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A Colorado rule requires oil and gas companies to submit financial plans for how they'll pay for plugging and cleaning up oil and gas wells at the end of their productivity. This rule is intended to provide assurance that wells won't be orphaned and left as public health hazards, but an analysis shows that some plans won't cover the full cost.
This process stems from a 2019 Colorado law that mandates the Colorado Oil and Gas Conservation Commission prioritize public health. This includes ensuring that oil and gas companies clean up wells before abandoning them. The state is now increasing the amount of money companies need to put forward, often in the form of bonds, to pay for plugging and reclaiming their wells.
Colorado currently has around 50,000 unplugged oil and gas wells. Plugging and fully reclaiming a Colorado well costs an average of $92,710, suggesting companies are facing about $4.6 billion in future cleanup costs. By having companies submit plans to cover well plugging costs in the future, the commission seeks to ensure that the state and taxpayers don't bear the costs of orphaned wells. “If a company doesn’t have a viable plan to plug all its wells, it shouldn’t be doing business in Colorado,” said former state representative Mike Foote.
The analysis from Capital and Main found several companies' financial assurance plans would result in the company paying less than the full cost of plugging and reclaiming wells. The commission will review the financial assurance proposals in the coming months and will approve or deny the proposals, and it remains to be seen how strictly the commission will enforce the new rules and if it will allow for loopholes or exceptions.
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