OEPA Legislative Update

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During the last legislative session, small business energy producers in Oklahoma faced significant challenges, including legislation aimed at increasing operational costs. A key focus of this legislation was on plugging orphaned and inactive wells. One bill passed the House, signaling the seriousness of these efforts.

Through collaboration with the House author, we successfully delayed these initiatives by committing to address the issues surrounding orphaned wells, inactive wells on producing leases, and fraudulent transfers of well properties. Over the past months, we have invested countless hours and held multiple meetings to develop meaningful and practical solutions to these concerns, which have accumulated over the last 50 years.

Key Challenges

  1. Orphaned Wells: The Oklahoma Corporation Commission (OCC) has identified 18,000 orphaned wells that need plugging. The current state plugging fund, funded by the petroleum excise tax, is insufficient to address this issue.
  2. Idle Wells: Many unplugged but inactive wells are not immediate liabilities. Instead, they are potential future assets that could be returned to production with improved technology, higher prices, or new operators.
  3. Fraudulent Transfers: Some entities transfer well properties without any intent to produce, stripping equipment and leaving the state responsible for plugging costs.

Proposed Solutions

Addressing Orphaned Wells

The state plugging fund is inadequate to manage the 18,000 orphaned wells identified by the OCC. At an average cost of $34,000 per well, it would take over 100 years to plug all the wells with current funding levels. To address this:

  • Amend the mandate of the Oklahoma Energy Resources Board (OERB) to allocate half of its collected funds (approximately $12–14 million annually) to a plugging fund administered by the OERB and accessible to the OCC to plug the wells.
  • Use these funds to leverage federal matching programs, with the goal of plugging orphaned wells within 20 years.

Preventing Inactive Wells from Becoming Orphaned

We propose a 15-year timeline for producers to plug or produce inactive wells on otherwise producing leases, with a 5-year extension available upon OCC approval. Additionally:

  • Introduce tax credits (capped at $10–15 million annually) for reactivating inactive wells, with a minimum three-year production requirement.
  • Allow testing of orphaned wells without assuming liability to encourage their return to production.

Eliminating Fraudulent Transfers

To prevent entities from acquiring wells solely to strip assets and avoid plugging responsibilities:

  • Empower the OCC to determine if a property transfer is bona fide before releasing the current operator from liability.
  • Hold the current operator responsible for plugging until the transfer is verified.

These measures target the small percentage of fraudulent actors (approximately 5%) without imposing undue burdens on the 95% of legitimate small business operators who fulfill their obligations.

Rationale

The over 3,000 small business energy producers in Oklahoma play a critical role in revitalizing idle assets and generating revenue for mineral owners, local schools, county roads, and the state’s general fund. Idle and orphaned wells are often future assets that can provide economic benefits when conditions improve.

Our proposals aim to address these issues in a practical, cost-effective manner that balances environmental responsibilities with the economic realities of our industry. We believe these steps are preferable to costly, burdensome mandates that could harm small business operators and, by extension, Oklahoma’s economy.

We are also proposing an opt-out provision from paying in the assessment to the OERB and SOER. That should offset most of any additional cost anyone might incur. Of course that will be optional. In the event a producer or Royalty Owner wanted to not pay the OERB assessment we are asking that the statute to be modified so that the interest owner can notify the tax commission and the first purchaser that they are not subject to the OERB assessment much like nonprofits do now when they notify them that they are not required to Pay gross production tax.

Thank you for your continued support as we work to represent your interests and preserve the future of energy production in Oklahoma.

 

Tom McCasland

Chairman and CEO, Mack Energy

Chairman, Oklahoma Energy Producers Alliance