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Oklahoma Forced to Divert Well Plugging Funds, Unveiling New Quake Plan Monday

Lawmakers in the Oklahoma House of Representatives unanimously passed a bill to extend the Oklahoma Corporation Commission's (OCC) program to plug abandoned oil and gas wells for another five years, but budget cuts and lower tax revenues from oil and gas are forcing the commission to divert well-plugging funds for other uses.

Meanwhile, the OCC's Oil and Gas Conservation Division (OGCD) announced Friday that it was in the final stages of completing a new regional plan to address earthquake activity in central Oklahoma. Full details of the plan are to be unveiled on Monday.

HB 2303 calls for extending the termination date of the OCC's Well Plugging Fund, as well as certain oil- and gas-related excise taxes, by five years -- from July 1, 2016, to July 1, 2021. The bill stipulates that the fund should optimally have $5 million, and the excise taxes are to kick in if it falls below that level. Approximately 82.6% of the excise tax revenue will be directed to the state's general fund, while more than 10.5% will go toward the Well Plugging Fund and about 6.8% will be allocated to the Interstate Oil Compact Fund of Oklahoma.

The bill passed the House Appropriations and Budget Natural Resources and Regulatory Services Subcommittee by a 9-0 vote on Feb. 8. It passed the House Appropriations and Budget Committee, 25-0, on Feb. 17, before passing the full House by a 94-0 vote on Feb. 29. The bill was engrossed, signed and sent to the state Senate. It had its first reading in that chamber on March 1.

OCC spokesman Matt Skinner told NGI's Shale Daily that the Well Plugging Fund's current balance is about $3.1 million. Of that, the commission "has about $1.9 million to spend on well plugging and gas seep issues; the rest will be spent on operations due to the budget legislation passed last year." Skinner added that there is about $3.8 million encumbered against those funds in the FY2015-16 budget: $2.6 million for well plugging and $1.2 million for general oil and gas operations. About $840,000 in revenue is built into the budget, which is why the amount encumbered is more than the actual cash balance.

Skinner said the OCC must maintain a funding reserve to plug abandoned wells classified as Category 1, or those wells which "pose an imminent threat to health and human safety and need immediate plugging." Since the plugging is considered an emergency, the OCC is not required to follow state bidding rules. But the costs can be expensive -- some can cost as much as $200,000. Skinner said the OCC plugged five Category 1 abandoned wells last year.

According to the OCC's annual report for FY2014, the most recent available, the OGCD issued a total of 758 contracts that year to plug 206 abandoned wells at a cost of about $1.05 million. Another 537 wells had pending plugging contracts with an estimated cost of $5.06 million.

The OGCD said the new regional earthquake plan it will unveil on Monday will be similar to the one it implemented for the western part of the state on Feb. 16 (see Shale DailyFeb. 17). Under that plan, the OGCD ordered wastewater injection volumes to be reduced by nearly 500,000 b/d, which equates to a reduction of about 40%.

In a statement Friday, the OGCD said the new plan "will encompass an area of over 5,000 square miles and includes more than 400 Arbuckle disposal wells. The plan includes dozens of communities, including Edmond, Luther, Perry, Stillwater, and Pawnee."

The OGCD began ordering operators to either shut down wells or curtail intake volumes at injection wells in March 2015, shortly before scientists with the Oklahoma Geological Survey (OGS) attributed the increase in seismic activity to injection wells targeting the Arbuckle Formation, which closely overlies the crystalline basement (see Shale Daily, April 22, 2015; April 2, 2015). The OGS said the disposal of extremely salty water -- a byproduct of oil and gas production, not the mostly freshwater used for hydraulic fracturing (fracking) -- is responsible for the quakes (see Shale Daily, Jan. 5).

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