Progress made on Louisiana's orphaned wells

(The Center Square) — Louisiana is making significant progress in addressing its long-standing issue of orphaned oil wells, bolstered by enhanced legislative cooperation, federal funding, and key regulatory changes. There are challenges that remain, however.

These wells, abandoned without a responsible operator, pose substantial environmental and safety risks, but recent reforms and increased funding are helping to tackle the problem head-on.

Since 2020, the state has plugged 665 orphaned wells, a figure higher than earlier reports due to delays in reporting, according to the Louisiana Legislative Auditor.

This milestone was achieved through an initial $25 million federal grant supplemented by an additional $13 million from sources such as U.S. Fish and Wildlife.

Despite this success, the number of orphaned wells continues to grow faster than the state can address them. According to the LLA's Office, efforts to plug wells have increased by 250% since 2014, but the backlog persists due to improved identification efforts, rising inactive wells, and financial struggles among smaller operators.

"The wells are becoming orphaned faster than they can be plugged," Gina Brown, the legislative auditor's office audit manager, told the Legislative Audit Advisory Council on Thursday.

In 2014, only 25% of wells had financial security to cover plugging costs. That figure rose to 74% by 2024, yet these securities remain insufficient to cover actual costs, creating a financial gap that hinders progress.

Recent legislative changes have removed a $15 million cap on the Orphan Site Restoration fund, allowing the fund to grow and support ongoing plugging activities without delays.

Additionally, a production fee increase, supported even by industry skeptic Rep. Danny McCormick, R-Oil City, aims to generate more revenue for the OSR program. However, the legislative auditor's office warns that paying the fee is still cheaper than plugging a well, disincentivizing operators from fulfilling their obligations.

Concerns about high plugging costs and non-competitive bidding processes have prompted reforms. The state-run program now monitors expenditures closely, ensuring compliance with procurement laws.

Simultaneously, the Louisiana Orphaned Well Reclamation Authority, established in 2019, is under review for financial and operational transparency. Officials are analyzing data to determine necessary changes, with early findings indicating gaps in oversight and management.

One of the biggest issues involves LORA's partnership with Arcus Management Company, which handles administrative tasks but charges a 36% fee on revenues — well above the initially agreed 20% cap. This has raised questions about whether funds are being effectively used to plug wells.

"When administrative fees are factored in, it's not actually cheaper," Brown noted.

To address these oversight issues, Louisiana's Department of Energy and Natural Resources has created the Natural Resources Trust Authority. This new entity will oversee financial security and plugging operations, aiming to streamline efforts and improve accountability.

Deputy Secretary Dustin Davidson highlighted the authority's potential to bond out the OSR fund, potentially generating $500 million to address the $490 million liability associated with existing orphaned wells.

"This would allow us to plug what we know of right now and set ourselves up better for the future," Davidson said, emphasizing the need for sustained cooperation between state and federal entities.

Looking ahead, Louisiana plans to implement a comprehensive risk assessment strategy for both new and orphaned wells. This approach will evaluate environmental risks, operational challenges, and the financial capacity of operators to meet plugging obligations. The goal is to foster responsible business practices and reduce taxpayer burdens.

State officials credit funding from the Department of Interior's Orphan Well Program for much of the progress made so far.

They emphasize that continued collaboration with federal agencies and transparent operations will be crucial to sustaining these improvements.

"The [Landry] administration has been fully supportive in its efforts to reform plugging of wells," noted Michael J. "Mike" Waguespack, head of the LLA.