New Mexico Faces an Impending Orphan Well Crisis that Could End up Costing NM More than $6000 per taxpayer

On October 20th the Oil Conservation Commission will begin a hearing on new regulations in Case No. 24683 brought by Western Environmental Law Center and allies to try to prevent the abandonment of oil and gas wells in New Mexico. New Energy Economy has intervened to support the applicants and advocate for even stronger regulations necessary to address the impending orphan well crisis that could cost New Mexico billions.

The Impending Orphan Well Crisis Could End up Costing NM More than $6000 per taxpayer if Stronger Laws and Enforcement are Not Implemented

New Mexico currently has about 60,500 oil and gas wells in production. According to the NM Legislative Finance Committee, 3,347 wells were listed as inactive in April, and about 27,000 (45%) of those wells are stripper wells - producing less than 10 Barrels of Oil or Equivalent per day. These low-producing wells emit climate altering and toxic gases, threaten our water, diminish property values, and don’t produce enough revenue to cover legally required plugging and remediation (cleaning up and restoring a site where oil/gas was extracted) costs. Under current laws and regulations, well operators are incentivized to keep inactive or low-producing wells unplugged as long as possible to avoid these plugging and remediation responsibilities and costs.

The legal requirement that an operator has to plug and remediate a well at the end of its useful life—which is triggered as soon as the drill bit pierces the land— is called an Asset Retirement Obligation (“ARO”). Oil operators pay a financial assurance bond - similar to a bail bond - in lieu of up front payment of their AROs. But the oil industry has developed a proven playbook for skipping bail and avoiding payment on those obligations —dumping their messes into the laps of local taxpayers and landowners by intentionally selling their low-producing wells to smaller companies that will never be able to pay their plugging and remediation obligations. Those operators continue to generate cash flow from these low-producing wells, but instead of setting aside earnings to pay AROs, all funds generated from sales are distributed to investors via “dividends” until ultimately the final owners declare bankruptcy, leaving their wells orphaned for the public to inherit.

Existing State laws and regulations are inadequate to combat this oil and gas industry practice:

• Existing State Programs Cannot Cover Current Liability: Although OCD has access to some funding for orphan well decommissioning through the New Mexico Reclamation Fund, the overwhelming majority of funding used to plug and remediate orphan wells has so far come from the federal government, and that funding has been halted under the Trump Administration. SB 519, a bill to shore up the Reclamation Fund and ensure those funds are used exclusively for plugging failed to pass in 2025, but even if it had, the amount collected would be nowhere near adequate.

• State Bonding Requirements Are Inadequate: Current law in New Mexico allows financial assurance bonds for AROs to cover an unlimited number of wells for only $250,000, which lags behind federal law and represents a fraction of the liability owed, resulting in a “bonding gap” between what is collected and actual plugging and remediation costs. The LFC reported that the average cost for well plugging in 2024 was $163,000, and gas wells averaged $303,063, while remediation of surrounding lands can reach into the millions. In 2024, Pro Publica and Capital & Main conducted calculations based on Oil and Conservation Division’s documents, filed with the Department of the Interior, and estimated the bonding gap to be $11.8 billion. That means New Mexico could ultimately pay more than $6,000 per taxpayer to foot the pending cleanup bill unless something is done to hold oil and gas operators accountable. That liability will only continue to rise as more wells are permitted.

NMED already has the power to reject well transfers from one operator to another, but they have turned a blind eye to the pending orphan well crisis. Unless this playbook is disrupted, New Mexican taxpayers will end up paying the price to clean up the oil and gas industry’s mess.

The rulemaking proposed at the Oil Conservation Commission in Case No. 24683 is an important first step to hold oil and gas accountable for cleanup. It can be strengthened by:

1. Ensuring that the new financial assurance rules will apply to oil and gas operators before they have already passed the point of potential or de facto bankruptcy. The increased financial assurance requirements in the proposed rule are triggered when 15% of an operator’s wells are in inactive status. Operators in this category are most likely to have already reached the point of financial insolvency in which ARO obligations exceed company assets. The rule should be triggered at a lower percentage of inactive wells to prevent increased rates of abandonment.

   
   

2. The proposed financial assurance amount of $150,000 is not based on any specific

   of cost. The amount should be set based on average plugging and remediation costs for a given well type in the prior fiscal year. The LFC report cited previously notes that in 2024 the average cost to plug a well in New Mexico was $163,000, ranging from $150,000 for oil wells to $303,000 for gas. 

   

   
   

3. The proposed rule only requires operators to provide financial assurances for "plugging," NOT remediation - a cost that the LFC writes could reach “potentially millions, depending on the scale of remediation needed.” The rule should include financial assurance for remediation based on the particularities of the remediation site and determined by an independent third party evaluator to be paid for by the operator.

   
   

The hearing on this case will begin October 20th, 2025. The public can provide written and oral comments supporting a strong rule to hold oil and gas operators accountable.