1 00:00:10,560 --> 00:00:13,400 Speaker 1: The oil and gas industry is getting out of a 2 00:00:13,440 --> 00:00:17,639 Speaker 1: lot of obligations these days. They have pushed for and 3 00:00:17,880 --> 00:00:25,000 Speaker 1: gotten regulatory pauses, rollbacks, tax breaks, all kinds of good stuff, 4 00:00:25,200 --> 00:00:28,480 Speaker 1: although of course the American Petroleum Institute is still insisting 5 00:00:28,520 --> 00:00:31,680 Speaker 1: that the industry is quote unquote not getting a bailout. 6 00:00:32,040 --> 00:00:34,200 Speaker 1: One of the big ways that the industry is getting 7 00:00:34,240 --> 00:00:37,440 Speaker 1: off the hook for its responsibilities is in the case 8 00:00:37,479 --> 00:00:40,720 Speaker 1: of its wells, and more specifically, what happens to them 9 00:00:40,920 --> 00:00:43,920 Speaker 1: when they're not producing oil or gas anymore. That is 10 00:00:44,000 --> 00:00:48,800 Speaker 1: becoming an even bigger problem amidst the COVID nineteen pandemic, 11 00:00:49,000 --> 00:00:52,720 Speaker 1: because a lot of wells have been temporarily idled, and 12 00:00:52,840 --> 00:00:56,120 Speaker 1: some percentage of those will end up being abandoned altogether. 13 00:00:56,560 --> 00:00:58,960 Speaker 1: Shale gas companies are already starting to go out of 14 00:00:59,000 --> 00:01:03,120 Speaker 1: business in various parts of the country, and more are 15 00:01:03,240 --> 00:01:06,759 Speaker 1: announcing their downfall every day. It remains to be seen 16 00:01:06,840 --> 00:01:12,240 Speaker 1: whether demand will actually return to normal levels after the pandemic. Plus, 17 00:01:12,240 --> 00:01:15,280 Speaker 1: there will be an energy transition at some point, and 18 00:01:15,360 --> 00:01:17,600 Speaker 1: a lot of folks are starting to wonder what will 19 00:01:17,640 --> 00:01:21,399 Speaker 1: happen to these oil and gas sites once that transition 20 00:01:21,480 --> 00:01:24,839 Speaker 1: gets underway. In order to get permits to drill oil 21 00:01:25,000 --> 00:01:29,440 Speaker 1: or gas wells. Fossil fuel companies are required to get permits, 22 00:01:29,640 --> 00:01:33,080 Speaker 1: and with those permits, they have to commit to plugging 23 00:01:33,200 --> 00:01:36,560 Speaker 1: and remediating well sites when they're done with them. It's 24 00:01:36,600 --> 00:01:40,200 Speaker 1: an expensive proposition and one that the industry tends to 25 00:01:40,240 --> 00:01:43,000 Speaker 1: put off as long as possible, in part because no 26 00:01:43,240 --> 00:01:47,559 Speaker 1: states actually require these companies to put up the money 27 00:01:47,720 --> 00:01:51,840 Speaker 1: for plugging and remediating wells before they start drilling. A 28 00:01:51,880 --> 00:01:54,960 Speaker 1: new report finds that, on top of all that, the 29 00:01:54,960 --> 00:01:59,320 Speaker 1: oil and gas industry has been dramatically underestimating the cost 30 00:01:59,800 --> 00:02:04,520 Speaker 1: of doing this remediation for years. Report out today from 31 00:02:04,800 --> 00:02:09,880 Speaker 1: Carbon Tracker finds that in fact, plugging shale wells can 32 00:02:09,880 --> 00:02:12,560 Speaker 1: cost up to ten times what companies have been estimating. 33 00:02:12,800 --> 00:02:16,480 Speaker 1: That's a huge financial liability that's not on the books 34 00:02:16,680 --> 00:02:20,160 Speaker 1: of shale gas companies, which are already struggling financially for 35 00:02:20,240 --> 00:02:24,560 Speaker 1: various other reasons. That report is called It's closing time 36 00:02:25,080 --> 00:02:29,440 Speaker 1: the huge bill to abandon oil fields comes early. Joining 37 00:02:29,440 --> 00:02:33,359 Speaker 1: me today are this report's co authors, Greg Rogers, who 38 00:02:33,400 --> 00:02:37,400 Speaker 1: we've heard from in previous episodes, and Rob Schuerck, executive 39 00:02:37,400 --> 00:02:40,760 Speaker 1: director of Carbon Trak or North America to talk about 40 00:02:40,840 --> 00:02:43,600 Speaker 1: just how many of these wells we're looking at, what 41 00:02:43,680 --> 00:02:47,440 Speaker 1: these costs may be, and what the heck States are 42 00:02:47,480 --> 00:02:50,200 Speaker 1: gonna do about it. We'll have that conversation in a 43 00:02:50,240 --> 00:02:54,280 Speaker 1: minute after award from this week's sponsor, I Mimi Westervelt 44 00:02:54,280 --> 00:03:18,760 Speaker 1: and this is Drilled. I was hoping you could maybe 45 00:03:18,800 --> 00:03:21,240 Speaker 1: start with