Adrian Hedden
Artesia Daily Press
ahedden@elritomedia.com

Abandoned oil and gas wells could cost New Mexico more than $200 million and take a decade to clean up, according to a report issued by state economists as lawmakers debate what to do about the problem.

Wells are typically abandoned by operators when they are no longer financially viable, as older wells generally produce less oil and gas. The environmental community fears the wells leach chemicals into the land and air, risking public health and the environment if not remediated.

To do that, operators pay into state bonds when wells are drilled – currently about $25,000 per well or up to $250,000 for “blanket bonds” to cover multiple wells in a tiered system depending on the number of wells owned by a company across New Mexico.

But that money does not usually cover the full expense, at current cost rates for construction and materials to plug the well, remove surface disturbance and remediate the land back to its natural state, read a June 24 report by the Legislative Finance Committee.

So, the state picks up the bill.

The report was presented to committee members during their June 24 interim meeting, held between legislative sessions for lawmakers to consider policies. The authors detailed how and why wells are abandoned and remediated, and suggested the industry should be held to higher financial requirements.

Stephanie Joyce, a committee program evaluator who presented the research, said the average cost to plug and remediate a single well was estimated at about $163,000.

“The state faces significant and growing financial liabilities for oil and gas well cleanup,” she said. “Wells aren’t built to last forever.”

Concerns were voiced by Jim Winchester, president of the Independent Petroleum Association of New Mexico – a trade group that represents smaller producers he said would be disproportionately impacted by the increased requirements for well-plugging.

“Industry has long been very concerned over plugging abandoned wells,” he said. “We recognize that problem and want to fix it.”

Winchester said the state’s Oil Reclamation Fund – created in the 1970s and funded by energy companies that pay into the fund for reclamation of abandoned sites – should be adequate when combined with current bonding rates.

He said the fund was “robbed” in the last 15 years by lawmakers to pay for other state expenses, meaning up to “a billion dollars” were taken away from well-plugging. Winchester admitted he had no hard data to back up his estimate.

“It is the Legislature that has swept these funds and allocated them elsewhere,” Winchester said. “That’s broken the trust with industry.”

Yet, New Mexico Commissioner of Public Lands Stephanie Garcia Richard said oil and gas companies must be held liable over state taxpayers for the cleanup.

She said the State Land Office Garcia Richard leads, managing operations on 13 million acres of State Trust lands, forced companies to plug 700 such wells since she took office in 2019.

“I think most companies are starting to take us seriously when we say they need to honor the terms of their leases and clean up after themselves,” she said.

How many abandoned wells are left?

The report estimated there were about 60,000 currently active wells that will need to be plugged in the future in New Mexico.

While operators typically plug their own wells, the report read, the state’s Oil and Gas Division was forced to plug about 1,000 abandoned wells in the last 20 years – about 5% of all wells plugged in the state during that time.

“However, the number of wells the division is authorized to plug has consistently outpaced its plugging efforts,” read the report.

As of the report’s release, the division – which functions as New Mexico’s lead compliance agency for the oil and gas industry – had gained the authority to plug 700 wells it found to be abandoned, but expected a future need to plug 1,400 more wells believed inactive.

Authority to plug a well is gained by the state when it determines the site is abandoned and issues a notice of violation. A hearing can be held and if the well is still in violation, and the operator does not plug it themselves, the state will take on the work.

About 3,000 wells in New Mexico were producing “extremely small quantities” of oil and gas, the report read, meaning they would likely need to be plugged soon.

The estimated cost of plugging just the currently identified abandoned wells was $208 million, the report read, rising to $468 million for the rest of the inactive wells and to more than $1 billion for those close to the end of their lifetime.

In total, the report estimated between $700 million and $1.6 billion to be New Mexico’s “current and near-future” liability. Federal grants could offset some of the expense, Joyce said, through the Infrastructure Investment and Jobs Act signed into law by former President Joe Biden in November 2021.

So far, New Mexico has gained $55 million through the act, she said, and is eligible for another $100 million in the coming years. The money helped the division plug some of the wells, Joyce said, but meanwhile the cost ballooned from about $30,000 in 2019 to the $163,000 reported recently.

Solutions or an ‘attack’ on industry?

To solve this purported dilemma, the report said lawmakers should clarify the definition of “abandoned” or “orphan” wells, assess higher financial assurances for low-producing wells, and allow the Division to block transfers of older, low-producing wells to smaller operators it believes are unlikely to meet the requirements.

Under the report’s other recommendations, which also called on the division to publish a monthly list of abandoned wells, a low producing well would be defined as one generating less than 750 barrels of oil equivalent (BOE) per year and the definition for inactive wells would be expanded to include those producing less than 180 BOE per year.

A barrel of oil equivalent is a unit of measurement that combines oil and natural gas. One BOE is a barrel of oil – about 42 gallons – or 6,000 cubic feet of gas.

Sen. Steven Lanier, (R-2) of Aztec, who represents an area located among the aging natural gas fields of the northwest San Juan Basin, said the report was “biased” and amounted to a false criticism of the state’s oil and gas industry.

It’s a business that produces about half of New Mexico’s budget each year and generated more than $13 billion in state and local revenue in fiscal year 2025, according to the New Mexico Oil and Gas Association.

Lanier said all that was under “attack” by the report and those who produced it, putting the state’s economy at risk.

“Fortunately, my colleagues and I recognized the source of this misleading report – self-serving ‘climate warriors’ once again trying to further their radical progressive policy goals without regard for the damage they would do to our state’s economy,” he said.

Managing Editor Adrian Hedden can be reached at 575-628-5516, or @AdrianHedden on the social media platform X.