In Slumping Energy States, Plugging Abandoned Wells Could Provide an Economic Boost
In Slumping Energy States, Plugging Abandoned Wells Could Provide an Economic Boost
By Erika Bolstad, Stateline, an initiative of The Pew Charitable Trusts, September 23, 2020
Also available for republishing is a 3-minute video made by Erika Bolstad
WATFORD CITY, N.D. — It's rare for Tom Brooks to say no to work. Which is why, in the middle of a pandemic and a worldwide slump in oil prices, Brooks mustered up a crew to plug a 42-year-old oil well for the state of North Dakota.
“We fought our way through the slow times and didn't shut the doors,” Brooks said one afternoon this summer as he drove his pickup toward the well in question, tucked amid tan buttes in the scenic grasslands near the Montana state line. “We didn't plan it that way. We were just too stupid to quit.”
Now, what's helping keep Brooks and other oilfield service companies in business — just barely — is North Dakota’s $66 million stimulus program to plug 239 abandoned oil wells and to reclaim 2,000 acres of land, including those damaged by past oil and brine spills.
States with an inventory of abandoned wells have long clamored for federal funding to help with such cleanups, but North Dakota may be the only one to devote pandemic relief money to plugging them. The state is spending a portion of its $1.25 billion in federal CARES Act funding to speed up its existing cleanup program.
Abandoned wells can contaminate groundwater, emit volatile compounds hazardous to human health and the environment, and leak methane that contributes to climate change. Spills can contaminate farmland, of particular concern in North Dakota, where the first producing oil well was drilled in a wheat field.
Old wells and contaminated sites “represent a serious threat to the environment, the public health and safety,” Lynn Helms, the director of the North Dakota Department of Mineral Resources, told the U.S. House Natural Resources Committee this summer.
Not everyone in the state is thrilled the governor and legislature chose to use CARES Act money to plug wells.
North Dakota was not a coronavirus hot spot in the early days of the pandemic, but cases have spiked in recent weeks, particularly in counties with large universities. Cases grew 22% since Labor Day, and North Dakota leads the nation in per capita positive tests.
The state has not mandated mask use in workplaces, and their use in the oil fields is almost nonexistent. Dr. Deborah Birx, the Coronavirus Response Coordinator for the White House, visited in late August and urged more widespread mask use. “It's important for us to wear masks to protect each other,” she said.
There’s also irritation that taxpayers are on the hook for the cleanup, not the oil companies that caused the mess. “Using coronavirus relief aid to plug abandoned oil wells is questionable,” the Bismarck Tribune wrote in an editorial. “The responsibility for restoring abandoned well sites should lie with the companies that own them.”
But North Dakota officials tout the well-capping effort as an economic relief program that keeps as many as 600 experienced oilfield workers employed during a downturn. State officials also say it will ensure there are skilled workers available for the oil and gas industry during the post-pandemic economic recovery.
It may be an optimistic goal. More than 10,000 North Dakota oil and gas workers have lost jobs during the pandemic, as demand for oil plummeted and a price war between Russia and Saudi Arabia sent oil prices into historic negative territory. Work to cap wells is temporary and spread out among multiple small operators who may have only a few days’ work on each site. The work is expected to last only about four months in North Dakota, where it is impossible to do land reclamation in the winter.
Once the work is complete, the industry faces a difficult future, as does North Dakota’s budget. The oil and gas industry contributes to more than 72,000 jobs and was forecast to bring in 57% of all revenue collected by the state before the pandemic. Jeremy Jackson, an economist and director of the Center for the Study of Public Choice and Private Enterprise at North Dakota State University, warned in August that signs point toward “a bleak picture for the coming months in North Dakota.”
Other states that depend on oil and gas for state budget operations also face dire prospects.
In New Mexico in 2019, for example, oil and gas revenues contributed more than 45% to the state’s budget. Low oil prices mean that more operators might walk away from wells with meager production — or abandon them entirely, wrote Adrienne Sandoval, the director of the oil conservation division of New Mexico’s Energy, Minerals and Natural Resources Department. New Mexico already plugs approximately 50 wells per year using taxes paid by the oil and gas industry.
“Acting now would put hundreds of oil and gas employees back to work, protect our environment, and boost local economies,” Sandoval said in an op-ed urging Congress to appropriate more money toward plugging old wells.
The need nationwide is great. The Interstate Oil and Gas Compact Commission identified 56,600 documented orphan wells in 30 states, according to a report updated this year. Orphan wells, where the owner can’t be found or the company doesn't have the assets to plug a well and clean up the site, often sit abandoned for decades.
Most states and the federal government have laws in place that require oil companies to plug wells and reclaim land when they're done extracting oil and gas. They’re required to post a bond, and the company forfeits the money if it abandons the well and the state confiscates it. But regulators say those bonds, particularly on federal wells, are not high enough to cover the cost of reclamation. It costs from $3,700 to $97,626 to plug wells, depending on their complexity and age.
The number of abandoned wells in North Dakota was manageable when oil prices were above $50 a barrel, said Helms of the state department of mineral resources. Operators had enough money to bring wells into compliance at those prices. Now many of them don’t and may not in the future.
