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New Mexico taxpayers could be on the hook for up to $8.1 billion to clean up abandoned oil and gas infrastructure if the companies operating them go bankrupt.
That’s according to an independent study conducted by the Center for Applied Research, a Colorado-based economic and policy research firm, at the request of the New Mexico State Land Office.
The study, released Thursday, examined whether the state has adequate financial assurance requirements in place to cover the full costs of cleaning up after oil and gas production on private and state trust lands.
Oil and gas companies must show they can pay to plug and abandon a well before they get a permit to drill under the state’s existing rules.
Chad Linse, an economist who worked on the report, says companies can provide financial assurance by setting aside money in a bank account jointly controlled with the state, or they can take out a bond that acts as a kind of insurance policy in case the company goes belly up.
But according to the study, the financial assurances provided by companies currently in operation only cover about $200 million of the total remediation costs.
State Land Commissioner Stephanie Garcia Richard tells SFR that’s because no requirements exist to cover costs of other aspects of remediation beyond plugging wells.
“When we had contemplated this before, we had looked at what the cost of plugging and abandoning a well is, but we had never looked at what the cost of pipe clean up and cost of remediating a site would be. So this is really like everything combined, like the whole picture,” says Garcia Richard. “Bonds exist, but they’re just not sufficient. They don’t contemplate things like pipe removal, site reconstruction and reseeding and ensuring that all contamination has been removed.”
Garcia Richard says the Land Office will consider new rules to address the $8.1 billion gap between current assurance requirements and the actual clean-up costs.
“We need to right-size our bonding requirements, our assurance requirements on any development that happens… on state land,” she says.
The office plans to begin a public engagement process to understand how changing assurance requirements would impact the public and local small businesses as soon as next month.
