The New Mexico State Land Office released a report today enumerating the degree to which New Mexico’s oil and gas industry has failed to assure payment for its responsibilities to plug and reclaim wells and other industry sites: a staggering gap of $8.1 billion. The report estimates the state is holding just $201.42 million in “financial assurances” versus an $8.3 billion total price tag for closure and cleanup of roughly 25,000 wells on state and private lands. That means the oil and gas industry’s “insurance coverage” for cleanup of its activities on state trust and private lands in New Mexico is a minuscule 2.4%. This estimate doesn’t even include the costs to clean up the 33,000 wells on federal public land plagued by an equally anemic financial assurance system.
“Imagine you rack up credit card debt (in this case, the obligation to plug wells and clean up surface operations when production ceases). Then, to cover this debt, you buy insurance to cover $2.40 for every $100 on those credit cards. Then when that balance must be paid in full, you sign over the debt to someone else, declare bankruptcy, or simply disappear. That has been the oil and gas industry playbook, and taxpayers are the bank that issued the cards,” said Thomas Singer, senior policy advisor at the Western Environmental Law Center. “The oil and gas industry model of operation has always been the same: extract publicly owned resources; foul the land, air, and water while doing it; and then do anything and everything possible to avoid the bill for cleanup.”
Right now, almost 700 wells have met this fate, with the state—and its taxpayers—on the hook to plug the wells and clean up well sites and associated infrastructure. As the report shows, there are tens of thousands of additional wells that could end up this way as the oil and gas industry declines in the face of a long-overdue global move to renewable energy to address the climate crisis.
“We commend Land Commissioner Stephanie Garcia Richard for bringing this critical issue to the attention of New Mexicans,” said Erik Schlenker-Goodrich, executive director of the Western Environmental Law Center. “We urgently need reform of the oil and gas bonding system. WELC and partner groups will work with the state land office, the Oil Conservation Division, and federal agencies to make sure that these industry costs do not fall on the public, and communities are not subject to the pollution and adverse health impacts that can result when industry fails to clean up its messes.”
Plugging and abandonment costs for oil and gas wells vary, but the report estimates the average for conventional wells at $86,100. The costs for the growing set of more recent, fracked horizontal wells are many times greater. In addition, oil and gas companies pay $51/mile in bonding for pipelines on state trust lands, yet the report estimates the average cost for decommissioning and reclamation at $211,000/mile — an astounding gap.
Today’s report reflects only the closure and cleanup shortfall on state trust and private lands (25,000 wells across more than 13 million mineral acres), and not federal lands (33,000 wells across 29 million mineral acres available for leasing).
“The problem this report highlights is only on state trust and private lands,” said Ally Beasley, staff attorney at the Western Environmental Law Center. “When you think about adding to that federal, Bureau of Indian Affairs, and Tribal minerals in New Mexico — and then those minerals in all states — you get a sense of the enormity of this problem. Cleanup has to happen, and industry must be held responsible. And that means confronting the oil and gas industry’s stranglehold on power here in New Mexico — power it uses to rig the legal system in favor of their financial interests, not New Mexico’s public interest”