sort of the genesis of the report. What 46 00:03:21,440 --> 00:03:25,400 Speaker 1: made you realize that this was something that we needed 47 00:03:25,520 --> 00:03:26,079 Speaker 1: data on. 48 00:03:26,480 --> 00:03:29,800 Speaker 2: Really, we started, and this is a combination of Greg's 49 00:03:29,800 --> 00:03:33,359 Speaker 2: long standing interest in ROS and carbon trackers, focus on 50 00:03:34,240 --> 00:03:37,920 Speaker 2: really the implications of the energy transition for fossil fuel 51 00:03:38,040 --> 00:03:45,120 Speaker 2: companies and their investors. We started looking at how you know, 52 00:03:45,360 --> 00:03:50,160 Speaker 2: a asset retirement obligations on the balance sheet were reported, 53 00:03:51,040 --> 00:03:57,840 Speaker 2: how frequently they were revised. Those estimates. Had had a 54 00:03:57,840 --> 00:04:01,360 Speaker 2: working thesis that Greg is largely built over years of 55 00:04:01,400 --> 00:04:03,960 Speaker 2: observation on this as to why that was the case, 56 00:04:04,000 --> 00:04:08,040 Speaker 2: which was that as assets were retired, people had to 57 00:04:08,080 --> 00:04:11,200 Speaker 2: revise those estimates to reflect the actual costs and those 58 00:04:11,480 --> 00:04:14,320 Speaker 2: were a lot more significant. And we took sort of 59 00:04:14,360 --> 00:04:16,160 Speaker 2: that work and sort of thinking about, well, in terms 60 00:04:16,160 --> 00:04:19,760 Speaker 2: of an energy transition, what's going to happen here? Are 61 00:04:20,120 --> 00:04:25,240 Speaker 2: these assets all going to live? They're full estimated useful lives. Right, 62 00:04:26,160 --> 00:04:30,000 Speaker 2: If we can't extract and burn all of these fossil 63 00:04:30,000 --> 00:04:34,720 Speaker 2: fuels consistent with our climate targets, how are we actually 64 00:04:34,760 --> 00:04:38,400 Speaker 2: really going to expect that these assets? Do you live 65 00:04:38,640 --> 00:04:42,720 Speaker 2: another thirty forty fifty in some cases you know, to 66 00:04:42,880 --> 00:04:44,680 Speaker 2: through the end of the century, if you're thinking about 67 00:04:44,720 --> 00:04:49,800 Speaker 2: oil sands assets, for example. So it was so so 68 00:04:49,839 --> 00:04:54,160 Speaker 2: our initial focus was actually on individual companies and what 69 00:04:54,160 --> 00:04:56,000 Speaker 2: they've got on the balance sheets and what kind of 70 00:04:56,040 --> 00:04:59,240 Speaker 2: impact if we saw something called ro acceleration, and you 71 00:04:59,279 --> 00:05:01,280 Speaker 2: see a little bit on that in this paper because 72 00:05:01,279 --> 00:05:04,680 Speaker 2: it's still an important concept. But as we looked at it, 73 00:05:04,720 --> 00:05:06,680 Speaker 2: we thought, well, okay, there's a great story here in 74 00:05:06,720 --> 00:05:09,920 Speaker 2: the US. Let's focus on the US, let's focus on onshore, 75 00:05:10,680 --> 00:05:13,760 Speaker 2: and let's look and see. Right, you know what you 76 00:05:13,800 --> 00:05:17,320 Speaker 2: know in addition to just looking at the corporate reported figures, 77 00:05:17,360 --> 00:05:20,120 Speaker 2: which don't really give you any of the backstory, right, 78 00:05:20,160 --> 00:05:23,000 Speaker 2: they give you the discounted present value at some discount 79 00:05:23,080 --> 00:05:26,400 Speaker 2: rate that company has used. You don't have the undiscounted numbers. 80 00:05:26,400 --> 00:05:28,760 Speaker 2: You don't know what it really costs. But when we 81 00:05:28,800 --> 00:05:31,320 Speaker 2: looked around for what things really cost. We saw a 82 00:05:31,360 --> 00:05:34,159 Speaker 2: lot of claims from industry and in many cases from 83 00:05:34,200 --> 00:05:36,920 Speaker 2: the regulators as well. I think comparating some of those 84 00:05:36,960 --> 00:05:40,320 Speaker 2: industry numbers that were looking at you know, tens of 85 00:05:40,360 --> 00:05:42,640 Speaker 2: thousands of dollars or less to close a lot of 86 00:05:42,640 --> 00:05:46,760 Speaker 2: these wells, including you know the one with the one 87 00:05:46,920 --> 00:05:50,320 Speaker 2: estimate from the from the Banker hues that we have 88 00:05:50,400 --> 00:05:53,919 Speaker 2: in there that's focused on you know, thirty three thousand 89 00:05:54,000 --> 00:05:58,960 Speaker 2: dollars to close wells in places like the Eagleford with 90 00:05:59,160 --> 00:06:03,080 Speaker 2: average uh, you know, well board depths total vertical depths 91 00:06:03,080 --> 00:06:06,839 Speaker 2: of like nearly ten thousand feet. Looking at actual data 92 00:06:06,880 --> 00:06:09,400 Speaker 2: there were there was a lot of evidence to suggest 93 00:06:09,440 --> 00:06:10,320 Speaker 2: that those costs. 