The Oklahoma Bar Journal May 2024

determine pressure. The inspector estimated the cost of plugging the well would be $48,200. The Smith well was plugged using state funds pursuant to an emergency order on July 18, 2023, but by then, the cost of plugging had ballooned to $70,852. The original order increasing Southcreek’s surety references 28 other wells in addi tion to the Peters and the Smith wells, six of which remain on the orphaned well list waiting to be plugged at taxpayers’ expense. As we have seen, the Commission may increase surety to discourage operators from operating wells that risk pollution, but the Commission is limited by statute to only address this issue after operators fall out of compliance. Absent a hearing and order determining that an operator has caused pollution or refused to properly plug wells, the Commission may not increase its surety beyond $25,000. 8 Notably, the Commission cannot consider an operator’s plugging liability when requesting an increase in surety absent an order addressing pollution or plugging. In other words, an operator may acquire an unlimited number of marginal wells and the associated plugging liability, and the Commission is prohibited by statute from increas ing their surety until they cause pollution or refuse to plug wells. By the time an event occurs that would result in increased surety, plugging liability may very well be greater than the maximum $100,000 surety, and the opera tor is incentivized to abandon those wells rather than pay the increased surety, fines and cost EFFORTS TO ADDRESS ORPHANED OIL AND GAS WELLS

properly. The Commission sought to raise or revoke Southcreek’s surety and assess fines. On Dec. 30, 2020, a hearing was held before an administrative law judge where a Commission field inspector testified that Southcreek had stopped mowing around the well and had not posted proper signs. He testified that he com plained to Southcreek in May 2019, but the operator had not taken any action. The field inspector also testified there was a hole in the production casing, and the well posed a risk of water pollution. Southcreek’s managing partner testified they were experiencing financial difficulties and could not afford to maintain their wells. Ultimately, the Commission ordered Southcreek’s surety to be forfeited and used to plug the Peters well. It also required Southcreek to post a new $100,000 surety before it could operate any wells in Oklahoma. While Southcreek forfeited its $25,000 surety, the field inspector testi fied it would cost approximately $28,000 to plug the Peters well. In addition to the Peters well, Southcreek operated 29 other wells, including the Smith well. Southcreek did pay a $1,000 fine but did not pay the increased surety, and those 29 wells became abandoned or “orphaned.” The Peters well was plugged in 2022. By 2023, the Smith well had become a problem. On Jan. 4, Director Strickland filed an application requesting an emer gency order to plug it. On Jan. 13, a field inspector testified the well was surrounded by pollution and threatened the surrounding cattle and water. The well site was so polluted the inspector could not gain access to the wellhead to

with a plugging liability greater than $25,000. An increased surety prevents a bad actor from continu ing to operate oil and gas wells but also incentivizes those bad actors to abandon wells. ILLUSTRATION The best way to illustrate this regulatory scheme regarding orphaned wells in Oklahoma is to review an actual case. For illus tration purposes, we will review SF 2023-000001, the first appli cation filed in 2023 in which the Commission sought to use public funds to plug a well filed on Jan. 4. The well at issue was the Smith No. 1 Well in Section 19, Township 7 North, Range 4 West, McClain County, Oklahoma. There was nothing unusual or special about this well or the application to plug it. It was chosen because it was the first well the Commission sought to plug last year. Jones & Pellow Oil Co. drilled the Smith well in 1965. It was bought and sold a few times until it was ultimately purchased by Southcreek Petroleum Co., officing in Blanchard in 1995. There is noth ing in the Commission’s records to suggest the Smith well was a prob lem between 1965 and 2023, but Southcreek operated another well, the Peters #1-28 Well in Section 28, Township 4 North, Range 1 West, Garvin County, Oklahoma. The Peters well was drilled in 1969, but production ceased in 2009. On Nov. 12, 2020, Robyn Strickland, director of the Oil and Gas Conservation Division, filed a complaint for contempt of rules and regulations, claiming that Southcreek had failed to remove materials that might constitute a fire hazard, failed to post proper lease signs and failed to plug the well

Statements or opinions expressed in the Oklahoma Bar Journal are those of the authors and do not necessarily reflect those of the Oklahoma Bar Association, its officers, Board of Governors, Board of Editors or staff.

32 | MAY 2024

THE OKLAHOMA BAR JOURNAL