“If they’re not maintained, they risk losing integrity,” Helms said of the wells. “They can lead to environmental contamination. And of course, restoring the environment after oil and gas production is done is the right thing to do.”
Across the country, there are tens of thousands more undocumented orphan oil wells, often from early oil booms more than a century ago when there was little or no environmental oversight.
Pennsylvania, the birthplace of the American petroleum industry, may have more than 100,000 undocumented orphan oil wells. California has an estimated 35,000 idle wells, according to an investigation earlier this year by the Los Angeles Times and the Center for Public Integrity. Half of those wells stopped producing oil or gas more than a decade ago. In North Dakota, more than 70% of the wells on the list to be plugged and reclaimed were drilled before 1985.
“This should've been done years ago,” said Scott Skokos, executive director of the Dakota Resources Council, which promotes the sustainable use of the state's natural resources and its family-owned and operated agriculture. “Some of these wells have been abandoned since the 70s.”
Unlikely Allies
Spending federal money on well-capping programs tends to draw support from unlikely allies. State governments get additional cleanup resources. Oil companies see the programs as a way out of a regulatory problem — although their reckless management may be why the well was abandoned. And environmental leaders see the programs as an effective way of addressing lingering contamination, while providing jobs in sectors transitioning away from carbon-based fuels.
In Canada, the federal government announced plans this spring to spend $1.7 billion cleaning up orphan and inactive wells in Alberta, Saskatchewan and British Columbia. The Canadian plan estimates it would employ 10,000 workers. Like in the United States, the effort is seen as an environmental program that supports oil industry workers idled by the pandemic and low prices.
“There are hundreds of thousands, if not millions, of abandoned oil and gas wells out there that could be plugged,” said Daniel Raimi, a researcher at Resources for the Future, an environmental think tank. “States and the federal government have not brought down that backlog. You could employ people for a pretty long time if you really wanted to.”
There are plenty of people in North Dakota who want the work, said Ron Ness, president of the North Dakota Petroleum Council.
“Our phone rings all the time,” Ness said. “We get emails all the time. ‘How do we find out more about this program?’ They're all so hungry for work.”
A Truck and a Dream
Brooks is one of thousands of workers who arrived in North Dakota a decade ago to escape the Great Recession — he bought a $7,500 mechanic's truck and built Tiger Well Services, which he co-owns with his wife, Kelly, and another couple. This is his eighth downturn since he got his start in the Wyoming oil fields in the early 1980s.
It was on his first job that Brooks learned that plugging wells could be a valuable skill during downturns. Now, it makes up most of his business. “Plugging is your savior,” he said.
Tiger laid off about half of its 80 employees when the pandemic hit and prices crashed. The company temporarily idled all seven of its workover rigs, the scaffolding equipment used to service oil wells. The company stayed afloat with a loan from the federal Paycheck Protection Program, even as many of its competitors went under when oil prices crashed this spring.
“Anybody who says they've been through this before, they're lying,” Brooks said. “Nobody thought oil could go into negative numbers.”
The well he was plugging that day, known officially as Federal 3-32X, was southwest of the town of Watford City, just 10 miles from the Montana border in the Little Missouri National Grasslands overseen by the federal Bureau of Land Management. Its location meant both state and federal inspectors were on hand to make sure it was capped properly. The 9.572-foot deep well, drilled in 1978, produced 221,587 barrels of oil in its lifetime, according to state records.
Like most of the wells in this round of reclamation, 3-32X is a conventional well. It descends vertically into the earth, unlike more modern, fracked wells that descend thousands of feet vertically and then travel horizontally through deeper rock formations.
Brooks chuckled when he learned the state assigned him 3-32X with his bid. It was a coincidence, but he had worked on the well before for its last operator, a defunct Idaho company known as Alturas Energy.
Brooks was brought on by the company in 2012 to determine why the well wasn't producing. The company determined it would be too costly to make repairs that would return to production. Alturas went under before Brooks ever got paid for the work. Alturas ran into other problems in North Dakota: In 2015, the state fined the company $900,000 for spills.
Tiger bid $14,650 for each day's work to plug the well and estimated it would take seven days and cost $102,550.
Two days after Tiger's crew plugged the well with cement, welders went out to complete the work, while a separate trucking crew cleaned out storage tanks at the site. The state will sell off some salvageable equipment, such as pumps and storage tanks.
With a backhoe, Nathaniel McGuire quickly dug up the earth around the wellhead. Using a blowtorch, he cut off the wellhead. His partner on the job, Freddy Magana, attached it to the backhoe shovel with a chain, and then lifted it up out of the shallow pit and hauled it away. Then, McGuire welded a steel monument plate on top of the capped well, with the name of the well and its file number, just in case anyone ever digs it up. He took a picture of it and texted it to Brooks, before covering the sealed off well with dirt.
Eventually, a separate reclamation crew will restore the land and haul away the gravel for the road leading to the well. North Dakota has a special mix of native prairie grasses that can be planted on former well sites; one landowner on another site told Brooks they wanted the gravel to remain so they could park farm equipment there.
“The main thing is we get them plugged right,” Brooks said. “That well's coming back on me if it isn't plugged right.”