94 00:06:10,120 --> 00:06:11,400 Speaker 3: Were going to be far greater. 95 00:06:11,680 --> 00:06:15,080 Speaker 4: It was a big aha for for me Amy is 96 00:06:15,640 --> 00:06:20,680 Speaker 4: we were we were searching for actual cost data, uh 97 00:06:21,000 --> 00:06:24,000 Speaker 4: preferably not estimates, but you know, actual. 98 00:06:23,680 --> 00:06:26,320 Speaker 3: Cost What what did it cost to plug and abandon 99 00:06:26,880 --> 00:06:31,080 Speaker 3: these onshore wells? And it started to look like there 100 00:06:31,160 --> 00:06:36,240 Speaker 3: was a self referential loop going on between industry and 101 00:06:36,920 --> 00:06:40,760 Speaker 3: state orphan well programs that are largely funded by industry, 102 00:06:41,320 --> 00:06:47,080 Speaker 3: where industry would would point to the orphan well cost experience, 103 00:06:47,120 --> 00:06:50,000 Speaker 3: which was the only available cost data we could find 104 00:06:50,040 --> 00:06:55,080 Speaker 3: in the United States, and say, hey, we we we 105 00:06:55,279 --> 00:06:58,240 Speaker 3: liked those costs, uh, which seemed to be you know, 106 00:06:58,360 --> 00:07:02,279 Speaker 3: ranging from five thoul into up to forty thousand dollars 107 00:07:02,360 --> 00:07:06,919 Speaker 3: as well, and so we're going to reference those costs 108 00:07:06,960 --> 00:07:13,160 Speaker 3: as in terms of the economic analysis of you know, 109 00:07:13,640 --> 00:07:16,360 Speaker 3: shale and fracking in the in the US on shore 110 00:07:16,680 --> 00:07:18,800 Speaker 3: on shore oil industry. 111 00:07:18,920 --> 00:07:20,360 Speaker 4: So we had we. 112 00:07:20,360 --> 00:07:24,400 Speaker 3: Had this orphan well data. But one thing that started 113 00:07:24,400 --> 00:07:26,840 Speaker 3: to stand out from that is that most of those 114 00:07:26,840 --> 00:07:31,840 Speaker 3: wells are old and they're shallow. So there's there's a 115 00:07:32,360 --> 00:07:36,640 Speaker 3: there's just millions of undocumented wells, even preregulatory wells in 116 00:07:36,680 --> 00:07:39,720 Speaker 3: the United States, and a lot of those have found 117 00:07:39,760 --> 00:07:43,440 Speaker 3: their ways way into orphan well programs. Some of these 118 00:07:43,440 --> 00:07:46,480 Speaker 3: wells are just a few hundred feet deep, uh and 119 00:07:47,000 --> 00:07:53,640 Speaker 3: don't even penetrate a groundwater source. So we knew that 120 00:07:54,200 --> 00:07:59,480 Speaker 3: when we saw that that the average depth, the vertical 121 00:07:59,520 --> 00:08:04,239 Speaker 3: depth the shale wheels was much much deeper, ranging from 122 00:08:04,520 --> 00:08:09,080 Speaker 3: sixty five hundred to twelve thousand feet of vertical depth. 123 00:08:09,760 --> 00:08:15,440 Speaker 3: And we're wondering, well, what's the correlation between depth and cost? 124 00:08:15,680 --> 00:08:18,520 Speaker 3: And there were a few studies out. They looked at 125 00:08:18,720 --> 00:08:22,720 Speaker 3: the US orphan well data suggesting that there was a 126 00:08:22,760 --> 00:08:25,480 Speaker 3: correlation between depth and costs, but that it was linear. 127 00:08:26,160 --> 00:08:29,080 Speaker 3: So just you know, ten dollars of foot, let's say, 128 00:08:29,120 --> 00:08:32,000 Speaker 3: and doesn't matter whether it's one thousand foot well or 129 00:08:32,920 --> 00:08:35,319 Speaker 3: twenty thousand foot well, it's going to cost ten dollars 130 00:08:35,360 --> 00:08:39,440 Speaker 3: a foot. And you had some state bonding regimes actually 131 00:08:39,440 --> 00:08:43,640 Speaker 3: incorporated a dollar per foot and determining bond values to 132 00:08:43,960 --> 00:08:46,440 Speaker 3: as financial assurance for the plug and abandon that cost. 133 00:08:47,400 --> 00:08:51,520 Speaker 3: So that was interesting and something that obviously made depth relevant. 134 00:08:52,440 --> 00:08:56,640 Speaker 3: But the most important finding was came out of research 135 00:08:56,720 --> 00:09:02,320 Speaker 3: of industry data outside the United States in Australia that 136 00:09:02,640 --> 00:09:07,040 Speaker 3: indicated that the correlation between depth and cost was exponential 137 00:09:07,160 --> 00:09:10,640 Speaker 3: rather than linear. And when we looked more closely at 138 00:09:10,640 --> 00:09:15,600 Speaker 3: the orphan well data that was available in the US, 139 00:09:15,920 --> 00:09:20,199 Speaker 3: it also seemed to support an exponential correlation rather than 140 00:09:20,200 --> 00:09:21,280 Speaker 3: a linear correlation. 