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Commodities

Texas oil regulator under scrutiny as zombie wells gush back to life

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By Valerie Volcovici

PECOS COUNTY, Texas (Reuters) -On a sprawling ranch in Pecos County in late July, oil well control specialist Hawk Dunlap used a backhoe to uncover an abandoned or so-called zombie well that had sprung back to life despite being plugged just over a year earlier, hissing gas and bubbling toxic water into the dry Texas dirt.

Dressed in bright red coveralls and a silver hard hat, Dunlap hopped off the machine and into the hole to clear away remaining soil with a shovel, and then picked up a brittle chunk of cement that was part of the casing meant to keep fluids and gases underground. He crushed the cement into dust with a light squeeze of his fingers as the Briggs family, who own the ranch, formed a circle around him. 

“This was not plugged properly,” Dunlap said. “This is the work of the three stooges of the Railroad Commission.”

The Railroad Commission (RRC) is the regulatory body that, despite its name, oversees oil and gas operations in Texas. And Dunlap, a three-decade veteran of oil fields around the globe, has become one of its most vocal critics. 

Armed with a portable gas detector and mobile phone, Dunlap has spent much of the last two-and-a-half years documenting a flurry of oil well blow-outs and leaks across West Texas at the behest of landowners, in an epidemic he says is being caused by low-quality plugging jobs left behind by operators and their contractors and approved by the RRC.

He and his partner Sarah Stogner, an oil and gas lawyer who documents their work on social media, say they have now recorded over 100 leaking legacy or “orphan” wells with no responsible owner, which were listed in RRC records as properly plugged, including the one at the Briggs Ranch in Pecos County. 

Reuters reporting in West Texas, along with interviews with landowners and experts and a review of RRC records show why the state regulator is under increased pressure to step up its oversight. The added scrutiny comes at a time when over the last two years, more and more abandoned wells have started to spill or even gushed geyser-like, formed salt and chemical-laden lakes or caused sinkholes.

Making matters worse is the rising pressure pushing up from beneath the ground due to the billions of gallons of wastewater injected back into reservoirs for disposal in latest fracking-led drilling boom in the Permian basin, the largest U.S. oilfield. That pressure, Dunlap says, likely causes the badly plugged wells to burst. 

The U.S. Environmental Protection Agency said it would investigate whether to revoke the RRC’s permitting authority for waste disposal wells after Texas watchdog group Commission Shift filed a federal complaint alleging mismanagement.

RRC spokesperson Patty Ramon said the EPA has not yet contacted them to launch the review, and noted the agency previously commended its underground injection program.

“We will assist them with any input if they do,” Ramon said.

Faced with the rising number of calls from worried landowners, Dunlap is running a long-shot campaign to win one of the three RRC seats as a libertarian this autumn, hoping to change the organization from within.    

“It’s about seeing that things are done right and not letting oil companies run over the citizens of Texas just because they produce oil and gas and pay some royalties,” he told Reuters.

Among the changes he would like to see: quicker and better quality plugging of wells, accountability for the oil companies who left them behind, and a new name for the Railroad Commission to make clear it regulates the oil industry.

“I spent 27 years roaming the Earth lauding the fact that Texas does it bigger and better than everybody else. So you have to understand that when we started excavating and investigating … it was, quite a bit of a gut punch for me,” said Dunlap, who has worked in 103 countries.

    PERFECT STORM

Without a solvent owner of record, the responsibility of plugging these orphan wells falls on the RRC, which plans to plug 2,000 wells this year with state funds.

While the RRC has documented over 8,500 inactive or unplugged orphan wells in Texas, experts estimate there are thousands more undocumented, the legacy of more than a century of drilling, that are not eligible for closure funding. 

Meanwhile, oil drillers working new wells in the Permian overlying Texas and New Mexico are accumulating around 24 million barrels daily of “produced water” – the salty mixture that comes up alongside oil and gas, according to Laura Capper with energy advisory EnergyMakers. Between 40-55% of this water is injected in local disposal wells, with much of the rest reused for oil operations, she said. 

On top of concerns of produced water – laden with chemicals like radium and boron – threatening local aquifers and vegetation, all the drilling, pumping, and reinjection is causing the earth to rise and subside in places and triggering quakes, landowners and activists say. 

“It is this perfect storm in the Permian with all this produced water, earthquakes and orphan wells,” said Adam Peltz, director of the Environmental Defense Fund’s Energy Program.

