Who gets the bill to plug oil wells? “If y’all want to give us $100 million, we’ll plug a lot of wells.” Christi Craddick, Texas Railroad Commission
Lobbyists always have a good excuse for not charging more for the privilege of extracting Texas’ oil andgas.
When oil prices goup, the industry says higher fees, bonds or taxes will kill the goose that lays the golden egg. When the inevitable bust comes, the industry demands concessions to stay in business and keep people employed. That’s also when the golden goose leaves behind a different kind of dropping.
Since oil andgas prices began sliding in 2014, more than 60 oil and gas companies have declared bankruptcy. Asa result, the number of abandoned, unplugged wells in Texas could soon reach 10,000, according to the Texas Railroad Commission, which regulates the industry.
Guess who could end up paying for plugging those wells and clearing away the old equipment? You, the taxpayer.
So far, no taxpayer money has been used to plug wells, but cash is running short. The Legislature decided in 2011 that the Railroad Commission should become self-funded by collecting fees from the industry, which worked well until drilling activity dropped, and so did revenues for the commission.
To help guarantee that oil field operators plug their wells, the Legislature required them to post bonds of about $2,500. And the commission also collects a few pennies from the tax on every barrel of oil for the “Oil and Gas Regulation and Cleanup Fund.”
In the idealized world in which Texas lobbyists live, those programs raise enough cash to cover the commission’s expenses to plug wells abandoned by bankrupt oil companies. But that’s not the
world welive in.
Last fiscal year, 94 oil companies abandoned 1,584 wells, thereby forfeiting about $4.3 million. That same year, the commission plugged 692 wells at a cost of $11.7 million.
“We need to have a serious conversation with the Legislature about how the Railroad Commission is going to be funded moving forward if we’re going to continue to have the financial resources we need to do our job,” David Porter, the commission’s chairman, told a legislative committee in March.
Land owners are understandably angry about unplugged wells that despoil their land. The wells are drilled through the fresh water table, where many communities obtain their drinking water, then go deeper, passing through mineral water saturated with sulfur and other noxious substances. Only then do they find the oil and gas reservoir.
The brackish water and residual oil and gas can work their way up the pipe to the surface if unplugged. The well’s pipe and cement casings also degrade, allowing whatever is in the pipe to leak into the drinking water. Abandoned wells caused 30 cases of groundwater contamination in Texas between 1993 and2008, according to the multistate Ground Water Protection Council.
In Pecos County, near Fort Stockton, brackish water mixed with oil and gas spew from old wellheads and have formed semipermanent pond sand lakes in the desert that reek of rotten eggs and kill everything within 30 feet.
Abandoned wells area normal part of an oil bust, Christi Craddick, the second of three commissioners, told lawmakers earlier this year. State Rep. Rafael Anchia, D-Dallas, asked her whether she or the other commissioners had asked the Legislature to raise the bonding requirement in light of the rising number of aban- doned wells and the growing cost of plugging them.
“That’s not been a priority for us at this point,” Craddick replied. But later she added, “If y’all want to give us $100 million, we’ll plug a lot of wells.”
Porter also had no problem asking the Legislature for cash. He now calls the Legislature’ s decision to make the Railroad Commission self-funding a mistake.
“I am familiar with agencies where self-funding makes sense, but I would argue that the Railroad Commission isnot one, ”he said. “The funding for these kinds of activities is lacking based onthe current revenue generated by fees paid by industry.”
Railroad commissioners, by the way, are elected. They are politicians whom you’ d think would care about taxpayers. But most of their campaign funds come from people in the oil andgas industry.
The Texas Sunset Commission, which reviews how well state agencies perform their duties, has recommended requiring larger bonds. Land owners want more wells plugged quicker. The industry, though, doesn’t see a problem and op poses any change to the status quo.
“TheLegislature’s recommendation to plug 875 wells in 2016 is adequately funded,” said Todd Staples, president of the Texas Oil & GasAssociation.
Oneindustry ally, Rep. Jim Keffer, R-Eastland, suggested that in light of low oil prices, the Legislature should actually cut taxes onoil producers, effectively shifting moreof the tax burden onto ordinary Texans.
“Theseverance tax, at this juncture, is real problematic for small producers,” he said. “We’re going to have to start looking at suspension, or a tiering (of the tax).”
This would not sound so insane if the Legislature had raised taxes andfees during the boom, but it didn’t.
What should also beobvious is the injustice of asking taxpayers to pay for cleaning upafor-profit company’s messor for its regulation.
Both proposals, though, demonstrate the oil andgas industry’s confidence that they don’t need to worry about right or wrongaslong as they’ve got friends on the commission and in the Legislature.