new bonding levels, but the attempt was voted down.
Leger Fernández argued that operators who can’t afford to pay the bonds are on shaky financial ground and are likely to leave behind orphaned wells.
She pointed to a study commissioned by New Mexico’s State Land Office that estimated potential cleanup costs of wells at $8.3 billion, with current bonds totaling just $200 million.
State regulators and industry representatives have called the worst-case cleanup figure into question. But Leger Fernández contends it clearly shows the current system for bonding is inadequate.
Republican Rep. Garret Graves of Louisiana said only a fraction of oil wells end up abandoned, so there’s no need to impose more bonding costs on producers, he said.
“This is a solution looking for a problem,” Graves said.
A recent study by the New Mexico Tax Research Institute estimated the oil and gas industry put $3 billion into the state’s coffers in 2019, Graves said.
“Did you use any of this [money] to address orphaned or abandoned wells?” Graves said.
Montana Rep. Matt Rosendale, another Republican, bashed the provision to give states money to improve regulatory programs for oil and gas wells.
“Unfortunately, some Democrats on this committee believe in the failed Biden approach that defines regulatory improvement as imposing crushing new regulations on our traditional energy industries,” Rosendale said.
It includes incentives to create strict caps on methane emissions and bans on venting and flaring to go along with new bonding requirements, Rosendale said.
But Rep. Alan Lowenthal, a California Democrat, said it simply would offer federal grants to states for boosting oversight that prevents abandoned wells.
“These grants will encourage positive state actions that lead to fewer orphaned wells and less pollution,” Lowenthal said.
Leger Fernández said the legislation is partly aimed at combating climate change by plugging wells that emit methane, a greenhouse gas that’s 28 to 36 times more potent in trapping heat than carbon dioxide is, she said.
New Mexico has developed some of the strongest methane regulations in the country, she said.
“And if a major oil and gas producer like New Mexico can clamp down on methane pollution, then any state can,” Leger Fernández said.