On a Collision Course
The Cattlman Magazine (May 2004)
By Lorie Woodward Cantu

“Clean, freshwater is the lifeblood of rural Texas,” Beveridge says. “And yet, for years, these wells have been allowed to sit idly, deteriorating and becoming a greater threat with each passing year. No one wants to take responsibility for the mess because this issue is often characterized as a ‘landowner problem’ or a ‘rural problem,’ when actually it’s a citizens’ problem.”

As long as a substantial amount of crude oil is being drawn up through a well’s casing, it is an asset for the petroleum company, the mineral owner, and the economy. But when the oil is gone, an old oil well can quickly become a liability for the company, the landowner and the environment.

In many cases, unscrupulous operators have responded by simply walking away or by exploiting the state’s exceptions on plugging old oil wells. In either case, the hole remains open and contamination is possible.
When the oil is depleted, the casing, in most cases, eventually fills with saltwater. In Texas rarely do oil deposits exist without saltwater, remnants of ancient seas that once covered Texas.

During the geologic events that created these underground saltwater deposits, some of the water evaporated concentrating the chlorides at very high levels ranging from 25,000 parts per million (ppm) to 250,000 ppm.
For comparison, slightly saline groundwater near the surface contains about 200 ppm to 2,000 ppm of chlorides; it maintains that lower level of salinity because it is refreshed by periodic in-flows of freshwater. Underground saltwater is not refreshed and it can be exceptionally corrosive.

The metal casing that operators use to reinforce the well’s sides and retrieve the oil, go through many geologic formations including freshwater sands before reaching the oil deposits. The freshwater sands and their related aquifers are generally found within 1,000 feet of the surface, meaning that most oil well casings intersect these layers.

As the underground saltwater fills the casing of a non-productive well, the threat to the freshwater increases, Beveridge says.

First, the concentrated saltwater rises through the casing toward the surface, bringing it in close proximity to the freshwater sands. Second, the metal casing, subject to the corrosion of both crude oil and saltwater, can be damaged and holes can develop that will allow the saltwater to enter the freshwater supply in a “plume.”

“The only thing standing between our freshwater supplies and the potential saltwater is the thickness of the metal pipe, and the surrounding cement, if the cementing job happens to be done properly,” Beveridge says.

Although the RRC has no published engineering reports that specify how long oil well casings remains viable, prevailing wisdom puts the “shelf life” at 20 years. At 25 years, the RRC classifies a well as “high risk,” meaning that the casing’s integrity has become questionable.

The only way to prevent saltwater from migrating up an empty well casing and threatening freshwater supplies is by plugging the well with cement. Although each well has to be dealt with individually, the standard RRC-approved practice requires that a cement plug be placed at the bottom of the well, and then additional plugs be placed 100 feet above and below all the areas that are to be protected.

Currently, experts estimate the average cost of plugging a well is $12,500 – $15,000. Obviously, it can be much more expensive.

While plugging a well entails considerable expense, it is money well spent.

Scott Petty, managing partner of the Petty Ranch Company and a TLMA director says, “Nobody can imagine how valuable freshwater is until it is gone.” As a landowner, Petty has been dealing with the issue of shut-in oil wells since the mid-1970s.

There is no technology for reclaiming an aquifer that has been contaminated by saltwater. Petty noted that polluted aquifers are a problem in other parts of the nation, and those citizens are “having to live with them.”

In addition, saltwater can migrate through an aquifer meaning that unplugged wells on neighboring property can affect all the water on their neighbors’ land.

Beveridge says, “In my work with TLMA, I’ve heard people say, ‘I don’t have any old wells. I don’t have a problem.’ Unfortunately, that is not true. If your neighbor has a problem, it can quickly become yours, too.”

If saltwater contamination occurs and makes the freshwater unusable, there is nothing that can be done to repair the water supply. Once the water is useless, the land sustained by it becomes much less valuable.

“Contaminated freshwater renders the surrounding land virtually worthless,” Beveridge says. “Imagine having to survive on rainwater alone. You couldn’t raise cattle. You couldn’t manage wildlife. You would be hard-pressed to raise crops. And who would want to buy a recreational ranch that is bone dry?”

