The agency that regulates oil and gas development in Colorado is confident that the pandemic and industry downturn won’t result in any concerning threat to safety.
The Colorado Oil and Gas Conservation Commission addressed safety and environmental concerns in a report it issued Monday and in a special commission meeting the same day.
The report was in part a response to concerns raised in a letter last month by activist groups including the Western Colorado Alliance.
They worry that a rise in economically struggling companies could lead to a failure to comply with rules and resulting environmental impacts, and that with new state budget restraints the commission also could lack the resources it needs to properly regulate the industry.
The industry has been hit by low global oil prices resulting from less driving and economic activity during the pandemic, and a price war between Russia and Saudi Arabia.
The commission says in its new report that it “is organized such that the pandemic and industry downturn has not to this point and is not expected in the future to represent a significant impediment to safe operations.”
It says its inspection personnel continue to do their jobs despite the pandemic, as do its other personnel, and its regulatory structure ensures they “are able to continue their critical regulatory functions irrespective of what economic, social or health emergencies may exist.”
Among the current concerns is what threat may be posed by companies that temporarily shut down wells due to low prices or go further by temporarily plugging them, a possible step toward plugging and abandoning them for good.
“Colorado’s regulatory structure evolved in response to previous economic downturns and includes important well construction and monitoring requirements for drilled wells that are not producing oil or gas,” the report says.
Agency officials say such wells pose less of a threat than producing wells that can have problems such as leaks from tanks and flowlines.
One major concern surrounds the potential for companies being unable to afford to properly plug and abandon wells, which leaves it to the state to do that work and reclaim well sites. Bonding required of companies can cover some of that cost, and the commission’s orphan well program also is funded by a mill levy on oil and gas companies’ production, and revenues from penalties for rule violations.
Currently, the agency has 234 orphan wells and 458 associated sites it is working to address, including through funding that’s anticipated to be about $5 million a year.
“I think one of my greatest concerns is … the economics and if we start to see more orphan wells,” said Commissioner Brenda Haun, who expects to see those wells increase in number.
She is worried that the $5 million a year isn’t nearly enough. But commission Director Jeff Robbins doesn’t believe the state faces a looming safety threat related to orphan wells.
“I just want to quell the notion that this downturn equates to some sort of environmental issue with more orphan wells,” he told commissioners. “It’s just simply from my perspective not the case.”
Emily Hornback, executive director of the Western Colorado Alliance, said she appreciates the commission’s work responding to the concerns of her group and others.
“We’re also a little alarmed at how much information is still not known in terms of the financial health of some companies,” she said.
The commission doesn’t have access to a company’s financial information to know if it is in distress, but monitors bankruptcy filings, news reports and compliance with its rules for signs of problems.
Hornback worries about cleanup costs falling to taxpayers if it turns out that funding for orphan wells isn’t enough.
Several Western Slope oil and gas producers and industry trade associations in the state have written to the commission in an effort to assure it of their intentions to operate safely despite the ongoing challenges. Terra Energy Partners, a local natural gas producer, pointed to the improved price outlook for natural gas in coming months and said it remains financially strong, having laid off no staff due to COVID-19.
“Despite the perceived problems operators may be facing in this challenging economic period, we are committed to operating at the highest level to protect health, safety and welfare of the environment and community, while continuing to produce natural gas in western Colorado,” the company said in its letter.