A photo of an orphaned oil well in St. Martin Parish taken in 2010. (Louisiana Department of Natural Resources)
For decades, Louisiana regulators and legislators have made it easy for oilfield operators to abandon their oilfield equipment and walk away from their duty to plug oil and gas wells and clean up the sites upon their departure.
Louisiana hunters, fishers, and boaters know these abandoned, “orphan” oilfield sites all too well. The rusty tanks and waste pits are eyesores that insult our state’s “Sportsman’s Paradise” banner and threaten our water. While other states protect their natural beauty by requiring proper cleanup, Louisiana’s governmental neglect is converting the state into a wasteland of former industrial sites.
The recent East Baton Rouge Sheriff’s Office raid on an assistant commissioner in the Louisiana Office of Conservation highlights alleged corruption in manipulating public funds for private interest. Those public funds were intended to clean up oilfield sites.
No one should be surprised. For decades the state has mismanaged public funds earmarked for oilfield site cleanup, warped law and policy to benefit out-of-state operators at the expense of Louisiana operators, and built into law conflicts of interest that will continue to worsen to “orphan” well problem.
A recent Louisiana Legislative Auditor report shows serious problems at Louisiana’s Department of Energy and Natural Resources (DENR). It noted that the Office of Conservation does not even bother to consistently require operators to pay annual fees, that inactive wells can remain unplugged indefinitely, that not all wells are required to have financial security, and that the average financial security per well was only $3,248 despite that the average cost to plug a well is $113,449.
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The audit noted a host of other serious problems, and it did not even look at two of the biggest: the Oilfield Site Restoration Commission’s conflicts of interest and the Office of Conservation’s failure to require perfectly viable operators to clean up sites they are legally bound to clean up.
First, the state Oilfield Site Restoration Commission is charged with oversight of public funds used to clean up “orphan” wells. The commission should be composed of independent experts, but instead it contains appointees from oil and gas lobbyists who have an inherent conflict of interest.
Unsurprisingly, public funds are directed at sites in which powerful operators should instead be using their own private funds to clean up messes they themselves made. Oil and gas lobbyists should not have any power over public funds used in relation to those lobbyists’ clients. In recent years, two commissioners have resigned in protest.
Second, the Office of Conservation has authority to demand that former operators plug deserted wells and clean up sites but chooses not to use it. These former operators – often big, out-of-state corporations – were the first to operate an oilfield site before they sold their interests down the food chain to smaller, local operators. Importantly, these former operators remain legally bound to restore the sites, even after transferring operations to a new operator.
To paraphrase Navy Admiral Hyman Rickover, “Responsibility is a unique concept. … You may share it with others, but your portion is not diminished.”
It is the former oilfield operators who typically made the most money off wells and who typically caused the most damage at a site, operating in an early era with fewer technological safeguards. But, curiously, the Office of Conservation focuses its enforcement power against only the most recent operator. In contrast to former operators, who are often big, out-of-state operators, the recent operators are often relatively small, Louisiana “mom-and-pop” oil and gas companies.
The focus on recent operators is bad policy because it favors big oil and gas companies and unfairly shifts the burden onto Louisiana’s small and independent oil and gas operators. There is nothing stopping the commissioner right now from issuing orders to each of these orphan well’s former operators and working interest owners.
There is also nothing stopping the commissioner right now from using the rulemaking authority to fix the problem. The law and regulations improperly exempt wells from financial security, maintain artificially low financial security amounts while allowing operators to dilute financial security in other ways, allow companies causing the problem to benefit from it and impede DENR from pursuing those who should pay to plug wells. Working interest owners are responsible to plug wells, too, but DENR does not even bother to maintain lists of working interest ownership.
The commissioner could also issue a rule that no public funds be used to clean up a mess where there are viable former operators and working interest owners.
If the economic cost of reform were high, the Louisiana Legislature’s hesitancy would be understandable. But unlike a lot of problems facing our state, the solution to the abandoned oilfield problem is actually good for Louisiana’s economy. Contrary to oil and gas lobbyist hysterics, it would actually be good for the Louisiana economy and good for Louisiana oil and gas workers if we make big Texas oil companies take some of those big Texas corporate dollars they earned off Louisiana, and reinvest that money into Louisiana contractors, to hire Louisiana workers, to clean up Louisiana oilfield sites that those Texas companies walked away from.
A recent study from True Transition, by Greg Cumpton and Megan Milliken Biven, noted that Louisiana lost over 20,000 oil and gas jobs in the past 10 years, and that plugging the wells would create between 20,429 and 49,138 direct job years.
Creating Louisiana jobs with Texas money is a good thing. Texas has long used profits earned off Louisiana to build entire neighborhoods of gaudy mansions in Houston suburbs. Those Texas oil and gas companies are often the biggest players in the industry, and are best positioned to fix the problems that they caused and which they are already bound by law to fix. It’s past time for Louisiana regulators to strictly enforce the law.
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