The regulatory obstacles
For much of the 20th century, petroleum was Texas’ biggest business. When oil and gas professionals spoke, people – including legislators and regulators – listened and acted accordingly. As a result, many of the laws and regulations that govern oil and gas production reflect our state’s long-standing, pro-industry stance.

A West Texas petroleum engineer, who has spent 30 years working in oil fields around the country, says, “From an industry perspective, it is much easier to do business in Texas than it is anywhere else that I’ve worked. It is obvious that the rules and regs were written with the industry in mind.”

Initially, the RRC’s job was regulating the amount of oil and gas produced in Texas. Each month, it calculated “allowables” and told operators how much product they were allowed to produce and market. Until the last 20 years, the RRC has viewed itself as part of the oil and gas industry, Beveridge says.

As a result of this historic alliance, many of the regulations have loopholes that knowledgeable operators can exploit.

For instance, the RRC has rules that require operators to plug an abandoned or shut-in well, but, according to industry observers, it is not actively enforced. Because a well is considered active if it produces just three barrels of oil per month, some operators leave barely functioning wells in service to avoid paying for plugging, Beveridge says.

Another loophole allows the operator to treat an entire lease as a single entity.

For instance, if an operator has a lease that contains 40 wells and only three of them are producing oil, the operator may leave the 37 inactive wells unplugged until all production on that lease ceases. At that time, the operator is responsible for plugging them within one year, but then can apply for a series of plugging exceptions that can extend that period almost indefinitely.

The West Texas petroleum engineer, who has worked for medium- to large-sized companies, says, “It seems that the regulators focus their attention on the larger operators because those companies have the resources and the will to do what is right. From my personal observation, it seems that the small independents, if they choose to be irresponsible, have a good chance of getting away with it.”

Today, the RRC’s scope has expanded to include groundwater protection as it relates to oil and gas production through a memorandum of understanding with the Texas Commission on Environmental Quality (TCEQ).

TCEQ is the state’s lead agency for environmental protection. (TCEQ gets its authority from a memorandum of understanding with the federal Environmental Protection Agency.) TCEQ has jurisdiction over all other forms of groundwater protection.
“The Texas Commission on Environmental Quality has a reputation for aggressively enforcing water protection laws,” Beveridge says. “To date, the RRC has not shown the same zeal for groundwater protection.”

The RRC has nine district offices throughout Texas. Each of these offices houses at least one district geologist. Beveridge has made a point to call these district geologists to determine what they know about the local groundwater situation.

He says the responses to his questions are very direct. When asked about the local aquifers, almost every geologist says, “I am not a hydrologist. I don’t know much about the aquifers around here.” There is no formal process for the RRC geologists to work with the Texas Commission on Environmental Quality’s hydrologists.

“There is a complete disconnect between these two agencies that lies at the root of many of these problems,” Beveridge says.

The physical and fiscal obstacles

The issue of abandoned oil wells has always been a problem but it reached a peak in the mid-1980s when the oil industry suffered one of its periodic busts. At that time, hundreds of operators, particularly small, independent companies, went “belly up” and walked away from their leases, their wells and their responsibilities.

During that time period, the RRC’s inventory of abandoned wells ballooned to its current level of 20,000. In addition, the RRC’s inventory of shut-in wells, abandoned wells that are non-productive, but that have known operators who are still in business, climbed from 64,000 in 1991 to approximately 95,000 today.

Over the last two decades the problem went from seemingly minute to unmanageable.

In 1983, the Texas Legislature granted the RRC the authority to plug abandoned wells, but it wasn’t until 1991 that the Legislature enacted the Oilfield Cleanup Fund to help cover the cost of the plugging. Essentially oil field operators support the fund through fees. Unfortunately, it is the good corporate citizens who foot most of the bill to clean up after the industry’s less scrupulous operators, Beveridge says.

While the amount of money collected is significant, it is just a drop in the proverbial bucket because of the problem’s scope.

In 2001, the Legislature passed Senate Bill 310 that increased the amount available to address the abandoned well problem. Today, the RRC spends $6 million annually to plug about 1,500 wells.