141 00:09:22,320 --> 00:09:24,600 Speaker 1: Could you guys speak a little bit to how or 142 00:09:24,640 --> 00:09:27,680 Speaker 1: why is it that there's no transparency about these costs. 143 00:09:28,000 --> 00:09:30,679 Speaker 2: No one has made them provide that cost information, They 144 00:09:30,720 --> 00:09:33,360 Speaker 2: have no interest in providing that information. Just to make 145 00:09:33,400 --> 00:09:36,240 Speaker 2: that clear, right, right, So someone need to be interested 146 00:09:36,240 --> 00:09:39,559 Speaker 2: in having them do it, and I think that really is, 147 00:09:39,920 --> 00:09:43,040 Speaker 2: you know, at the regulatory level, you're suffering from some 148 00:09:43,200 --> 00:09:45,640 Speaker 2: level of capture, which you'll typically see when you have 149 00:09:46,120 --> 00:09:49,760 Speaker 2: a regulator for a specific regulated industry. But that was 150 00:09:49,760 --> 00:09:52,680 Speaker 2: also combined with the belief that I think a lot 151 00:09:52,679 --> 00:09:56,679 Speaker 2: of people have had about oil and gas, the idea 152 00:09:57,559 --> 00:10:01,839 Speaker 2: that this industry may not have the money on its 153 00:10:01,880 --> 00:10:04,439 Speaker 2: balance sheet today to close all of its wells immediately, 154 00:10:04,520 --> 00:10:07,160 Speaker 2: but they will close over time, and it will keep 155 00:10:07,240 --> 00:10:10,120 Speaker 2: making money and keep drilling wells, and they'll be cash 156 00:10:10,120 --> 00:10:14,040 Speaker 2: flows in the future. Because we all need energy, right, 157 00:10:14,080 --> 00:10:17,400 Speaker 2: if we're going to have economic growth, it's correlated with it, 158 00:10:17,480 --> 00:10:21,040 Speaker 2: and so it's going to be you know, this is 159 00:10:21,080 --> 00:10:23,800 Speaker 2: going to be cash in the future to close these 160 00:10:24,040 --> 00:10:25,160 Speaker 2: So why worry about it? 161 00:10:25,200 --> 00:10:26,240 Speaker 3: Why worry about what. 162 00:10:26,160 --> 00:10:30,679 Speaker 2: The actual costs are? Right? The problem, of course, is 163 00:10:30,679 --> 00:10:34,839 Speaker 2: all those assumptions have been completely upended by the energy transition, right, 164 00:10:34,920 --> 00:10:38,800 Speaker 2: and in the pandemic rights has been sort of a 165 00:10:38,960 --> 00:10:42,440 Speaker 2: shot across the bow on that to realize how quickly 166 00:10:42,480 --> 00:10:46,320 Speaker 2: things can turn potentially shut in and it gives a 167 00:10:46,360 --> 00:10:50,360 Speaker 2: glimpse also of the financial condition that the companies are 168 00:10:50,400 --> 00:10:52,640 Speaker 2: then in and the arguments, of course they're going to make, 169 00:10:52,640 --> 00:10:54,640 Speaker 2: which is that we can't afford to do that now. 170 00:10:55,240 --> 00:10:57,600 Speaker 2: So I think that has kind of shaken things up, 171 00:10:57,640 --> 00:11:02,679 Speaker 2: and so the question is, really, should regulators still not 172 00:11:02,800 --> 00:11:05,960 Speaker 2: pay attention to what these actual costs are and or 173 00:11:06,000 --> 00:11:09,120 Speaker 2: will they continue to do that? And I think that 174 00:11:09,200 --> 00:11:14,200 Speaker 2: those you know, that's that's becoming increasingly bigger and bigger issue. 175 00:11:14,320 --> 00:11:18,520 Speaker 1: For most of the oil and gas industry's history, it's 176 00:11:18,600 --> 00:11:23,120 Speaker 1: been sort of a self bond, self reporting situation, and 177 00:11:23,200 --> 00:11:26,120 Speaker 1: states are starting to realize, oh, this is this is 178 00:11:26,200 --> 00:11:28,440 Speaker 1: potentially going to leave us holding a bill that we 179 00:11:28,480 --> 00:11:31,079 Speaker 1: can't necessarily afford to pay either. Can you just talk 180 00:11:31,120 --> 00:11:33,560 Speaker 1: about what this problem looks like for states and what 181 00:11:33,760 --> 00:11:36,559 Speaker 1: some of them are trying to do about it. 182 00:11:37,000 --> 00:11:39,800 Speaker 3: One of the things that's that's happening is that the 183 00:11:40,000 --> 00:11:44,280 Speaker 3: coronavirus pandemic has accelerated the shut in of wells, which 184 00:11:44,280 --> 00:11:47,320 Speaker 3: has drawn a lot of attention to this topic and 185 00:11:47,720 --> 00:11:50,960 Speaker 3: kind of shining a light on the reality that the 186 00:11:51,080 --> 00:11:55,080 Speaker 3: orphan well funds are not sufficient to plug and abandon 187 00:11:55,440 --> 00:11:58,840 Speaker 3: you know a large number of wells that are becoming 188 00:11:59,400 --> 00:12:02,480 Speaker 3: idle and non economic. At the same time, but the 189 00:12:02,559 --> 00:12:06,160 Speaker 3: states were realizing the problem they were in before the 190 00:12:06,160 --> 00:12:09,640 Speaker 3: pandemic hit, and they were starting to do things like 191 00:12:09,760 --> 00:12:14,880 Speaker 3: increasing bond amounts, increasing idle wealth fees, and tightening up 192 00:12:15,120 --> 00:12:20,800 Speaker 3: on the regulatory flexibility about allowing temporary abandonment of wells. 193 00:12:21,160 --> 00:12:25,680 Speaker 3: So temporary abandonments this state went. A well is shut in, 194 00:12:26,040 --> 00:12:29,880 Speaker 3: but not permanently, so production has stopped, but the well 195 00:12:29,960 --> 00:12:33,240 Speaker 3: is left in a state of limbo, where at least 196 00:12:33,240 --> 00:12:36,400 Speaker 3: in theory, it can be started back up again. So 197 00:12:36,440 --> 00:12:38,240 Speaker 3: those are the types of things I think that we 198 00:12:38,720 --> 00:12:42,000 Speaker 3: see states doing. And there's a there's a few other actions, 199 00:12:42,040 --> 00:12:44,920 Speaker 3: but essentially they're tightening up on the credit aman. I 200 00:12:44,920 --> 00:12:48,000 Speaker 3: think the easiest way to think about this is that 201 00:12:48,760 --> 00:12:52,520 Speaker 3: the legal obligation to plug an abandon an oil well 202 00:12:52,679 --> 00:12:56,200 Speaker 3: at the end of its economic you know, useful life 203 00:12:56,920 --> 00:13:01,840 Speaker 3: is a is a liability to the state. And normally 204 00:13:02,720 --> 00:13:05,600 Speaker 3: you think of a debt like this as a that 205 00:13:06,160 --> 00:13:11,600 Speaker 3: has a financial consequences. The creditor would charge interest on 206 00:13:11,720 --> 00:13:17,920 Speaker 3: that or require collateral. So effectively, self bonding means free 207 00:13:18,440 --> 00:13:22,800 Speaker 3: credit on these liabilities, and that's largely been the case 208 00:13:24,000 --> 00:13:29,320 Speaker 3: for decades. But what the states are doing, they can 209 00:13:29,400 --> 00:13:34,200 Speaker 3: either require immediate permanent retirement of wells that have been 210 00:13:34,240 --> 00:13:37,560 Speaker 3: sitting idle for a long time, or they can increase 211 00:13:37,640 --> 00:13:41,079 Speaker 3: the carrying costs of that outstanding debt. 212 00:13:41,720 --> 00:13:44,200 Speaker 1: I feel like every day I'm seeing another news story 213 00:13:44,240 --> 00:13:49,360 Speaker 1: about a shell company declaring bankruptcy or warning that it 214 00:13:49,400 --> 00:13:54,439 Speaker 1: will be going bankruptcy. So what is the real situation 215 00:13:54,600 --> 00:13:56,320 Speaker 1: that a lot of these states are in right now? 216 00:13:56,440 --> 00:13:58,800 Speaker 1: How much of this debt does it look like some 217 00:13:59,160 --> 00:14:02,880 Speaker 1: states are going to be absorbing no matter what you know? 218 00:14:02,960 --> 00:14:06,960 Speaker 3: Initially, the parameters that are important trying to understand a 219 00:14:07,000 --> 00:14:11,439 Speaker 3: statewide orphan well risk would include the number of wells, 220 00:14:12,640 --> 00:14:16,719 Speaker 3: an average cost per well, the bond coverage, So how 221 00:14:16,720 --> 00:14:20,440 Speaker 3: many is proble speaking, how much security is actually in place. 222 00:14:21,320 --> 00:14:23,760 Speaker 3: Then then you get into some more complex issues like 223 00:14:23,800 --> 00:14:25,680 Speaker 3: the useful life of the well. I mean, are all 224 00:14:25,680 --> 00:14:28,520 Speaker 3: the wells do they need to be plugged in abandon now? 225 00:14:29,000 --> 00:14:33,120 Speaker 3: Or you know, are some going to continue to produce 226 00:14:33,280 --> 00:14:37,000 Speaker 3: for many years into the future. And then the credit 227 00:14:37,120 --> 00:14:39,280 Speaker 3: risk of the operators, so to the extent that they're 228 00:14:39,320 --> 00:14:42,280 Speaker 3: self bonding, can can is the operator good for it? 229 00:14:42,400 --> 00:14:45,800 Speaker 3: Will the operator remain