New Mexico Taxpayers on the Hook for Millions as “Orphaned” Oil Sites Proliferate
Santa Fe, NM – New Mexico is facing a growing financial risk from abandoned oil and gas sites, with cleanup costs already reaching into the millions and the potential for a “skyrocketing” state liability during industry downturns, according to a recent Finance committee report and interviews with state officials. The issue, dubbed the problem of “oilfield orphans,” highlights vulnerabilities in the state’s regulatory framework and the potential for taxpayers to bear the burden of environmental remediation when companies fail to properly close and clean up well sites.
The case of Chuza Oil, whose abandoned tank battery near Gallup is currently undergoing a $650,000 cleanup funded by the state, exemplifies the problem. Despite the site being on federal land – and thus outside of direct state jurisdiction – New Mexico ultimately footed the bill.
The state’s oil Conservation Division (OCD) recorded 326 companies producing 740 million barrels of oil in 2024, but production is heavily concentrated. Just 25 companies accounted for 92% of the total oil output, a similar pattern exists for natural gas. This concentration raises concerns about the financial stability of the numerous smaller producers, who are frequently enough the first to struggle during economic downturns.
State Representative Matt McQueen (D-Gallisteo) has been advocating for stricter regulations to prevent future orphaned wells. He proposed legislation in the last session that would have held well owners responsible for remediation costs even after selling wells to companies that later go bankrupt - mirroring federal regulations. “It would cause the industry to self-police and make sure that any future operators had the wherewithal to properly remediate well sites,” McQueen stated. However, the bill did not pass.
Another proposal by McQueen aimed to screen potential oil and gas buyers, weeding out those lacking the financial resources or with a history of negligence or bankruptcy, also failed to gain traction.
The Finance Committee report echoes McQueen’s concerns, recommending the OCD be granted the authority to disallow well sales if a purchaser is deemed unlikely to meet future cleanup obligations. It also suggests increasing financial assurances required from operators,particularly for low-producing wells which are more prone to being abandoned.
Ben Shelton, deputy cabinet secretary of the New Mexico Energy, Minerals and Natural Resources Department, acknowledged the report’s findings. “The report got a lot right, including identifying a need for [the Division] to be able to scrutinize transfers more closely in order to reduce the likely incidences of orphaned wells.”
While the OCD currently lacks specific data on the number of orphaned tank batteries or their average cleanup costs, recent cleanups have been ample.Three tank battery cleanups cost the state $623,000, $5.1 million, and $7.6 million respectively. The Chuza Oil site will add to this growing expense.
According to Sandel at Aztec Well Servicing, the company currently cleaning up the Chuza Oil site, the amount of contaminated soil discovered was higher than anticipated, but “not abnormal” for these types of cleanups. The process remains ongoing as of publication.