Although it would be easier for oil and natural gas operators to look for new resources, the Texas Railroad Commission has no intention of reducing the financial assurance bonding requirements for offshore wells, a state commissioner said Tuesday.
Commissioner Michael L. Williams, who had introduced the well plugging measure in 2002, urged the commission to stand firm on any attempts by industry to weaken the rules. His comments came after the commission denied the applications by Boss Exploration & Production Services and Capco Offshore Inc. to reduce the requirements.
“It is incumbent upon the commission to act as an environmental steward of all our resources while encouraging responsible oil and gas production,” said Williams. “The waters of Texas bays and the Gulf of Mexico are an invaluable natural resource for our state. Requiring adequate financial assurance for well plugging is essential to protecting this resource.”
Since financial assurance has been phased into effect over the past three years, the commission has collected on nine bonds and 28 letters of credit for a total of $2.034 million. The money is placed in the Oilfield Cleanup Fund, which is to plug or cleanup the related wells and sites.
Williams noted that “regrettably, in most instances the bond amounts established by the legislature and collected by the commission have been less than the plugging and cleanup liability left behind causing the state to use additional funds from the Oilfield Cleanup Fund.” In those cases, the commission pursues legal action against the responsible parties.
“Financial assurance is certainly meeting with success,” said Williams. “But the disparity we have observed between coverage and liability makes weakening the requirements unthinkable. The safeguard financial assurance provides to Texas’ land, water and people is immeasurable and must be maintained.”
The 2001 Texas legislature passed a universal bonding requirement to be phased in over three years, so that by September 2004 every oil and gas producer had to have a bond or letter of credit covering the business. The plan also requires financial assurance when low-producing wells are transferred between operators, a practice that Williams believes is a red flag that a well may be ready for plugging.
The 2003 legislature passed additional measures for bonding bay and offshore wells, which are typically more expensive to plug than onshore wells.
The desired intent of the requirements is that fewer wells will be added to the state’s inventory of orphan wells. Last year was the first time in several years that the number of orphan wells decreased, with the orphan well population declining to 15,500 from 18,500. This year, orphan wells so far have declined to 15,082.
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