ALBUQUERQUE, N.M. (AP) — As New Mexico’s oil and gas industry struggles with lower prices and slowing production brought on by the coronavirus pandemic, some members of Congress and state officials are urging the U.S. Interior Department to allow operators to temporarily plugs wells until prices stabilize.
U.S. Rep. Xochitl Torres Small’s district includes part of the Permian Basin, one of the most prolific production areas in the U.S. The New Mexico Democrat is among those who have asked for more federal money to plug abandoned wells on state and tribal land.
“The consequences have been devastating for local economies across southeastern New Mexico," Torres Small said of the downturn in demand. "Providing oil and gas operators the flexibility to temporarily shut in their wells will help meet needs where current guidance falls short.”
She and other supporters say implementing a policy for plugging wells would benefit oil and gas workers, the environment and the economy. She pointed to New Mexico's dependence on the industry for more than one-third of its budget and the jobs that are associated with the oilfield.
State labor officials estimate about 4,100 oilfield workers had filed for unemployment as of May 5, as companies cut operations and left the state.
While the industry is starting to rebound, Torres Small said there's still a long way to go and that the proposed federal rule making could provide regulatory certainty for operators and reduce the administrative obstacles to ceasing operations of oil and gas wells.
“With BLM (Bureau of Land Management) leases, there’s a lot of red tape. It was unclear if they could temporarily shut in a well or stop production,” Torres Small said. “We already have a supply glut. This will give them that clarity.”
The move would mirror an effort by the New Mexico State Land Office to allow for shut-ins on state land. State officials have said shut-in wells would still be inspected for leaks and excessive emissions.
Relief that supports the temporary plugging of wells has the backing of the New Mexico Oil and Gas Association.
“We know producers are actively looking at their portfolios and determining what is economic and what is not,” said Robert McEntyre, the group's spokesman. “The coronavirus pandemic has clearly had an impact on demand not just in New Mexico, but around the world. That means the market will continue to reflect that decrease in demand and the abundance of oil and gas.”
Officials with the state Oil Conservation Division support the idea of creating a new federal fund to give oil and gas workers jobs plugging abandoned or orphaned oil and natural gas wells. There are more than 700 such wells in New Mexico, and the estimated cost to plug all of them is around $24 million.
Adrienne Sandoval, director of the Oil Conservation Division, said federal money to expand the state well plugging program could support 100 jobs, with additional jobs for complete site remediation.
“The work could start tomorrow,” she said during a recent hearing of the U.S. House Natural Resources Committee.
When wells are no longer productive, operators fill the wells with cement, dirt and plugs to prevent contamination of soil, water and air. If a company goes bankrupt, the state steps in.
New Mexico uses contractors to plug about 50 wells a year. The program is funded by about $2 million in financial assurance from operators, $1 million each year from the federal Bureau of Land Management, and a reclamation fund fueled by taxes on operators.
The state’s share may be in jeopardy during the pandemic as operators limit oil production. Sandoval said active rigs have dropped from 113 in January to 66 in May.
“Operators face tough economic decisions,” she said. “With limited capital and the possibility of bankruptcy, the oil and gas operators may not be able to plug wells and reclaim (sites).”