At this rate, according to the TLMA it will take the agency 74 years to plug all the abandoned and shut-in wells on its inventory. This scenario doesn’t take into account the 242,932 active wells that will eventually be depleted and need to be plugged as well.
Because the RRC has limited funds and an almost unlimited need, the agency has to prioritize where and how it spends its well-plugging dollars. It uses a risk-assessment process that focuses on criteria, such as age of the well and its proximity to surface water or water wells to help determine which wells need immediate attention.

“The RRC does an exceptional job of plugging wells with the resources that the agency has,” Beveridge says. “Unfortunately, the RRC doesn’t have nearly enough money or manpower to take care of the problem.”

If an unplugged well isn’t deemed high risk and doesn’t present an imminent threat to nearby freshwater, it will be added to the ever-growing list of wells that need attention. In some cases, though, even an imminent threat to freshwater doesn’t bring relief to a landowner.

On one of Petty’s South Texas ranches, there is an old oil well, drilled in the mid-70s, that the RRC deemed unsuitable to be used as a saltwater disposal well. According to the RRC’s letter, the well’s location posed an “imminent threat of migration” to the Wilcox Aquifer, and yet, even with that ruling, Petty cannot get the old well plugged.

“When I’ve taken my concerns to the RRC, I’ve been told: ‘This is between you and the operator. Sue the operator to make it right.’ Well, that is much easier says than done,” Petty says.

The legal obstacles
While filing suit may sound like the practical solution for landowners, the road to the courthouse is fraught with canyon-sized potholes.

Joseph B.C. Fitzsimons, who is an attorney who specializes in oil and gas law and a South Texas ranch owner, says, “The obstacles in litigation are formidable.”

Many of the obstacles can be traced to the State’s historic pro-oil industry mindset. According to Fitzsimons, the bulk of common law clearly favors the lessor/operator over the royalty owner or the landowner. Fortunately, for those who are currently negotiating new oil and gas leases specific lease clauses will override the common law, he says.

It works. Recently, Petty, because of a well-drawn modern lease agreement, was able to get an operator to plug 28 wells on one of the family’s ranches.

Petty says, “It is vital that any new leases be drawn up very carefully and that, as a landowner, you take nothing for granted. Historically, oil companies don’t include lease provisions that protect landowners.”

He suggested that landowners require operators to establish a landowner-controlled escrow account as part of any new lease agreement. The money in the account is designated for well plugging and necessary clean up, ensuring that there is money to do what needs to be done regardless of the operator’s financial health.

But if specific lease requirements are not clearly enumerated or if the lease is an old form that favors the operator, landowners have very little legal recourse to either restore or reclaim the property. The lease must clearly require that the operator cover the cost of restoring the surface or that the operator must plug unproductive wells, Fitzsimons says.

For instance, if saltwater from an adjoining unplugged oil well has contaminated the freshwater on an adjoining piece of property, the landowner can file a “trespass suit for damage to land,” he says.

These particular suits are applicable if there is not a lease requiring the operator to plug abandoned oil wells, Fitzsimons says. But, absent a lease or other contract, these suits have a two-year statute of limitations. The time runs from the “first injury,” not from the time it is later discovered. If a landowner discovers the damage three years after it occurred, then there is no legal recourse.

Two recent cases, Walton v. Phillips and Exxon v. Pluff, made it even more difficult to collect damages from an operator, Fitzsimons says. In these cases, the judges ruled that a landowner is only entitled to the loss of value in land that occurred because of the damages, but is not entitled to the cost of remediation to repair those damages.

For instance, if the land was worth $4 million and after the damage it was worth $3 million dollars, the award would be only $1 million. The operator would only be responsible for the $1 million difference, even if the landowner’s remediation costs were $10 million.

In addition, a landowner who files a “trespass suit for damage to land” cannot recover attorney’s fees, Fitzsimons says. If the landowner wins the lawsuit, the attorney’s fees come out of the damage award, which, in many cases, can prevent the suits from being filed.

Landowners who have a modern-lease agreement requiring an operator to properly plug shut-in wells can file a “breach of contract suit” if the operator fails to comply, Fitzsimons says. In this instance, the statute of limitations is four years and the burden of proof rests on the landowner.

