Jan. 15—An infusion of federal money is helping New Mexico make progress in plugging orphaned oil wells scattered across the Permian and San Juan basins, but regulators say it will be important for the state to require more upfront financial assurance from drillers to cover cleanup of defunct wells.

“Orphaned” is the term generally used for wells scrapped by operators who go bankrupt or out of business. The state becomes responsible for plugging those wells and restoring the contaminated sites when they are on state or private lands, and it works with the U.S. Bureau of Land Management to plug abandoned wells on federal sites.

The deserted wells are considered an environmental hazard because they can leak methane, a potent greenhouse gas, into the atmosphere and enable toxins to seep into groundwater.

The state Oil Conservation Division received $25 million in late 2022 through the federal infrastructure law, and it could receive $142 million more in various federal funds in the coming decade to tackle orphaned wells.

It’s part of the $4.7 billion the federal government plans to dish out to clean up about 130,000 orphaned wells across the country.

The $25 million the agency received has enabled it to plug 134 wells as of early December — more than three times what it previously had accomplished in a year. Before, the state relied on a reclamation fund, which operators pay into through a severance tax.

By plugging the wells, the state has removed 4,800 tons of carbon dioxide emitted in a year, the equivalent of taking 1,000 cars off the road, Dylan Fuge, the division’s acting director, said in a December legislative hearing.

Although there are relatively few individual orphaned wells that could be deemed “super emitters,” the wells collectively can create significant pollution, Fuge told the legislative Radioactive and Hazardous Materials Committee.

“So, we are making a difference,” Fuge said.

Still, the agency has barely dented the estimated 1,700 orphaned wells on state and private lands. In 2022, it listed more than 5,000 other wells as inactive, a condition industry watchdogs say often leads to the sites becoming orphaned.

Plugging a well typically costs an average of $125,000, and remediation — which involves restoring a site — can range from $35,000 to millions of dollars, depending on how extensively the site is contaminated or damaged, Fuge said.

The total cost of plugging New Mexico’s orphaned wells, including future ones, will be about $600 million by 2050, he said, noting the estimate doesn’t include remediation because those costs vary.

The agency can pursue an order to compel an operator to plug a well that has been inactive for 12 to 15 months, Fuge said. It also can go after operators for more money to cover the costs to plug and remediate wells they left behind.

The trouble is those operators often are insolvent or have declared bankruptcy, making it nearly impossible to collect money, Fuge said.

That’s why state regulators seek to reform bonding in this year’s legislative session so drillers pay more upfront to ensure there’s adequate money to cover plugging costs if they walk away from their wells, he said.

The proposed bonding reform is part of a coordinated effort by Gov. Michelle Lujan Grisham to update the nearly 90-year-old Oil and Gas Act.

Critics say blanket bonding is especially low, with operators paying $250,000 to cover 100-plus wells, a fraction of potential cleanup costs. State regulators propose raising the ceiling to $10 million.

At the legislative hearing, Rep. Debra Sariñana, D-Albuquerque, said the burden shouldn’t be on the state to clean up after a multibillion-dollar industry.

“I don’t know why we should have to clean this up,” Sariñana said.

State Sen. Jeff Steinborn, D-Las Cruces, said if remediation costs are thrown in, the price for dealing with orphaned wells could swell to more than $1 billion dollars by 2050 — all the more reason to increase bonding requirements to make companies pay their fair share.

“Hopefully that’s a priority with the division to not stick that bill with taxpayers and as much as possible to get industry pay their bill,” Steinborn said. “It’s another one of those areas where I hope that we as a Legislature step up to the plate.”