good for it? I'll give you 230 00:14:45,880 --> 00:14:48,760 Speaker 3: just a couple of pieces of information you know, that 231 00:14:49,120 --> 00:14:52,480 Speaker 3: help fill in that framework. So just look at the 232 00:14:52,560 --> 00:14:55,040 Speaker 3: number of operating and idle wells that are out there, 233 00:14:55,040 --> 00:14:56,960 Speaker 3: and the numbers are pretty staggering. So these are not 234 00:14:57,360 --> 00:15:01,160 Speaker 3: These are not orphan wells, preregulatory wells, documented wells. These 235 00:15:01,200 --> 00:15:05,240 Speaker 3: are wells that are currently out there, tagged to a 236 00:15:05,280 --> 00:15:09,640 Speaker 3: specific operator and they're either producing now or they're in 237 00:15:09,680 --> 00:15:14,080 Speaker 3: a state of temporary abandonment or shut in. Texas has 238 00:15:14,120 --> 00:15:18,520 Speaker 3: over four hundred thousand wells, California over one hundred thousand wells, 239 00:15:18,560 --> 00:15:22,880 Speaker 3: Pennsylvania over one hundred thousand wells, Kansas over ninety thousand, 240 00:15:23,480 --> 00:15:27,960 Speaker 3: Ohio over ninety thousand, New Mexico over fifty thousand, in 241 00:15:28,000 --> 00:15:31,640 Speaker 3: North Dakota over twenty five thousand. So one is we're 242 00:15:31,680 --> 00:15:36,800 Speaker 3: talking about a large population of wells, and our research 243 00:15:36,960 --> 00:15:42,360 Speaker 3: is indicating that the cost to plug these wells is 244 00:15:42,440 --> 00:15:45,880 Speaker 3: going to be significantly more than the orphan well cost experience, 245 00:15:46,720 --> 00:15:49,960 Speaker 3: and that for the for the shale wells may be 246 00:15:50,080 --> 00:15:53,760 Speaker 3: as much as three hundred thousand dollars a well. That's 247 00:15:53,840 --> 00:15:57,320 Speaker 3: based on evidence that we have. Cost data is coming 248 00:15:57,360 --> 00:16:00,360 Speaker 3: out of Australia, so maybe more, maybe less in that 249 00:16:00,760 --> 00:16:02,600 Speaker 3: but still a pretty big number. 250 00:16:02,880 --> 00:16:06,000 Speaker 1: And still like around ten times what they've been saying. 251 00:16:07,280 --> 00:16:09,600 Speaker 3: Yeah, so we're talking, we're talking numbers that are in 252 00:16:09,640 --> 00:16:12,160 Speaker 3: the billions. For some states are going to be in 253 00:16:12,200 --> 00:16:15,800 Speaker 3: the tens of billions, and the exercise is going to 254 00:16:15,840 --> 00:16:19,040 Speaker 3: require getting a full inventory of the of the wells 255 00:16:19,080 --> 00:16:22,440 Speaker 3: in each state and knowing the depth of those wells, 256 00:16:23,000 --> 00:16:26,560 Speaker 3: so that because when you're talking about an exponential correlation, 257 00:16:26,720 --> 00:16:29,960 Speaker 3: depth becomes really important. But I think what I think 258 00:16:29,960 --> 00:16:33,240 Speaker 3: we can get at that, and you know, we will 259 00:16:33,280 --> 00:16:38,680 Speaker 3: be able to put a rough cost estimate for statewide 260 00:16:39,200 --> 00:16:41,920 Speaker 3: orphen well risk, and I think the numbers are going 261 00:16:41,960 --> 00:16:44,440 Speaker 3: to be shocking to a lot of folks. 262 00:16:45,240 --> 00:16:47,520 Speaker 1: At a certain point. The states don't have money to 263 00:16:47,520 --> 00:16:49,680 Speaker 1: do this either, and some of this work will just 264 00:16:49,760 --> 00:16:52,920 Speaker 1: be left undone. Is that something that you're looking at 265 00:16:52,960 --> 00:16:57,040 Speaker 1: and what the impact of that on you know, communities 266 00:16:57,040 --> 00:16:59,240 Speaker 1: that might lives near these wells. 267 00:17:00,080 --> 00:17:02,760 Speaker 2: Number of different ways of thinking about the environmental impact 268 00:17:03,160 --> 00:17:06,320 Speaker 2: from these welds. So you could think even in places 269 00:17:06,359 --> 00:17:09,960 Speaker 2: where people are not nearby, you have the potential. You know, 270 00:17:09,960 --> 00:17:13,199 Speaker 2: when you have improperly plugged or you have wells that 271 00:17:13,240 --> 00:17:16,119 Speaker 2: are abandoned but have not been plugged, right, you have 272 00:17:16,200 --> 00:17:20,800 Speaker 2: the potential for leakage, you have the potential for toxic emissions, 273 00:17:20,800 --> 00:17:23,879 Speaker 2: you have the potential for greenhouse gas emissions, and the 274 00:17:23,920 --> 00:17:29,159 Speaker 2: potential to infiltrate groundwater right and contaminate groundwater. But the 275 00:17:29,200 --> 00:17:32,920 Speaker 2: reality is that actually you do have situations in Colorado, right, 276 00:17:33,080 --> 00:17:36,119 Speaker 2: you know Burnfield's classic example. There are many places in 277 00:17:36,160 --> 00:17:38,680 Speaker 2: Colorado where you have wells that are literally within neighborhoods. 