“Without a modern-lease agreement that explicitly spells out the requirements of the lease, a landowner has very little recourse,” Fitzsimons says. “Many of these shut-in wells are governed by the provisions of old lease agreements and there is not much people can do except hope that some day these wells are plugged by the RRC. It’s a significant problem that will continue to increase.”

The legislative solutions
The only real solution rests in the hands of the 150 state representatives and 31 state senators who serve in the Texas Legislature. They, with governor’s signature, could alleviate the problem of unplugged, shut-in oil wells. First, though, they must realize the magnitude of the problem.

Raising the issue of plugging shut-in wells within the halls of the Capitol and in front of the RRC is TLMA’s primary focus. It is a grassroots organization with 1,500 members from across the state who are working to protect our groundwater from the effects of irresponsible oilfield operators.

Beveridge says, “For the past six years, TLMA has been gathering facts, figures and raising the profile of this issue. We’ve held meetings statewide. We’ve testified before state leaders. We’re dedicated to making people understand that unplugged oil wells pose a threat to all Texans, not just rural Texans.”

The organization was started in 1999, after King Ranch had endured a variety of oil-field related problems and discovered that even with its resources relief was almost non-existent. As King Ranch family members and employees began talking to neighbors and friends, they quickly discovering that they were not alone.

After six years, the organization has gained a foothold in Austin. During the 2003 session, the group earned its first unanimous vote in the Senate and was able to get almost one-third of the representatives to support its measure in the House. This strong showing is a definite sign that legislators are beginning to understand both sides of the issue.

“In many areas where shut-in wells are a problem, there is still oil and gas production, which complicates the situation,” Beveridge says. “The oil lobby has always been able to tell their story, but now our state leaders are hearing the other side – our side – too.”
With the on-going debates centering on water, TLMA members believe that the 2005 session could be pivotal, particularly, if they can enlist the support of other land and mineral owners.

“In politics, numbers are a fact of life,” Beveridge says. “The more people you have involved in an issue, the more likely you are to get positive results.”

Unlike many issues that the Legislature faces, the issue of plugging shut-in oil wells has some concrete remedies, which balance the well-being of the environment with the well-being of the oil industry.

Beveridge suggests every oil company in Texas should be required to annually plug a certain percentage of the shut-in wells on its inventory in order to keep operating in Texas.

“The Legislature could require each oil company to plug seven percent to 10 percent of its shut-in wells annually,” Beveridge says. “It is not an unreasonable solution. Consumers who have credit card debts have to pay their balances incrementally and work toward paying off what they owe. Oil companies should be no different.”

He also says the Legislature should remove the dual responsibility for groundwater regulation.

“The Texas Commission on Environmental Quality should be given sole responsibility for protecting our groundwater or the RRC should be held to a similar standard of enforcement,” he says. “The bottom line is that no matter what agency oversees them, the oil companies should have the same corporate responsibilities toward groundwater as other industries.”

Petty says that the Legislature should limit the amount of time that oil companies have to plug a non-productive well. Currently, exceptions exist that allow to oil companies to keep the holes open almost indefinitely, he says.

“My background is the oil business, so I realize how vital it is to our state and national economy,” Petty says. “But most other industries have to be part of the community and have to respond to the needs of the citizens. Clean water is a need of every citizen.”

Fitzsimons says Texas should join the ranks of other oil-producing states and have a “Surface Damage Act,” which sets a minimum standard of “conduct” for oil companies, regardless of individual lease language. Texas is the only major oil-producing state without one, he says. In the past session, H.B. 1803, which was a Surface Damage Act, was filed, but died in committee.

In addition, he says, the law should be changed to allow landowners to recoup the full cost of remediation.

“I don’t think people sign lease agreements intending to create a “put” on their land, but currently this is exactly what happens,” Fitzsimons says.

All three men agreed that the Oil Field Cleanup Fund should be fully funded.

“The most direct solution to the problem is to increase the RRC’s funding and to tell them to get the wells plugged,” Beveridge says. “The size, the scope and the cost of the problem are rising with each day that we wait. If something is not done, then all Texans will pay the price.”