Mining clean up costs finally hit the state’s checkbook in a way that aroused legislator attention this week. The “Protect Water Quality Adverse Mining Impacts” bill (HB19-1113), that protects taxpayers from mining reclamation costs, passed the House Rural Affairs and Agriculture committee.
Two mining catastrophes, Summitville owned by Galactic Resources in Rio Grande County and Gold King Mine near Silverton, showed the state has inadequate financial protection against water contamination from cyanide and arsenic used in gold mining operations.
Summitville, with its mining permits based on job creation, cost $155 million in cleanup, with owner Galactic Resources chipping in only $30 million.
The Gold King mess resulted from the original mining and then EPA work to clean up the site. Gold King was abandoned in 1923 and its seepage, and seepage from nearby mines, killed fish in the Upper Animas water basin.
The 2015 blowout sent arsenic contaminated water down the Animas River, destroying recreation and clean water, and killing fish and plants into New Mexico. A permanent water treatment plant, costing $1.5 million/year to operate, is apparently not cleaning all the contamination as reported by the Associated Press. The AP found that 150 times the volume of the Gold King spill has flowed around the water treatment plant into a tributary of the Animas River.
The moral of these tales is clear: extraction industries do expensive damage and the companies doing the extraction often don’t pick up the reclamation costs of the damage they do. Now it looks like this story line may extend to the oil and gas industry digging holes across the state.
Hydraulic fracturing for oil and gas is booming along the Front Range and in other areas of the state. According to data from the Colorado Oil and Gas Conservation Commission (COGCC), the extractors pulled out 151,983,799 barrels of oil in 2018 with over 300 million barrels of processed water contaminated by drilling.
Contaminated water, usually forced back into extinguished wells, is not the state’s only financial risk. Once oil pumping is completed, the wells must be plugged to prevent polluting leaks and explosions. The state requires a $10,000 bond for plugging individual wells and $100,000 bond for a collection of wells to cover plugging costs.
Unfortunately, Inside Energy, a journal that brings “energy reporting down to earth,” reports that plugging wells, on average, costs significantly more than $10,000 per hole. Based on data from Wyoming, well-plugging costs varied from $560 to $527,820, depending on the depth of the well. The deeper the well, the higher the cost. That’s bad news for Colorado, as fracked oil and gas wells go deep.
Right now, the state has no backup plan to cover the insufficient bonding for plugging wells. Current severance tax rates won’t do the trick. A January 2018 analysis by the Colorado Legislative Council shows the severance tax rates run from 2 percent to 5 percent of the gross income value of oil and gas sold at the well head. There’s a catch. Much drilling product is sold at a point beyond the well head. Producers deduct the costs of transporting the oil and gas, reducing their severance tax liability. These deductions reduced severance tax by 92 percent in 2015.
Colorado has thousands of “orphaned wells” in the plains and other oil communities. The cost of properly maintaining the safety of these holes defaults to the state and its taxpayers when owners split town. The Wyoming study says that 3 percent of wells turn orphan at some point. The Colorado census of old and producing wells is about 100,000. That puts 3,000 wells at high risk of defaulting to taxpayers.
Colorado legislators shouldn’t wait 110 years, as with the Gold King mess, to mitigate its risk. The legislature, as it reforms the COGCC, should require drillers to cover the full cost of their operations through higher bonding or an increased severance tax, or both.
Paula Noonan owns Colorado Capitol Watch, the state’s premier legislature tracking platform.