With 10,000 abandoned wells, Texas faces a $165 million price tag to seal them off

DALLAS – With dozens of oil and gas companies in bankruptcy, states face millions of dollars in costs to clean up abandoned wells, officials say.

Texas, the largest producing state in the nation, will need $165 million to seal more than 10,000 orphaned wells, The Associated Press reported Sunday. That cost is double the annual budget of the Railroad Commission that regulates the industry in Texas.

While Wyoming and Louisiana are raising drilling fees to cover the remedial costs, Oklahoma is shifting funds between agencies to cover the costs after lawmakers recently reduced a $1.1 billion budget shortfall.

Since 1994, Oklahoma has spent $100 million to restore 15,000 orphaned and abandoned well sites. The Oklahoma Energy Resources Board says it restores two to three sites per day.

Budget cuts to the Oklahoma Corporation Commission have led to fewer well-plugging contracts, according to The AP. Nearly $400,000 in emergency funding that Oklahoma Gov. Mary Fallin sought for the agency this year was used instead for technology upgrades and earthquake monitoring.

To cope with the growing costs of capping an estimated 3,000 wells Louisiana last year began requiring producers to put up a new bond of $7 for every foot drilled. After drillers objected, Louisiana's Office of Conservation in April suspended the new bonding requirement until August.

Since oil prices began falling from their mid-2014 peak of more than $100 per barrel, U.S. rig counts have fallen to historic lows, as 60 oil producers declared bankruptcy. With prices rebounding to near $50 per barrel, Texas has recently added rigs, according to the services firm Baker-Hughes.

The number of orphaned wells in Texas could climb to 12,000, which would be nearly 25% more than what regulators say they can handle.

Oil and gas industry execs say stiffer regulation would put them out of business faster.

"These landowners are chained to a corpse," Trey Scott, a managing partner of Trinity Mineral Management, told the AP. With the state facing an average cost of $17,000 per well, Scott said, "If you have those wells, your chances of getting them plugged are slim to none."

Trinity Mineral Management represents landowners who own thousands of acres in the Texas oil patch.

A Stanford University study indicated that the U.S. has about 3 million abandoned wells. Researchers at Princeton University reported that testing in Pennsylvania showed that the abandoned wells are leaking "substantial quantities of methane."

Texas Comptroller Glenn Hegar predicted that a third of oil producers in Texas will go bankrupt this summer.

While the cleanup costs create a new challenge, Texas caught a break from what could have been a budget busting claim on sales tax revenue. The Texas Supreme Court last week rejected a claim from manufacturers of oil and gas equipment that they were exempt from the state's sales taxes.

The lead plaintiff Southwest Royalties Inc. sought refunds of sales taxes paid for casing, tubing and other equipment that could have exceeded $1 billion.

Justice Phil Johnson, delivering the opinion, said Southwest Royalties had sought the refund on the basis that the equipment was used in or during the extraction of oil, gas and other hydrocarbons from underground reservoirs. Lawyers for Texas argued successfully that Southwest Royalties, an exploration company, is not a manufacturer.

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