Deep injections of wastewater have triggered earthquakes, which has led to the RRC restricting new drilling permits in some areas. Shallower injections, however, overpressure the subsurface, causing poorly plugged wells to leak or blow.

The RRC pushed back on the assertion that the problem is widespread.

“There is little evidence of a widespread occurrence of previously plugged wells leaking,” Ramon said, adding that commission inspectors put “high-risk, high-priority wells” at the top of their plugging list. 

In 2022, Texas received a $25 million initial grant from the bipartisan infrastructure law’s Orphaned Well Program to address the issue. It got another $80 million in January but with strings attached: use of the money requires the RRC to measure the amount of methane and other gases leaking from plugged wells before and after plugging. 

The RRC has estimated that it will need over $481 million total to plug its wells.    

Ramon said the RRC has used up the first tranche of federal funds and begun to tap into the larger tranche, in addition to its state orphan well funds. She said the agency is “complying with federal requirements.”

‘ONLY GETTING WORSE’

Meanwhile, scientists have been firming up the link between wastewater injection and erupting wells.

A paper published in July by Geophysical Research Letters by researchers from Southern Methodist University, for example, showed that a massive orphan well blowout in Crane County, Texas, in 2022 was caused mainly by wastewater injection taking place several miles away.

The RRC is also investigating the link but has not yet published a conclusion. It shut in two saltwater disposal wells after a series of earthquakes just northwest of Pecos County in the last week of July.

Back in Pecos County on the 800-acre (320-hectare) Briggs ranch that has 30 abandoned wells last productive in the 1980s, Laura Briggs said things have only been getting worse.

Less than one week after Dunlap dug up the previously plugged well on the property, a separate old leaking well less than 1,000 feet (300 m) from her house and animal pens suddenly had an explosive blowout of produced water. Briggs’ gas monitor showed high levels of toxic hydrogen sulfide.

“It’s been leaking for a year. I’ve reported it to the commission multiple times,” she said. “But it has to leak like this before the Railroad Commission will respond.” 

© Reuters. Hawk Dunlap, an oil well control specialist, and Sarah Stogner, an oil and gas lawyer, survey an excavated pumpjack with a leaking surface casing in Pecos County, Texas, U.S., August 6, 2024. REUTERS/Adrees Latif

In early August, a vacuum truck arrived at the ranch to start hauling away the fluid streaming out of the well as it pooled up near her livestock. 

“It’s going to suck up what’s coming out of that well,” she said about the truck. “Then he’s going to take it off and dump it into a saltwater disposal well, which is why these wells are leaking.”

Commodities

Oil prices hover near 4-month highs as Russia sanctions stay in focus

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By Arunima Kumar

(Reuters) -Oil prices paused their rally on Tuesday, but remained near four-month highs, with the market’s attention focused on the impact of new U.S. sanctions on Russian oil exports to key buyers India and China.

futures slipped 54 cents, or 0.67%, to $80.47 a barrel by 1033 GMT, while U.S. West Texas Intermediate (WTI) crude fell 53 cents, or 0.67% to $78.29 a barrel.

Prices jumped 2% on Monday after the U.S. Treasury Department on Friday imposed sanctions on Gazprom (MCX:) Neft and Surgutneftegas as well as 183 vessels that transport oil as part of Russia’s so-called “shadow fleet” of tankers.

“With several nations seeking alternative fuel supplies in order to adapt to the sanctions, there may be more advances in store, even if prices correct a bit lower should tomorrow’s U.S. CPI data come in somewhat hotter-than-expected”, said Charalampos Pissouros, senior investment analyst at brokerage XM.

The U.S. producer price index (PPI) will be released today, followed by the consumer price index (CPI) on Wednesday.

A core inflation rise above the 0.2% forecast could lower the likelihood of further Federal Reserve rate cuts, which typically support economic growth and could boost oil demand. [MKTS/GLOB]

While analysts were still expecting a significant price impact on Russian oil supplies from the fresh sanctions, their effect on the physical market could be less pronounced than what the affected volumes might suggest.

ING analysts estimated the new sanctions had the potential to erase the entire 700,000 barrel-per-day surplus they had forecast for this year, but said the real impact could be lower.

“The actual reduction in flows will likely be less, as Russia and buyers find ways around these sanctions,” they said in a note.

Nevertheless, analysts expect less of an supply overhang in the market as a result.

© Reuters. A view shows Chao Xing tanker at the crude oil terminal Kozmino on the shore of Nakhodka Bay near the port city of Nakhodka, Russia August 12, 2022. REUTERS/Tatiana Meel/File Photo

“We anticipate that the latest round of sanctions are more likely to move the market closer to balance this year, with less pressure on demand growth to achieve this,” said Panmure Liberum analyst Ashley Kelty.

