Oil boom in New Mexico could stick taxpayers with cleanup costs -study

[May 20, 2021]  By Nichola Groom

(Reuters) - Drillers in New Mexico have set aside only a tiny fraction of the money they will eventually need to clean up their wells, pipelines and other infrastructure in the state, leaving taxpayers at risk of footing some of the balance, according to a study published on Thursday.

Concerns are growing about who will pay for the environmental impact of more than a century of oil and gas production in the United States. The issue is front and center in New Mexico, which has rapidly grown into the nation's third-largest oil producer.

State regulations require drillers to pay an up-front bond ranging from more than $25,000 to less than $2,500 per well - depending on how many total wells the company operates. The funds are set aside to cover cleanups if companies go bankrupt.

But those requirements are too low, according to the study, conducted by economics research firm The Center for Applied Research with cooperation from New Mexico state agencies that oversee oil and gas development.

The study estimated that it would cost $8.38 billion to close all the oil and gas infrastructure on New Mexico's state and private lands, and that the money available to finance that work through bonds purchased by drillers added up to just $201.4 million. That leaves a potential funding gap of nearly $8.2 billion.

A drilling rig operates in the Permian Basin oil and natural gas production area in Lea County, New Mexico, U.S., February 10, 2019. REUTERS/Nick Oxford//File Photo

"The results are staggering," New Mexico Commissioner of Public Lands Stephanie Garcia Richard said in a statement. "Enormous sums of taxpayer money and money meant for public schools, along with the long-term health of our lands, are on the line," she said.

For plugging and abandoning individual oil and gas wells on state lands, the funding gap is about $86,100 per well.

That rises to $182,600 if site decommissioning and surface reclamation costs are included.

The shortfall in funding to close and clean up pipelines on state lands was about $211,000 per mile, the report said.

The study did not include oil and gas operations on federally owned land, which accounts for nearly a third of the state's land and has distinct bonding requirements.

(Reporting by Nichola Groom; Editing by David Gregorio)

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