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Louisiana Falling Short in Well Inspections, Audit Finds

The Louisiana regulator charged with overseeing oil and gas well operations in the state and managing its population of "orphaned" wells is falling short in several areas, according to a new report by the Louisiana Legislative Auditor (LLA), which recommended new/increased producer fees to improve well inspection practices.

The Louisiana Department of Natural Resources' Office of Conservation (OC) is charged with making sure that operators comply with state regulations. It also manages orphaned oil and gas wells; these are wells for which no responsible operator can be located or the operator has failed to maintain the well in accordance with state regulations.

"Overall, we found that OC has not always effectively regulated oil and gas wells..." LLA said in its report. For instance, OC regulations do not require all operators to provide financial security on their wells. Such security can be used by the state to plug a well if it becomes abandoned.

"Currently, 25% of all current oil and gas wells are required to be covered by financial security," LLA said. "Of the 716 wells that have been orphaned since the financial security requirements became effective, 397 (55%) were exempt from financial security pursuant to regulations."

When financial security is provided, it often is not in sufficient amounts, LLA said. This can create an incentive for operators to abandon wells rather than plug them as the forfeiture of the security can result in less cost than what would be required to plug the well, LLA said.

OC inspections of wells are tardy or sometimes not conducted at all, LLA found. At least 53% of 50,960 oil and gas wells from fiscal 2008 through 2013 were inspected late, and 25% were not inspected at all during the period, the report said.

Violations are not addressed in a consistent or timely manner and did not always conduct reinspections when violations were found, according to LLA. "We found approximately $471,000 in penalties that were not assessed in fiscal years 2011 and 2012," the agency said.

Further, OC does not effectively identify inactive wells, and when it does find them, it doesn't consistently plug them within 90 days as required by state regulations. And regulations are not sufficient for determining what wells remain in "future utility status," and this delays the plugging of wells that should be plugged, LLA said. "We identified 5,239 (46.5%) of 11,269 wells in future utility status that have been in that status for over 10 years," LLA said. Because of this, the population of orphaned wells could grow, it warned.

As for plugging orphaned wells, OC has focused on "urgent and high-priority" wells. But the increased cost of addressing these wells has meant that fewer wells are plugged per year, LLA said, adding that 177 wells were plugged in fiscal 2010 and only 42 in fiscal 2013.

Further, OC is not keeping up with inspections of orphaned wells, and $1.5 million in financial security from operators is going unused because OC is awaiting a legal interpretation on how to transfer the funds, LLA said.

"Increasing production fees and identifying other sources of funds, such as permit fees, civil penalties, and inactive well fees would help generate additional funding to help reduce the current population of orphaned wells," LLA said.

As it goes in the Pelican State, so it goes at the national level. Last month the Bureau of Land Management, in addressing criticism of the agency's well inspection efforts by the Government Accountability Office (see Shale DailyMay 12), said a funding shortfall keeps it from inspecting all of the wells that it should (see Shale DailyMay 15).

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