Nearly all of Colorado’s oil and gas companies own nonproductive, unprofitable oil wells, which leak climate-change-causing pollutants, because it’s cheaper than plugging and retiring them, say environmentalists.
And 43% of oil and gas operators in Colorado don’t own a single profitable well.
“[Oil and gas operators] save boatloads of money every time they hang an ‘out of service’ sign on a well instead of plugging it,” says Kate Merlin, an attorney for the Climate and Energy Program at WildEarth Guardians, an environmental advocacy organization based in Wheat Ridge. “They’ll say anything to get out of paying. They’ll say, ‘There’s no problem.’ They’ll promise to be good, they’ll say we’re killing them. But this entire state is littered with thousands of rusting and leaking wells, in suburban backyards, in wildlife habitat, under farms, even overlooking the Colorado River.”
There are 312 oil and gas well operators in Colorado that own nearly 52,000 wells, which are generally separated into five groups.
Those groups, as defined by the Colorado Oil and Gas Conservation Commission (COGCC) are:
- High-producing wells, which produce more than an average of 15 barrels of oil (BOE) equivalent per day over a 12-month period;
- Stripper wells, which produce fewer than 15 BOE are also called marginal wells, are near the end of their active life, and are exempt from state severance taxes;
- Low-producing wells, which produce fewer than 5 BOE and are considered “financially distressed” by the COGCC because their operating cost is greater than the revenue they bring in;
- Uneconomic wells, which produce fewer than 1 BOE, are virtually unable to generate revenue, and are also called inactive wells;
- And orphaned wells, which are wells that produce no oil or gas but have not been plugged or cleaned up due to owner’s bankruptcy or refusal.
Visit the COGCC website for a more specific breakdown of the different types of oil and gas wells in Colorado. The data in this article was compiled by the Colorado Times Recorder through an analysis of the COGCC Colorado Oil and Gas Information System database.
According to COGCC data, just 29% of the 52,000 wells in Colorado are high-producing. The rest (71%) are stripper wells, low-producing wells, or uneconomic (also known as inactive).
Of Colorado’s 312 operators, 98% own at least one well that is uneconomic, while 43% own exclusively uneconomic wells.
The concern with uneconomic wells is that they are the closest to the end of their lifespan when the well must be plugged and the well site cleaned up. Plugging and clean-up costs, on average, $92,000. If the company that owns the well goes bankrupt and orphans the well, the state must pay to plug it. Carbon Tracker, an independent financial think tank, estimates that oil and gas wells in Colorado are an $8 billion liability to taxpayers.
In addition to the financial issues involved, stripper, low-producing, uneconomic, and orphaned, even when not producing much oil, still leak methane into the air and toxic chemicals into groundwater sources.
Currently, oil and gas well producers are not incentivized to plug their wells because it is more expensive to plug them than it is to keep the wells open or, in some cases, sell the well to a desperate operator.
In the oil and gas industry, it is now a business model for some operators to buy stripper, low-producing, and uneconomic wells, sometimes en masse. While these operators are normally small and occasionally designed to go out of business, some companies have found it to be profitable to cheaply buy up dying wells, 100s at a time, from larger operators who don’t want to pay to plug them. The catch: these bloated, beached whales are also not paying the plugging cost.
An example of this practice in Colorado is Denver-based operator KP Kauffman Company, which has a sordid history of COGCC and air-quality violations, including one incident when a well owned by KP Kauffman leaked onto the street in front of a high school.
In the last five years, KP Kauffman also purchased 250 low-producing and uneconomic wells, often from larger companies. In the process, KP Kauffman has turned into one of Colorado’s larger well operators. But of the 1,221 wells it operates, 65% are uneconomic.
To put that number into context, two of Colorado’s largest owners of uneconomic wells, Noble Energy and Kerr McGee, have 42% and 35%, respectively, of their well portfolios classified as uneconomic. Noble and Kerr McGee combine to own nearly 6,000 uneconomic wells across the state, but at least some of their wells are high-producing.
Wolverine Resources, a small Wyoming oil and gas operator, owns 27 wells in Colorado, none of which have produced any oil or gas since July 2019.
Colorado environmental groups are hoping that new COGCC financial assurance rules will force operators to pay fees up-front for plugging wells to avoid bankruptcy catastrophes.
But activists also hope that the COGCC will disincentivize the act of shuffling dying wells to smaller companies that are at greater risk of going bankrupt. These rules are expected to be voted on by the end of February.
In addition to data from the COGCC Colorado Oil and Gas Information System database, data from DrillingEdge, an oil and gas database, and O&G Accountability Colorado, a coalition of seven Colorado environmental groups, was used for this article.