Uncertainty about demand from major buyer China could blunt the impact of the tighter supply. China’s imports fell in 2024 for the first time in two decades outside of the COVID-19 pandemic, official data showed on Monday.

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Commodities

Peru’s niche Bretaña crude oil gains popularity in US

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By Arathy Somasekhar

HOUSTON (Reuters) – Peru’s niche Bretaña is gaining popularity in the United States, with the first cargo discharging in the U.S. Gulf Coast this month as U.S. refiners seek alternatives for declining Mexican heavy crude.

Bretaña, a rare heavy sweet crude with minimal metals, is produced in the Peruvian side of the Amazon (NASDAQ:) rainforest. It is then barged along the Amazon river and loaded onto larger ships that depart from Brazil. 

The vessel Radiant Pride transported about 300,000 barrels of Bretaña from Manaus, on the banks of the Negro river in Brazil, and discharged on Jan. 2 in Houston, ship tracking data from Kpler and LSEG showed.  

The cargo was bought by oil major Shell (LON:), a source said. Shell declined to comment. 

“Given the drop in heavy sour crude from Mexico to the U.S. Gulf Coast over the last year, we are starting to see new heavy grades being pulled in to backfill this loss – this is a trend we only expect to continue,” said Matt Smith, an analyst at Kpler.

U.S. imports from Mexico fell to their lowest on record in 2024 as the Latin American country’s oil production fell and a larger portion of output remained at home to be refined.

Two cargoes of Peru’s Bretaña, a relatively new entrant into the market since production began in 2018, discharged at the U.S. West Coast last year – one at Marathon Petroleum (NYSE:) and another at PBF Energy (NYSE:) terminals, the Kpler data showed.

Marathon Petroleum declined to comment. PBF Energy did not immediately reply to a request for comment. 

PetroTal Corp, the producer of Block 95 where the Bretaña oilfield is located, bought the assets from Canadian producer Gran Tierra Energy (NYSE:) in 2017, and currently produces about 20,000 barrels of oil per day, according to Chief Executive Officer Manuel Zúñiga.

Challenges with transporting the crude via a pipeline operated by Peru’s state oil firm Petroperu led to a brief halt in exports between 2022 and 2024, Zúñiga said. 

Petroperu has struggled in recent years to keep the line operational amid spills and social conflict interrupting its flow. 

Three cargoes of Bretaña headed to the U.S. West Coast and one to the U.S. East Coast between 2020 and 2022, Kpler data showed.

About 90% of the Bretaña crude produced by PetroTal is exported, and the remaining is transported by barges to Petroperu’s refinery in Iquitos, Zúñiga said. 

PetroTal has a contract with Houston-based Novum Energy under which Novum buys the crude for export and arranges its transportation, Zúñiga added.

Novum did not immediately respond to a request for comment.

While PetroTal hopes to increase production, permitting delays as well as reliance on barges are a current limitation, Zúñiga said. 

© Reuters. FILE PHOTO: The Houston Ship Channel, part of the Port of Houston, is seen in Pasadena, Texas, U.S., May 5, 2019.  REUTERS/Loren Elliott/File Photo

“You need access to the pipeline,” Zúñiga said, adding that the company is working to secure use of the infrastructure. 

Petroperu said last year that it would hold negotiations with producers in the Peruvian jungle so that they can use the pipeline with a fair rate to help cover operational costs.

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Commodities

Copper outlook uncertain amid stronger dollar and tariffs- analysts

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Investing.com — The future of is unclear due to the anticipated strengthening of the dollar, impending tariffs, and a potential slowdown in the energy transition under the incoming administration of President-elect Donald Trump, according to analysts at BMI, cited by Wall Street Journal.

They point out that even though copper is likely to prosper due to environmental-driven sentiment, the risks associated with their relatively optimistic perspective are leaning towards the negative side.

In a note, the BMI analysts stated, “While we still expect that copper will continue to thrive due to climate-driven sentiment, we note that the balance of risks to our relatively bullish outlook is tilted to the downside.” They do not anticipate a substantial increase in metals demand from the Chinese construction industry.

Nonetheless, they suggest that enhanced industrial activity and growth, driven by government stimulus, could be enough to elevate prices. As of now, the London Metal Exchange (LME) three-month copper is trading 0.6% higher at $9,153 per metric ton.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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