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A map of Louisiana's orphaned oil and gas wells as of April 2024. Facebook Twitter WhatsApp SMS Email Print Copy article link Save The Louisiana House this week passed two bills that aim to address the state’s struggling and underfunded orphaned oil and gas well program . Both measures, designed to make it easier for the state to collect funds to plug orphaned wells and to improve oversight of the financial side of Louisiana’s well-plugging programs, must pass the Senate before they head to Gov.
Jeff Landry’s desk for his signature. The bills mark part of the Department of Energy and Natural Resources’ continued effort to overhaul the state's management of “orphaned” oil and gas wells. Wells may become orphaned after an operator abandons them or if they fall out of compliance with state regulations.
The legislation is “critically needed in order to ensure that we are providing for the best return to the state in terms of plugging and abandonment of orphaned oil and gas wells,” Dustin Davidson, deputy secretary of the Department of Energy and Natural Resources, told legislators Wednesday during a meeting of the House Committee on Natural Resources and the Environment. Louisiana has about 4,700 orphaned wells scattered across the state. A recent report from the Louisiana Legislative Auditor found that plugging all of them would cost about $542.
9 million. Most well operators are required to have financial security, such as a promise from a bank, to ensure there is money left to plug a well should the operator go out of business. The audit found the state has not been requiring enough financial security to cover those costs, and that its own plugging program, Oilfield Site Restoration, is underfunded.
DENR Secretary Tyler Gray, who took over the agency this year, has agreed with the audit’s findings and said the agency is working on ways to address problems with Louisiana’s well-plugging programs. More funds for well-plugging Oilfield Site Restoration gets much of its money from gas production fees, which haven’t gone up since 2004, the audit says, adding that oil production fees also contribute to the fund. But the state must stop collecting those fees after the OSR fund reaches $14 million.
House Bill 12 by Rep. Daryl Deshotel, R-Marksville, would do away with that $14 million cap. House Bill 23 , sponsored by Rep.
Brett Geymann, R-Lake Charles, would make further changes. If passed, it would increase oil production fees and create a graduated system for gas fees, raising those fees if gas prices reach a certain threshold. During the House Committee on Natural Resources and the Environment meeting, Gray said the new fee system could bring in another $8 million a year, raising the OSR fund to about $20 million.
New financial oversight HB 23 also seeks to shifts oversight of OSR expenditures to a newly-created entity called the Natural Resources Trust Authority. Previously, the OSR Commission oversaw the funds. HB 23 would dissolve that panel.
The Natural Resources Trust Authority was formed through legislation that Gray championed in the spring. The trust authority aims to bring financial expertise to Louisiana’s dealings with well operators, assessing risk levels and scrutinizing financial security requirements, the DENR has said. Both HB 12 and HB 23 passed overwhelmingly.
Impact on LORA The trust authority will also oversee entities like the Louisiana Oilfield Restoration Association, or LORA. LORA is a third party that the state enlisted in 2019 to provide financial security to well operators in exchange for a small fee from those operators, even though LORA was not a regulated financial institution. LORA has come under scrutiny in recent weeks after an East Baton Rouge Parish Sheriff’s Office warrant alleged a DENR employee of accepting $780,000 from LORA to buy a house .
The employee, Johnny Adams, has denied wrongdoing. But the scandal has drawn more attention to LORA’s operations. A second audit released last month found that the Office of Conservation has failed to properly oversee LORA , and that the organization could be a major financial liability to the state.
The audit found that, as of 2023, LORA provided 45.5% of all financial security in the state, or a total of $157.3 million, yet had a $5 million minimum reserve.
If LORA stops operating, the state would be responsible for plugging the wells that LORA backed, according to the audit. LORA has defended its record of plugging wells and said it is willing to work with the state to improve the program. “LORA provides an important service to the State of Louisiana and companies that operate here using private industry dollars at no cost to the state or its taxpayers,” David LaPlante said Friday in a statement on LORA’s behalf.
“We look forward to working with LDENR and the Trust Authority to address the concerns raised in the Legislative Auditor's Report, improve the program and continue our mission to protect Louisiana’s environment by plugging orphaned wells and providing affordable financial security to the state’s oil and gas industry." In an effort to show that it has already tried to improve the program, LORA also released letters it has sent to the Office of Conservation. One shows that, last October, LORA suggested increasing its minimum reserve to about $7.
25 million. In that letter, LORA also asked to increase the fees it charged operators, citing increased plugging costs. It suggested tailoring those fees based on the client.
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