David House, OEPA Legislative Chairman

Each legislative session brings a new set of opportunities for OEPA to be a proponent of sound public policy for the citizens and the State of Oklahoma. This has always been our founding principle, we are here to support the small vertical producers of Oklahoma in a way that is beneficial to the State and her citizens.

We face a new challenge this year, the mispreception that every non producing well is somehow a liability that must be plugged as soon as possible. In fact, nothing could be further from the truth. Non-producing wells are often, in fact mostly, inactive assets waiting to be brought back on line by the correct intersection of economics and technology. When these two factors are in alignment, oil and gas production will flow from these wells, positively impacting the State, royalty owners, schools and producers, create jobs and put cash circulating in local economies. We only capture up to 40% of the reserves in the ground via initial production, leaving up to 60% to be captured via secondary or tertiary production. The reserves remaining after primary production do not justify drilling a new well, and must be produced through existing well bores.

This misperception has been pushed in part by the Environmental Defense Fund to make legislators believe that every well in America must be plugged. Of course EDF is much smarter than saying that out loud. The first thing they did is get President Biden to allocate millions $$ to states to plug wells orphaned by unscrupulous operators. As you know, if Uncle Sam is handing out money, most every state grabs for that money. EDF was also key in getting the trade of carbon credits for plugging wells into the thinking of corporate America.

Depending on who you listen to there are between 16,000 and 20,000 unplugged “orphaned oil wells” in OK. These have accumulated over the last 75 plus years as operators went bankrupt and more recently by unscrupulous operators that packaged up non producing and low producing wells into packages, and sold them, or in some cases perhaps paid unscrupulous characters to take over the wells. The new owners would strip the wells of pumping units, tanks, etc. then declare bankruptcy and leave the State with the problem. We understand it will be difficult to bring a lot of these orphaned wells back on line, and support the efforts this year to create adequate plugging funds to address this problem. However there are many nonproducing well bores on producing leases that have substantial opportunity to be a producing asset in the future and should not be forced to be plugged as long as they are not an environmental hazard, which the vast majority are not.

The Legislature tried to pass a bill last year to increase Surety requirements. We essentially and perhaps in error killed the bill. But the reality of the situation is no increase in Surety will ever entirely solve this problem. Chairman Boles is running his surety bill again this year. We have agreed to be supportive because our members that use financial statements for surety are grandfathered in his bill.

Our Board has approved a number of solutions that actually address the problem. The first and perhaps the most important is we have to stop the growing list of orphaned wells. The solution arises in the OCC. They must approve all transfers of oil and gas properties. In the past they have essentially approved all transfers, regardless of the financial capability or standings of the buying company. There are a number of forces working on this at the OCC. Senator Green has and is meeting with them to end the problem. One of our members, Lee Levinson, is talking to the OCC regarding the issue. I believe at the end of the day, the OCC will agree to taking a real look at the situation, or there will be legislation demanding them to do so. So that is the first foundation of our plan, stop growing the problem. In other words, an entity buying a package of properties must document financial wherewithal to care for or produce well bores and have a clean record at the OCC. The alternative is that the Seller remains jointly and severely liable for plugging wells that are not producing in the package of wells being sold.

There have been a number of ideas promoted, some of which have made it to legislation, others which may be added later. Chairman Boles is taking on some of the ideas, Chairman Green is taking on most of the others.

One idea is to provide a gross production tax (GPT) credit to the extent of capital expended to bring a shut in well back on line. Another idea in the same vein is to give producers the ability to evaluate the likely workover potential for wells on the Orphaned Well list without taking the responsibility to plug the well.

Switching areas, we are seeking an opt out for all of our members from the tax levied for OERB and SOER. In reality it is just for OERB. There is general agreement to ditch SOER, the only remaining question is how to spend their $6 Million fund balance.

OEPA historically pursued greater input in selecting the Board members for OERB. We have pushed to be named in statute as one of the naming organizations for members, asking for six board spots, etc. All of this is a non-starter for the Alliance, and frankly getting the opt out is of greater financial importance to our members. The trade off of dropping this request in return for the opt out is a better economic solution for OEPA members.

The most dangerous idea that has not only sprouted, but taken root, is that there must be a date certain by which a well must be put on production or plugged. Our members have a greater percentage of non producing wells than the major producers have. This is because buying non producing wells and putting them back on line over time is a business model for many of our members. So if one of our members has 100 well bores, it would not be unusual for half of them to be currently non producing. Under current law, there is nothing that says the well must be plugged, as long as there is a producing well on the lease. So it would be very common for one of our members to have a lease that has one producing and several non producing wells on the lease. The business model is when economics and technology cross at the right place, this well will be put back on production.

Suddenly, public opinion, national press etc. has turned against this idea. Wells should either be a producing asset or be plugged. As you can imagine, if your business plan of 20 years was suddenly declared against the public interest almost overnight, it is a huge negative deal for our members. We have tried to say often and loud, that non producing wells are not liabilities, but assets, however our position is increasingly falling on deaf ears. Our number one task this year is to dispel the belief that just because a well is non producing, it is a liability. In reality, it is an asset whose time has just not yet come. Since there have been more than one bill filed that demands all non producing wells be plugged, we are pushing for at least 15 years from the date of enactment to plug or produce wells.

One of the most critical components of the plan is to access the Petroleum Excise Tax for up to $20,000,000 a year to be used for plugging orphaned wells. I think this will be well received, but will need our help to get across the finish line. It will go a long way toward meeting public demand to plug the orphaned wells. The OCC will administer this fund under the current proposed law. Charles Teacle, our very capable Regulatory Chairman, is monitoring everything at the OCC and relevant rules at the EPA. He will be monitoring how this money is being spent if the bill becomes law.

Again our goal is good public policy. We can say with accuracy and with good policy, there are thousands of non producing wells that will one day be producing assets to the benefit of all. We do it all the time, we just need the freedom to do it on our own time.