In the past six years, 132 Texas oil and gas companies have filed for bankruptcy.
Many went under as the pandemic drove down demand for oil, causing the price of oil to temporarily plummet to historically low levels.
In general however, the industry is facing systemic decline with or without the pandemic, said Virginia Palacios, executive director of Commission Shift, a group that serves as a watchdog to the Railroad Commission of Texas, the state agency in charge of regulating oil & gas production.
“We’re seeing a lot less investment in new capital for oil and gas,” Palacios said, explaining that even though oil prices have increased, investors were not going gangbusters like in prior oil booms.
As these companies stumble, many either shut down their oil wells or abandon the equipment all together.
Railroad Commission data in 2020 listed more than 146,000 wells as inactive, and at least 6,200 were “orphaned” — wells with missing or bankrupt owners. Inactive and orphaned wells are supposed to be plugged by their owners, but since their owners are bankrupt or cannot be found, or are given exemptions by the Railroad Commission, the responsibility often falls to Texas taxpayers.
In 2022 and 2023, the commission aims to spend half of its budget, or $112 million, on well plugging and remediation.
Besides being an eyesore, these wells pose a serious threat to people and the environment. They could leak toxic materials into groundwater or emit methane into the air, an explosive gas that accelerates the climate crisis.
So far the commission has not been proactive about tackling the growing problem, an issue explained at length in a report recently released by Commission Shift examining potential solutions to the orphan well crisis. They include: increasing the scrutiny of drilling permits given to companies close to insolvency, ensuring operators pay the cost of decommissioning a well so that they don’t “dine and dash,” and repealing “pay to delay” exemptions given to companies that are dragging their feet on plugging a well.
The same issue comes up with the monitoring and enforcement of venting and flaring, or the controlled burning of gas that comes with extracting oil.
“Right now, the railroad commission technically has rules that limit venting and flaring, but we see them generously allowing exceptions to those rules, and so it makes the rules effectively meaningless,” Palacios said.
Part of the problem are the people running the commission itself.
In 2021, Commission Shift began publishing “Captive Agency,” a series of reports worked on with Texans for Public Justice that detail the conflict of interests present within the commission.
“We found that in their personal financial statements, some of the same companies they’ve made decisions about are companies that they have financial interests in,” Palacios said. “The commission has a recusal policy that requires them not to vote in situations like that, but they aren’t following it.”
Since commissioners are elected, oil & gas companies are also able to donate to their campaigns even as they await a decision in a contested case by the commission.
In one particularly brazen instance, Railroad Commission Chair Christi Craddick cast the deciding vote to not fine a pipeline company for a leak. The very same company had previously contributed $22,500 to her campaign, and Craddick herself owned tens of thousands of dollars of stock in the company.
Luke Warford, a Democratic nominee for Texas Railroad Commission, said the commission should have a plan put in place for the life cycle of new wells, including bearing the cost or funding a bond to cap wells and prevent them from being orphaned.
“There’s a lot of different joint insurance or joint funding mechanisms that the railroad commission could be exploring and that companies could have — if there was an agency there with a willingness to hold them accountable and take action on this issue,” Warford said.
Since failure to properly cap wells could lead to issues years or decades later on, it makes more sense, both environmentally and financially, to do it sooner rather than later.
“There’s huge job creation potential in capping orphan wells, there’s huge numbers of them across the state,” Warford said. “That’s a job for somebody to do that, and the commission is not capping them at the rate we want.”