North Dakota’s pre-COVID problem with abandoned and orphaned wells was a manageable one, North Dakota Department of Mineral Resources Director Lynn Helms said, but it’s post-COVID problems were not.
At the beginning of the year in January, there was one problem well the state plugged, and no orphan wells at all.
“In a two-month time period, we went from zero orphan wells to almost 400,” Helms told the Williston Herald in response to comments from the North West Land Owners Association questioning the state’s handling of its abandoned and orphan well problems.
Helms said his department sent about 140 letters to operators with wells sitting in abandoned status, to require the owners to move wells off blanket bonds to single-well bonds, which the state can do after a well has been in abandoned status for six months.
The single-well bonds are to cover the complete cost of plugging and reclaiming the well, Helms added, as determined by a five-year average of costs to plug and reclaim other wells in the state.
“I don’t know where (NWLA President Troy Coon’s) number comes from,” Helms said. “But our number is based on history.”
Helms said the state has plugged from one to four orphan wells each year for the past year.
The last one, in January, which Helms said had serious problems, came in at $82,000 for plugging. It will cost at least an additional $75,000 for reclamation, for a total of at least $157,000 in costs.
Helms said a robust economy has kept most of the state’s abandoned wells from becoming orphans. Even in the 2016-17 downturn, not many wells hit orphaned status, Helms said.
Abandoned wells are those which have not produced in paying quantities for a year or more, while orphaned wells are those where operators can’t get a bond to cover the cost of plugging and reclaiming the well, and no longer have the capital or ability to do it themselves.
Helms said as companies were calling bonding companies to comply with the state’s demand to obtain single well bonds for all the abandoned wells, bonding companies were in many cases not even answering the phones to say no.
“The bonding companies were saying no to everything, if they did answer the phone or responded at all,” Helms said.
The situation has prompted some changes to the rules, Helms said.
Starting April 1 of this year, the bonding requirements for saltwater disposal and abandoned wells have doubled, and all abandoned wells being transferred to new operators must have a single well bond.
“No one going forward, starting April 1 of this year, can acquire an abandoned well without posting a full plugging and reclamation bond,” Helms said.
Blanket well bonds are also now restricted to six liability wells. At one point, Helms said an operator in the state had 50 or so abandoned wells on one blanket bond. That is no longer allowed.
“It is completely inaccurate to say we didn’t follow through with our promises on bonding,” Helms said. “That is nonsense.”
As far as the 100 or so Cobra wells mentioned in NWLA’s written testimony, Helms said the letter referenced in the testimony was just the suggestion of the company’s attorney, and not necessarily the opinion of the Industrial Commission.
“That’s not the likely outcome of the hearing,” Helms added.
He is preparing a proposed order in the case that he will be presenting in one week at the next NDIC meeting.
“This is private property, so you do have to afford these people due process,” Helms said.
The Cobra wells, Helms added, landed in North Dakota’s lap by order of a bankruptcy judge in Delaware.
‘Played the hand’
“We have played the hand that was dealt to us,” he said. “Enduro Operating went bankrupt, and Cobra was awarded the wells by a judge in Delaware. So before we approved the paperwork transferring them, we doubled the bonding requirements and those are all in place.”
In January of 2019, the commission issued orders increasing the bonding from $300,000 to $1.4 million.
“That’s almost a five-fold increase,” Helms said, adding, “What is frustrating to us is we didn’t hear a word from (NWLA) when we were hearing those cases or processing any of that information.”
Helms agreed with Coons that the plugging process would be incomplete without reclamation. That is why the Department of Mineral Resources plans to request an additional $33 million or so for reclamation. Helms had not requested the funds yet, giving state officials more time to parse its needs for CARES Act funding.
“We think that will be enough (for both plugging and reclamation of these wells) based on historical information,” Helms said.
The point about using tax payer money for an obligation that rightfully belongs to the company is a question that Helms said was already answered when the companies found they could not obtain single-well bonds.
“There’s no cash flow because oil prices are minus one and minus 40, and the bonding companies are not answering the phone or saying no,” Helms said, referring to a situation in April when May futures sold for negative amounts.
The problem was caused by speculators, who found themselves holding contracts for delivery of thousands of barrels of oil with no way to store it themselves. They had to pay others who could take delivery to take the contracts.
Helms said the state has essentially two options at this point to deal with this COVID-19 induced problem. It can either use its CARES Act funding to plug these orphaned wells and keep a labor force going in North Dakota, or it can wait until a distant point in the future, when perhaps recovery changes things substantially enough that the state won’t need to spend all of the existing $26 million in its fund for plugging and reclaiming abandoned or orphaned wells.
Helms said the plan the Bakken Restart Task Force put together will employ about 550 people for six months for plugging. If the second request for $33 million Helms plans to make is approved, an additional 600 will be employed for about the same period of time for reclamation.
Plugging the wells with CARES Act funds has the additional benefit of keeping workers working, Helms said.
“That is really what this is all about,” he said. “We have a skilled workforce, whose Paycheck Protection Program money is expiring or will soon, and we have the opportunity to keep them working on something that benefits everyone.”
Helms said each of the wells on the list for confiscation for the Bakken Restart was selected based on when the wells last produced, what rate they produced at, and whether it is economically feasible to ever return them to economic production.
“You could dream,” Helms said. “Some of the testimony we got said this well will be economic when oil gets back to $118 per barrel.”
Another said the well would be economic at $145 — but neither of those seem realistic, Helms added.
“That was sort of the reality check we did,” he said. “Is that oil price achievable in the foreseeable future?”
Helms said the state took testimony from 35 or so interested parties at the confiscation hearing on Wednesday, June 10. Dozens of written comments were also submitted, all of which are being parsed.
Helms said in some cases, just the threat of confiscation motivated operators to post single well bonds and promise to deal with the problem within the next year. Others suggested they just need a little more time to get the bond.
Then there was another category, which surprised Helms. A group that asked to be added to the list, because the businesses already know they won’t ever produce the wells again, don’t have any cash flow, and likely cannot get bonds.
Helms said the state will look at which wells have other sources of funding besides federal tax dollars, but will have to prioritize and do the rest with CARES Act money first, since there is an expiration date of Dec. 30 for spending the funding.
Using CARES Act funding will solve a problem and keep workforce in North Dakota, Helms said. It’s a glass half-full approach, versus what Helms characterized as Coons’ “glass half-empty” approach.
“We were disappointed,” Helms added, “at the lack of concern for all the unemployed oil and gas workers who were never mentioned anywhere in (NWLA) comments. Those are friends and neighbors of the Northwest landowners.”
Editor's note: This story has been updated to reflect that the orphaned well plugged by the state in January will cost $88,000 for plugging alone. Reclamation will be an additional cost, likely around at least $75,000, according to a spokesperson with the Department of Mineral Resources.