278 00:17:39,800 --> 00:17:42,080 Speaker 2: The same as true in California, right, whether you go 279 00:17:42,200 --> 00:17:44,440 Speaker 2: to you know, from Los Angeles to Long Beach, those 280 00:17:44,480 --> 00:17:47,800 Speaker 2: are often credibly costly to close. I mean we were 281 00:17:47,800 --> 00:17:50,439 Speaker 2: talking with we were talking with somebody from Calgium the 282 00:17:50,480 --> 00:17:54,399 Speaker 2: other day about this, who is responsible for that in 283 00:17:54,920 --> 00:17:57,119 Speaker 2: Los Angeles and they had to close some wells that 284 00:17:57,160 --> 00:18:00,520 Speaker 2: were like seven hundred feet deep something like that, actually 285 00:18:00,600 --> 00:18:03,520 Speaker 2: quite shallow, but it was over a million dollars well 286 00:18:03,640 --> 00:18:06,720 Speaker 2: to close it because they had to redrill the well board. 287 00:18:07,000 --> 00:18:09,040 Speaker 2: Costs can be quite significant. I mean, when you think 288 00:18:09,040 --> 00:18:11,320 Speaker 2: of the three hundred thousand that we're talking about here, 289 00:18:11,960 --> 00:18:14,760 Speaker 2: that's sort of an average. There's all kinds of contingencies 290 00:18:14,760 --> 00:18:17,119 Speaker 2: that could make it much more costly as well. But 291 00:18:17,440 --> 00:18:19,080 Speaker 2: you have to do that because you have people that 292 00:18:19,119 --> 00:18:22,760 Speaker 2: are getting sick, you know, headaches, you know, nose bleeds. 293 00:18:23,680 --> 00:18:26,400 Speaker 2: Obviously there's plenty of carcinogens and petroleum. 294 00:18:26,400 --> 00:18:28,520 Speaker 3: No, the question is really who's going to pay. So 295 00:18:28,560 --> 00:18:30,800 Speaker 3: once we once we get a handle on what's it 296 00:18:30,880 --> 00:18:33,159 Speaker 3: going to cost, the questions who are actually going to 297 00:18:33,200 --> 00:18:35,600 Speaker 3: pay this bill? And I think you can start, you know, first, 298 00:18:35,600 --> 00:18:38,440 Speaker 3: and say is it going to be industry as well? 299 00:18:38,440 --> 00:18:41,840 Speaker 3: The orphan well funds are are not even close to 300 00:18:41,880 --> 00:18:44,880 Speaker 3: being up to the task of retiring all the existing 301 00:18:44,920 --> 00:18:48,520 Speaker 3: producing and temporarily idled wells. And then you get into 302 00:18:48,600 --> 00:18:52,240 Speaker 3: landowners and citizens. So you know, landowners have a have 303 00:18:52,880 --> 00:18:54,520 Speaker 3: a lot at stake here because many of them have 304 00:18:55,400 --> 00:19:00,719 Speaker 3: abandoned equipment on their land and surface contamination. It's not 305 00:19:00,760 --> 00:19:04,159 Speaker 3: what they bargained for, and so they're just kind of 306 00:19:04,280 --> 00:19:06,840 Speaker 3: left with a mess on their property. And then you've 307 00:19:06,840 --> 00:19:10,320 Speaker 3: got citizens that are impacted by can be impacted by 308 00:19:10,520 --> 00:19:15,880 Speaker 3: toxics or groundwater contamination. And then you get to the environment. 309 00:19:15,920 --> 00:19:19,560 Speaker 3: There are a lot of negative consequences to abandon and 310 00:19:19,760 --> 00:19:20,679 Speaker 3: unplugged wells. 311 00:19:20,960 --> 00:19:23,119 Speaker 1: I guess this is naive, but I'm still sort of 312 00:19:23,280 --> 00:19:27,840 Speaker 1: shocked at how willing states have been to just be 313 00:19:28,000 --> 00:19:29,440 Speaker 1: left holding the bag on this. 314 00:19:30,800 --> 00:19:32,919 Speaker 3: We talk a little bit about that in the paper 315 00:19:33,080 --> 00:19:35,200 Speaker 3: to try to make sense of how did we get here? 316 00:19:35,760 --> 00:19:39,600 Speaker 3: So Rob describes the moral hazard that exists, which is 317 00:19:41,000 --> 00:19:43,520 Speaker 3: quite evident when you look at it. So it begs 318 00:19:43,560 --> 00:19:46,800 Speaker 3: the question, well, why did states do this? Why did 319 00:19:46,800 --> 00:19:49,639 Speaker 3: they operate this way? And I think it's actually pretty 320 00:19:49,680 --> 00:19:54,840 Speaker 3: obvious this was inevitable. These