Orphan wells news gillettenewsrecord.com ortega y gasset revolt of the masses

###

Since 2009, the number of producing wells in the PRB declined from upward of 18,000 in 2008 to 9,200 in October, according to data from the Wyoming Oil and Gas Conservation Commission. Production declined from 580 million thousand cubic feet in 2009 to 281 million thousand cubic feet in 2013.

The commission has been plugging orphaned wells using the money it collects through a conservation tax. Operators pay that tax based on production. Each year, the commission allocates about $2 million for plugging. But the commission can plug only so many wells per year. In the meantime, the discontent of landowners is growing.

Sales of natural gas production in 2012 totaled 2,004 trillion cubic feet. That’s down 6.94 percent from 2011, according to Wyoming Petroleum Association. That loss was offset by higher sales of crude oil, which totaled 57.3 million barrels, up 5.91 percent from 2011.

“But the thing that’s bad is those companies walked away from those wells and now the taxpayers are responsible for plugging those wells,” Coolidge said. “Much of the money that the oil and gas commission uses for plugging orphaned wells comes from the conservation tax that oil and gas producers pay, so it doesn’t come from the taxpayers.”

The Oil and Gas Commission is now targeting orphaned wells and will address wells that are idled. For idled wells, the Oil and Gas Commission uses the term “at risk,” which means that those wells aren’t fully bonded and the operator is at economic risk of being bankrupt or simply walking away.

“I hope they do plug them. I don’t want them to dump any more water on me,” Swartz said. “I’ve got water rights. I’ve got irrigation rights on that whole creek and it’s not for salt water, and that’s what they were dumping. These aren’t orphaned. There’s a company that is responsible.”

The largest concern with landowners in the Powder River Basin is that if the company walked away from its wells, it is not paying surface damages anymore, said Tom Roberts with Pluggin Along, a Gillette company that plugs orphaned wells. When a surface use agreement is negotiated, the operators negotiate with the landowners what they will pay them every year for using the land they plan to occupy.

“Typically, the majority of the wells are less than 1,000 feet. They started out shallow, less than 1,000 feet. And as they moved west and north, then the coal goes deeper, they have to dig deeper and the coal splits up. That’s why you start getting different wells,” Roberts said. “Of course, the deeper they are, the more expensive they are to plug, to an extent.”

“They are secure in a facility of sorts. Even a small child being near one those wells and falling into them is highly unlikely, physically,” Black said. “The second thing is that the wells in most cases have a water level in them that prevents the methane from escaping into the atmosphere. So they really don’t present the safety issue.”

“And it’s not just about the price they received for the gas. You have to deduct their cost to operate: They have to pay for electricity, they have to pay for personnel, there’s cost to actually operate the wells, which were deducted from the proceeds of the sale of the gas,” Black said.

“When the price of gas is low, those costs to operate are high. Then technically, they can lose the money so they will cease to produce the wells,” Black said. “And when you couple that with the produced water that is associated with coal-bed methane wells at least in the initial stages, that’s something they have to manage, and their costs are incurred there, as well.”

Mead’s plan seeks to address that. The plan will address the orphaned wells but also will look at bonding requirements to determine if the state needs to set higher bonding requirements to avoid that in the future. The governor’s plan also seeks to address the issue of the wells on federal land by cooperating and working with the BLM to facilitate the plugging of those wells.

Increased use of liquefied natural gas is one of the short-term initiatives that Mead’s office is now working on. It wouldn’t be for export purposes but as a substitute fuel for diesel in high-horse engines, such as haul trucks at the mine or locomotives.

There is a compelling economic case that it’s a lot cheaper to use liquefied natural gas in those vehicles than diesel: It can be $1-$1.15 per gallon less expensive than diesel for equivalent energy, said Rob Hurless, energy strategy adviser to Mead.

“It’s not a complex process. It’s just a matter of cooling it to about minus 262 to 265 degrees to turn it to a liquid,” Hurless said. “And then you’ve got to distribute it in that very cold form so it stays a liquid. So even though there’s a pretty compelling economic argument to do it, there’s still a lot of expense involved to doing it on a big scale.”

“By relatively low, I mean somewhere between $4 and $6 per thousand cubic feet and probably for like a decade,” Hurless said. “If you look forward to markets for natural gas, you will see natural gas didn’t go over $6 until December of 2022. So it is about 10 years.”

Coal-bed methane is the best feedstock for creating liquefied natural gas because it’s a fairly dry, clean gas, Hurless said. That means that manufacturers of LNG won’t have to spend so much time and energy to clean coal-bed methane up before converting it into LNG.

“A lot of that, too, I think, is the economics. You may have a certain number of wells there capable of producing small amounts of gas,” Black said. “None of these wells were really large producers, but the economics of even producing the gas, the costs incurred to produce it and then transforming it into LNG all have to be evaluated.

“Natural gas prices would have to get much higher and sustain higher prices before there’s any further coal-bed methane activity,” Coolidge said. “Most of the coal-bed methane was depleted in that first go-around. The reserves that remain are deeper. There’s more water associated with them, they are more expensive to produce.