Abandoned oil, gas well being plugged in New Mexico via federal funds
Hundreds of abandoned oil and gas wells in New Mexico will soon be plugged after a company said it contracted with the state using federal funds provided in the infrastructure bill signed last year by President Joe Biden.
Delaware-based NextMart, which has oil and gas industry service operations in the Permian Basin of southeast New Mexico, planned to initially plug 100 wells in New Mexico, along 500 each in Texas and Oklahoma.
Last year, New Mexico’s Oil Conservation Division (OCD) – an arm of the Energy, Minerals and Natural Resources Department (EMNRD), reported there were about 1,700 abandoned wells, known as “orphaned” in industry terms, throughout the state.
Orphaned wells are abandoned by oil and gas companies when they are no longer profitable.
Bonding requires companies pay into a remediation fund when a well is drilled can help pay for some of the remediation costs, but that amount is often inadequate and state agencies pay the difference.
The OCD said it typically has funding to plug about 50 wells a year, but that number could increase after New Mexico was expected to receive $25 million for the work from the federal government through the Infrastructure Investment and Jobs Act after a bill sponsored by U.S. Sen. Ben Ray Lujan was attached.
Records show the New Mexico Legislature appropriated $3.5 million for orphaned well reclamation in the last year, and reported the agency struggled in the second quarter of 2022, per the latest report, as abandoned wells were found in worse shape than normal.
The added time, costs and inflation brought the full cost of plugging a well and remediating the land up to an average of $70,500 per well, according to the Legislative Finance Committee’s second quarter agency report card for EMRND.
“Program staff report the recent well sites have been in worse than usual condition with defective casing and casing collapses causing additional rig time and cementing to properly remediate the wells,” the report read.
NexMart estimated it would spend $3,000 to $5,000 per well on plugging alone, with payments for the work ranging from $20,000 to $40,000, meaning the company could gain up to $20 million in revenue for the work in all three states.
Chief Executive Officer Oscar Maldonado said the company developed its well-plugging plans over the past several months and announced official contracts with the states Sept. 9.
He said some of the wells the company identified as orphaned went unplugged for “over 100 years,” and the work to mitigate the problem will be a main revenue driver for the company.
“The profit margin on the capping of what is commonly referred to as ‘orphan wells’ is extremely profitable and the amount of these types of abandoned wells in the State of Oklahoma, Texas, and New Mexico will take years to complete,” he said.
“As long as we continue to properly fulfill our contracts with each state, we will continue to get new contracts to do the same on an ongoing basis.”
Nationwide, the federal government said there were up to 129,000 abandoned wells on state and private land, and earmarked $4.7 billion for the work across the country – providing it to states who can then use the money to contract with companies like NextMart.
The initial round of federal funds, about $560 million of the $1.15 billion first phase, went to 24 states, targeting 10,000 abandoned wells.
Another $33 million was set aside to plug 277 wells on federal land, per the U.S. Department of the Interior.
New Mexico had the 15th-most abandoned wells identified for funding in the initial allocation with 200, records show.
Kansas had the most, per the DOI, with 2,352 wells in need of remediation, followed by Kentucky with up to 1,200 orphaned wells and Oklahoma with 1,196 wells.
Texas had 800 wells targeted for remediation in the initial funding, records show.
“At the Department of the Interior, we are working on multiple fronts to clean up these sites as quickly as we can by investing in efforts on federal lands and partnering with states and Tribes to leave no community behind,” said Interior Secretary Deb Haaland.
Lujan said his Reviving Economic Growth and Reclaim Orphaned Wells (REGROW) Act was instrumental in gaining the funding he said would not only help reduce pollution but increase jobs in the energy sector as the work takes place.
“Cleaning up orphaned oil and gas wells will protect our environment and public health while putting New Mexicans back to work,” he said in a statement.
Adrian Hedden can be reached at 575-628-5516, firstname.lastname@example.org or @AdrianHedden on Twitter.