Oklahoma has more than 17,000 unplugged wells. This legislative bill could help change that

Efforts by Oklahoma's Legislature to plug a financial liability related to oil and gas wells orphaned by their operators is halfway home.

On Wednesday, the Senate unanimously approved SB1368, authored by Sen. Zack Taylor, R-Seminole, sending the measure to the House for action. 

The bill would substantially increase surety requirements for well operators, basing those on numbers of wells each has within the state at the time. Increasing the funds available through surety bonds could help the state's efforts to plug orphaned wells.

Oklahoma currently has more than 17,000 orphaned wells.

If House members and Gov. Kevin Stitt approve, the bill's update to state law would take effect Nov. 1. 

The House sponsor of the bill is state Rep. Brad Boles, R-Marlow.

Currently, oil and gas operators in Oklahoma are required to provide the Oklahoma Corporation Commission with a $25,000 surety it could use to plug a problem well orphaned by its operator.

More: Where are Oklahoma's unplugged oil wells hiding? Will infrastructure funds reveal them?

But many wells cost more than that to plug, and operators are only required to submit the surety once, regardless of how many wells they have within the state.

Currently, operators can provide two types of surety to regulators when they seek the commission's approval to drill or to assume ownership of an a well.

The first option, which remains unchanged by the proposed update, requires an operator to submit a financial statement to the agency that demonstrates it has a net worth of at least $50,000 through a listing of its assets and liabilities. The operator also must sign a general release to allow regulators to verify the information with banks and other financial institutions.

The second option, established by state law in 1990, is for an operator to provide the agency with a $25,000 surety bond, or, in the alternative, cash, a letter of credit, a cashier's check, a certificate of deposit, a bank joint custody receipt or other negotiable instrument worth the same amount.

The bill proposes changing that $25,000 bonding requirement to:

• $25,000 for an operator with one to 10 wells.

• $50,000 for an operator with 11 to 50 wells.

• $100,000 for an operator with 51 to 200 wells.

• $150,000 for an operator with more than 200 wells.

Increasing bonding requirements for operators seeking to drill new wells or to acquire others eventually could boost the amount of funds the corporation commission has available to later plug those wells in cases where they pose environmental and safety risks and their operators have walked away from their responsibilities.

About $645,000 generated through bond revocations has been used by the agency the past three years to plug risky wells, commission officials have said.

The agency also has other funding it collects through an assessment on oil and natural gas produced within the state that pays to plug orphaned wells where no known operators can be identified.

Oklahoma has brought in about $1.5 million annually through those assessments and has used those funds to plug about 5,300 orphaned wells.

Well owners also can choose, or sometimes are required to plug non-productive wells themselves.

Owners have plugged 10,776 wells between 2018 and today, paying for those out of their own pockets, regulators have said.

Changing the bonding requirement also might aid Oklahoma's efforts to access hundreds of millions of federal dollars made available through Congress' Bipartisan Infrastructure Bill to help address the issue.

By the end of 2021, the Oklahoma Corporation Commission's reported number of orphaned wells was 17,865, and that number could continue to grow as regulators find more using upgraded data technology systems and increased scrutiny from field inspectors.

Senator Taylor said Wednesday the measure approved by the Senate is overdue.

"It has been many, many years since that was created, and it costs a lot more money today to plug wells than it did when that $25,000 level was put in place. I think it is good policy for the state of Oklahoma to change that to a tiered system," he said.

Business Writer Jack Money covers Oklahoma’s energy and agricultural beats for the newspaper and Oklahoman.com. Contact him at [email protected]. Please support his work and that of other Oklahoman journalists by subscribing to The Oklahoman.