regulatory agencies were initially set 321 00:19:54,920 --> 00:19:58,800 Speaker 3: up to protect the oil and gas resource, basically right 322 00:19:58,880 --> 00:20:01,119 Speaker 3: to protect itself. We could get as much of that 323 00:20:02,119 --> 00:20:06,360 Speaker 3: hydrocarbon resource out of the ground as possible, and putting 324 00:20:06,440 --> 00:20:11,879 Speaker 3: additional costs on the industry was viewed negatively because that 325 00:20:12,000 --> 00:20:14,399 Speaker 3: was going to reduce the amount of oil and gas 326 00:20:14,560 --> 00:20:17,640 Speaker 3: that could be extracted. And then you add to that 327 00:20:18,400 --> 00:20:23,199 Speaker 3: the dynamics of the various oil producing states and the 328 00:20:23,200 --> 00:20:26,480 Speaker 3: ability of industry to play one state against the other, 329 00:20:27,960 --> 00:20:31,200 Speaker 3: creating a race to the bottom. And you still hear 330 00:20:31,280 --> 00:20:34,280 Speaker 3: this kind of discussion from states that well, if we 331 00:20:34,359 --> 00:20:37,960 Speaker 3: increase the cost on industry, they're going to withdraw from 332 00:20:38,000 --> 00:20:41,160 Speaker 3: our state and go someplace else, though it's in our 333 00:20:41,240 --> 00:20:45,439 Speaker 3: financial best interests to keep their costs low and you know, 334 00:20:45,600 --> 00:20:49,600 Speaker 3: that makes perfect sense until you look at the liability 335 00:20:49,680 --> 00:20:53,280 Speaker 3: side of the balance sheet. So as long as you're 336 00:20:53,280 --> 00:20:59,400 Speaker 3: pushing those costs off, discounting them over decades, and essentially 337 00:20:59,440 --> 00:21:02,640 Speaker 3: sort of out site out of mind on the closure 338 00:21:02,680 --> 00:21:07,280 Speaker 3: cost issue, then the idea of reducing the bonding costs 339 00:21:07,560 --> 00:21:10,679 Speaker 3: makes good economic sense. What we're trying to do in 340 00:21:10,720 --> 00:21:14,919 Speaker 3: the paper is draw attention to that, to the liability 341 00:21:14,960 --> 00:21:17,159 Speaker 3: side of the balance sheets so that folks don't just 342 00:21:17,200 --> 00:21:20,119 Speaker 3: see the asset side and realize that there is a 343 00:21:20,200 --> 00:21:22,800 Speaker 3: huge bill to pay here and we simply haven't planned 344 00:21:22,800 --> 00:21:25,639 Speaker 3: for it because the incentives were all going in the 345 00:21:25,720 --> 00:21:28,160 Speaker 3: other direction for the past one hundred years. 346 00:21:28,440 --> 00:21:35,040 Speaker 1: Has there been any indication of willingness from states to 347 00:21:35,080 --> 00:21:38,760 Speaker 1: potentially take these things to court? I covered the climate 348 00:21:38,800 --> 00:21:41,879 Speaker 1: liability cases for a long time, and this sounds so 349 00:21:42,560 --> 00:21:46,000 Speaker 1: similar to a lot of kind of the basis of 350 00:21:46,040 --> 00:21:48,760 Speaker 1: those suits, and especially the fact that you know we're 351 00:21:48,760 --> 00:21:52,800 Speaker 1: getting more specific costs in place here. Are you seeing 352 00:21:52,840 --> 00:21:57,840 Speaker 1: any potential for liability suits that would cover the cost 353 00:21:57,880 --> 00:21:58,760 Speaker 1: of damages here? 354 00:21:58,840 --> 00:22:01,240 Speaker 2: You'll know if the stage is interested in doing that 355 00:22:01,359 --> 00:22:05,280 Speaker 2: when they actually follow complaint. Probably not, probably not before then. 356 00:22:07,200 --> 00:22:10,520 Speaker 2: But the fact is what you know, are the conditions 357 00:22:10,520 --> 00:22:12,159 Speaker 2: there for that? And I think the answer to that 358 00:22:12,280 --> 00:22:12,640 Speaker 2: is yes. 359 00:22:20,440 --> 00:22:23,000 Speaker 1: That's it for this time. We will stick a link 360 00:22:23,080 --> 00:22:25,000 Speaker 1: to the report in the show notes so you can 361 00:22:25,040 --> 00:22:28,240 Speaker 1: read through the entire thing. We will have a couple 362 00:22:28,240 --> 00:22:30,760 Speaker 1: more episodes for you here and there in the next 363 00:22:30,880 --> 00:22:35,640 Speaker 1: few weeks, but otherwise we are going on production hiatus 364 00:22:35,720 --> 00:22:39,400 Speaker 1: until we're ready to release the next investigative series. That 365 00:22:39,440 --> 00:22:42,600 Speaker 1: will be in July sometime. I'm not going to commit 366 00:22:42,640 --> 00:22:44,919 Speaker 1: to a date just yet. 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