July was the hottest month in Earth’s history, largely due to human-caused global warming. Coloradans dealt with unhealthy air quality all month long as the state issued 14 ozone alert days during July. The Front Range regularly has some of the worst air quality in the country during the summer months because of the high density of vehicles, high temperatures, and oil and gas activity in the surrounding area.
The Colorado Times Recorder conducted a review of publicly available data from Colorado’s Energy & Carbon Management Commission (ECMC) about oil and gas activity in the state and found that of the nearly 50,000 oil and gas wells active in Colorado, 57.5% of them are over 15 years old, meaning that they produce less oil and gas and are at higher risk to leak methane and other harmful toxins.
Through June 2023, there are 227 companies that operate oil and gas well in Colorado. They own just over 49,000 wells, which are generally separated into five groups. Those groups, as defined by the ECMC, are:
- High-producing wells, which produce more than an average of 15 barrels of oil (BOE) equivalent per day over a 12-month period;
- Marginal wells, which produce fewer than 15 BOE are also called stripper wells, are near the end of their active life, and are — like many oil and gas companies — exempt from some state taxes;
- Low-producing wells, which produce fewer than 5 BOE and are considered “financially distressed” by the ECMC 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 the owner’s bankruptcy or refusal.
According to ECMC data, 46.7% of oil and gas wells in Colorado are marginal wells or worse, a concerning number for environmental activists in the state.
“[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 habitats, under farms, even overlooking the Colorado River.”
Last year, the Environmental Defense Fund conducted a study on small oil and gas wells in the U.S. and found that just over 500,000 low-producing wells produce just 6% of the nation’s oil and gas, yet drive over half of all wellsite methane pollution nationwide.
“Because methane is also the main component of natural gas, these emissions represent a major source of wasted energy,” according to the study. “The nation’s low-producing wells waste roughly $700M worth of gas annually — enough to meet the needs of every home in Pennsylvania.”
Along with environmental worries, 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.
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. Although in Colorado, the state is trying to address the problem of low-producing wells being sold and cleanup costs eventually being passed on to taxpayers.
In the oil and gas industry, it is now a business model for some operators to buy low-producing 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 companies are also not paying the plugging cost. This has happened in Colorado.
In late July, Colorado became the first state in the U.S. to make rules connecting air pollutant emissions to the amount of oil and gas produced by a company. The rules were praised by both the oil and gas industry and environmental groups, albeit cautiously. Groups want to see whether the rules are enforceable, much like they want to see the ECMC hold the industry accountable for well-shuffling old, leaky wells.
Yesterday, Chevron officially acquired oil and gas giant PDC Energy, creating the largest oil and gas business in Colorado. The top 25 oil and gas companies in terms of size produce 95% of the oil and gas in Colorado.