Let’s face it, there aren’t many jobs in Cut Bank, Montana. And of those that do exist, the top-paying ones are jobs in the energy industry, like oil and gas operators and energy service companies. Some of those oilfield jobs involve companies such as Montalban Oil & Gas Company (MOGO), owned by Patrick Montalban. MOGO is a company focused on marginal wells—those producing fewer than 15 barrels per day, or only a few cubic feet of gas per day.
While the energy industry drives MOGO and many similar companies, the direct and indirect impact of the energy industry supports so many more. Laborers, small business owners, restaurant workers—all are beneficiaries of the energy industry. But if increasingly onerous and costly government regulations make the marginal wells—the foundation of so many communities’ economy—uneconomic, the financial ruin will not be limited to operators alone. Without the root economic driver, there is no need for the supporting companies and the people they employ.
Montalban not only owns MOGO Inc., operating more than 500 oil and gas wells with 21 employees—he’s president of the National Stripper Well Association (NSWA). Like many oil patch independents, he sees the community benefit of his industry, along with the pain inflicted on them by unreasonable regulations.
“We really fill a niche, not only with jobs in the oil and gas industry, but for these rural communities. [It’s hard to fully grasp] how important it is to rural America and Main Street, the hospitals, the schools. People just don’t think about it, but it’s so important,” he said.
Why are Montalban and others worried?
It’s because new regulations and Environmental Protection Agency (EPA) actions most dramatically affect small and mid-sized producers and will likely make their marginal wells uneconomical to operate. The result? Wells being shut-in, companies filing bankruptcy. But the pain doesn’t stop there, as support companies will be hit and communities will generate less tax revenue. It is not just operating companies that will be hurt, it will be the entire ecosystem surrounding these companies and the companies they support.
Possibly the most dangerous of the new EPA rules taking effect in 2025 is the Waste Emission Charge (WEC). Utilizing arbitrary calculation methods, operators could pay “taxes” starting at $900 per ton, then $1,200 per ton, and, by 2026, $1,500 per ton.
One might ask, “So what? Just don’t generate excessive emissions.”
It’s not that simple. Avoiding WEC taxes (i.e. fees) incurs a significant cost for equipping a site to detect and capture methane. And it will be a disproportionate burden to small operators with marginal wells, believes Gani Sagingaliyev, co-founder of ESG Dynamics.
“According to our estimates, the average operator subject to the WEC in Reporting Year 2024 will face liabilities ranging from $1.5 million to $2 million,” he said. And it’s going to get worse in 2025. Increasingly stringent emissions thresholds and additional categories will take effect then, forcing small operators “to allocate additional resources” toward compliance.
Sagingaliyev asked, “Can these smaller operators afford full compliance with the new regulations or pay WEC fees?”
Additions to Quad O further regulates venting and flaring, requiring frequent site inspections. “The associated capital expenditures and operational costs could render production uneconomical for many operators,” he said. “For marginal producers, inspection costs alone could add up to $10 per barrel of oil equivalent [BOE], a steep expense for wells with thin profit margins.”
While marginal wells account for less than five percent of U. S. production, they loom large in rural America, where they are the community’s lifeblood.
What Happens to These Newly Uneconomical Wells?
Abandoning an uneconomical well costs money. For example, in 2022, the Texas Railroad Commission spent ~$30 million to plug 1,068 wells, just over $28,000 each. A small independent producer lacks that budget, especially across their dozens of wells.
With the EPA estimating there are more than three million abandoned oil and gas wells that need plugging, advocates of sweeping regulations targeting the elimination of marginal wells should realize their regulations will generate more abandoned wells needing to be plugged. However, as a consequence of poor energy policy, the cost will be borne by the government and the taxpayers as the operators will be long insolvent.
Non-Attainment Spreads the Economic Devastation Even Further
Texas Congressman August Pfluger, whose district includes the Permian Basin, fears a non-attainment designation of the Permian being decided by individuals with minimal data and minimal energy experience. This is significant because, while the Texas side of the Permian is being targeted for non-attainment designation, the monitoring data on which that was based is only on the New Mexico side. This is the same data that EPA used for El Paso’s designation. It is difficult to understand how the wind can blow in both directions.
Such a designation can devastate an economy, Pfluger states. In 2017, the Texas Commission on Environmental Quality (TCEQ) assembled some figures when San Antonio had been cited as non-compliant on ground-level ozone in 2015. Pfluger said, “The report roughly projected that the cost across the San Antonio metropolitan area would be between $3 billion (low estimate) and $36 billion (high estimate). These costs were largely incurred due to the inability of manufacturing to expand or relocate to the region. Additional costs included employment and income loss, permitting costs, project delays, and reductions in Gross Regional Product (GRP) due to inspection fees, road construction delays, and more [emphasis added].” Again, over-reaching regulation will be destructive to community growth and expansion.
The Big Picture
As much as we love cities like Cut Bank, Midland, and the many rural oil towns in America, the real issue is much bigger.
In their “2024 State of Energy Report,” the Texas Independent Producers and Royalty Owners Association (TIPRO) says that across the United States, more than two million people work in the oil and gas industry, with the total payroll reaching $162 billion annually. About 23 percent of those jobs are in Texas, but the rest are scattered across a surprising number of states including Michigan, Ohio, and even Florida.
The threat to those jobs and economies is huge, according to an NSWA paper. Job losses from these regulations could reach 84,000 per year, state revenues could drop by $200 million per year, payments to royalty owners could decrease by $640 million per year, and the industry’s contribution to the United States’ gross domestic product (GDP) would shrink by $8.7 billion per year.
Oil and gas income is plowed back into the economies of towns, counties, states, and the nation in purchases/sales tax, income tax, gasoline tax, and other spending that supports thousands of small communities directly and indirectly dependent on the energy industry.
The effects are potentially devastating. We’ve seen this before.
In the oil bust of 1984-on, communities suffered in the Permian Basin. Suddenly unprofitable, producers and service companies laid off thousands, filed bankruptcy, or both. Desperate workers waited in lengthening unemployment lines. First National Bank failed, the FDIC called loans causing another wave of bankruptcies and layoffs. Office buildings stood empty.
Home equity evaporated, foreclosures abounded, and vehicles were repossessed. Schools and hospitals emptied.
Everyone wants a clean environment, including the oil and gas industry. But regulation must be balanced by the consequences of these regulations. Our industry continues to make significant strides in terms of its environmental performance, while it provides the economic foundation for thousands of communities and life-sustaining energy for comfort, technology, transportation, education, and most of the conveniences and necessities of today’s life.
Unwieldy regulatory burdens do no favors to either the people or the environment. They simply cause unnecessary pain to the nation as a whole in lost jobs, higher energy costs and, therefore, rising inflation. Let’s encourage the government to understand the unintended consequences of their actions BEFORE enacting regulations.
Grant Swartzwelder
Grant Swartzwelder is the Founder of OTA Environmental Solutions, a full-service environmental firm providing equipment, field services, and emissions consulting. Additionally, he is co-founder of ESG Dynamics, which provides environmental data analytics for the oil industry—analytics that assist in A&D, Waster Emissions Charge reduction, and Health Checks.
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