Belcher: Texas Considers Funding for Abandoned Wells, Emissions Reduction

The Trump administration has undertaken massive efforts to review existing government programs and spending to increase efficiency and reduce waste.

The steps have created uncertainty over whether loans, grants and tax incentives that were established by the Biden administration through the Inflation Reduction Act (IRA) and Infrastructure Investment and Jobs Act (IIJA) will continue. Amid the uncertainty, the State of Texas is exploring its own mechanisms for incentivizing orphan well plugging and remediation and methane emissions reduction.

State Rep. Brooks Landgraf (R-Odessa) has introduced two bills that would provide more state money to plug and mitigate abandoned wells and reduce methane emissions. The bills, House Joint Resolution 47 and House Bill 188, would set aside 2% of the taxes currently collected from the state severance tax on oil and gas production to fund a Texas Severance Tax Revenue and Oil and Natural Gas (STRONG) Defense Fund. The fund would be applied to address orphan well and methane mitigation and other issues like teacher shortages, law enforcement and infrastructure challenges that exist in parts of the state with the most oil and gas production.

Landgraf notes that 80% of the revenues generated from severance taxes come from 32 oil producing counties, many of which are in the Permian Basin. He argues that these counties need reinvestment for the contributions that they make to the state.

Severance taxes in Texas in Fiscal Year 2022 totaled $10.83 billion, the most ever collected. Those revenues are currently distributed to the state’s savings account, known as the “rainy day fund,” which totals $21 billion.

There are currently 140,000 abandoned wells in the U.S., including more than 9,000 in Texas. The State of Texas defines orphan wells as non-compliant wells that have been inactive for a minimum of 12 months.

While the average well typically costs about $30,000 to plug, an increasing number of Texas wells are leaking contaminated water that needs to be remediated, which increases the cost per well to remediate. The Railroad Commission of Texas has asked the state to provide an additional $100 million in funds to address the issue. If Landgraf’s legislation were enacted, the Texas STRONG fund could pay for that mitigation.

Texas producers are also facing a host of new federal regulations regarding methane emissions. The EPA Methane Rule, which was implemented last year, requires producers to have leak detection and repair programs, and another rule requires emissions calculations and applies a methane waste emission fee. Meanwhile, the European Union (EU) has implemented a requirement that all gas imports into Europe be subject to emissions monitoring, reporting and verification.

While the Trump administration will likely overturn the methane fee and the methane rule is being litigated (Texas is a plaintiff), producers are nonetheless facing increasing pressure to reduce methane emissions and are already making great strides in doing so. For instance, the Texas Methane & Flaring Coalition reports that Permian Basin producers reduced methane emissions by more than 76% from 2011 to 2021, a period in which production increased more than 345%.  

New technologies, such as those provided by GHGSat, whose satellites and aircraft detect, monitor and measure methane emissions from oil and gas assets such as gas plants and compressor stations, are available to address methane emissions. These innovations can help producers and midstream companies identify and mitigate methane emissions on a greater scale, allowing them to comply with regulations and help meet EU import requirements.

In addition to plugging abandoned wells, funds provided by Landgraf’s STRONG Defense Fund could also be used to utilize advanced technologies to detect and mitigate methane emissions.

Programs on hold

The federal government created programs to fund methane emissions detection and mitigation and orphan well reclamation that could be applied to states and organizations. The IIJA released $4.707 billion for orphan well site plugging, remediation and restoration. This includes $250 million for a federal program, $4.275 billion for a state program in support of improvements to plugging standards and procedures and $150 million for a tribal program. The federal program allows federal agencies to spend the money on plugging, inventory, site remediation, methane emissions measurement and tracking and water contamination measurement and tracking.

To date, Texas has received grants totaling $105 million, which have been used to mitigate 737 wells, or roughly 10% of the state’s estimated orphan wells. Through a state-funded program, Texas has provided $63 million to plug 2,766 wells in 2023 and 2024.

The IRA created the Methane Emissions Reduction Program (MERP) through which the Department of Energy and Environmental Protection Agency (EPA) provide financial and technical assistance to states and organizations to reduce methane emissions. Through MERP, the federal government issued an $850 million funding opportunity announcement “to help small oil and natural gas operators reduce methane emissions and transition to available and innovative methane emissions reduction technologies, while also supporting partnerships that improve emissions measurement and provide accurate, transparent data to impacted communities.”

It also provided $350 million in formula funding to 14 eligible states to reduce methane emissions and utilize advanced methane reduction technologies to assist well owners and operators to reduce emissions from low producing conventional wells on federal lands. Texas was awarded $134 million in MERP funding for marginal conventional wells.

Additional federal funding could be available for methane emissions detection and mitigation and orphan well plugging should the Trump administration decide to continue those programs. In the meantime, the Texas Legislature is poised to consider its own solutions by adopting Landgraf’s bills establishing a STRONG Defense Fund, a move that could enable Texas to control its own destiny.