PITTSBURGH (TNS) — The Pennsylvania Department of Environmental Protection will formally study petitions seeking to require oil and gas well owners to set aside the full cost of plugging their wells.
Environmental groups introduced the petitions to try to push the state to significantly raise bond rates for shale wells and traditional wells that were drilled since 1985.
They say the hikes are necessary to protect the state and its taxpayers from having to bear mounting cleanup costs and environmental damage when companies walk away from their obligations to plug and restore wells at the end of their useful lives.
“Full cost bonding is the only way to prevent the abandonment of oil and gas wells,” said Ankit Jain, an attorney with the Sierra Club, which is leading the petition effort with five other environmental organizations. “Our current bonding system that relies entirely on enforcement by the department simply does not work.”
The Environmental Quality Board voted 16-3 Tuesday to accept the petitions for review. The board’s rules give it only narrow reasons to reject petitions at this stage, but representatives of the oil and gas industry and Republican legislators on the board argued the petitions should have been dismissed from the start.
Oil and gas well bonds are meant to act as a form of insurance against unfunded abandonment. They require companies to demonstrate that they can afford to plug their wells before they start drilling. The payments are forfeited to the state if an operator walks away without permanently sealing a well and restoring the site.
According to the petitioners, the full cost of plugging and reclaiming a conventional oil and gas well is $38,000 and a Marcellus Shale well is $83,000. They are asking DEP to study raising bond rates to those levels.
For conventional oil and gas wells, Pennsylvania’s current bond rate is $2,500 per well or a blanket bond of $25,000 to cover all of a company’s wells. Wells drilled before 1984 do not require any bond.
In practice, the actual bonds on file for Pennsylvania’s conventional wells amount to $15 per well, according to a DEP presentation last week.
For shale wells, the current bond rates depend on the length of a well bore and how many wells are covered under a blanket bond, but they amount to $10,000 or less per well.
Pennsylvania is already facing a potential $6.6 billion cleanup cost for an estimated 200,000 undocumented oil and gas wells that were drilled and left unsealed over a century prior to modern environmental regulations.
An additional wave of abandonments may already exist in Pennsylvania’s fields and forests, if not yet on the official record: More than 10,000 conventional wells in state regulators’ databases are owned by operators who have died, gone bankrupt or are otherwise defunct, while more than 50,000 wells don’t report oil or gas production as required by law, according to the DEP presentation last week. (Those categories often overlap.)
Representatives of the oil and gas industry and Republican legislators on the board argued that a 2012 law that rolled back bonding amounts for conventional wells also took away the board’s authority to raise the rates on those wells. They argue the rates can only be changed with a new law.
DEP reviewed that argument and disagreed.
Jim Welty, a board member and the vice president for government affairs for the Marcellus Shale Coalition, a trade group, said bond rates for Pennsylvania’sunconventional wells are among the highest in the nation and no shale wells have been abandoned in the state so far.
“There is really no problem with our current system for the unconventional wells,” he said.
“There’s hundreds of plugged wells already in the unconventional industry, so the bond amounts seem to be working and the wells are being plugged.”
The conventional oil and gas industry has said the proposed bond hikes would be devastating and could put some well owners out of business. The conventional industry ranges from “mom and pop” operators to a single company that owns more than a fifth of the 100,000 active conventional wells in the state.
The petitioners argue that operators with economical wells can use surety bonds to cover their obligations — a form of insurance that spreads bond payments out over time and offers discounts for financially stable operators.
“Any operators that may leave the market due to higher bond amounts would already be in the precarious and problematic position of being unable to cover the cost of plugging the wells for which they are responsible,” the petitions said.
Jain said there is an additional incentive for the state to act soon to raise oil and gas well bonds.
With President Joe Biden’s signature on the Infrastructure Investment and Jobs Act on Monday, Pennsylvania is in line for hundreds of millions of dollars for plugging existing abandoned wells. It can qualify for tens of millions more if it strengthens its bonding or plugging requirements.
DEP’s next step is to prepare reports evaluating the proposals and then make recommendations on whether the board should approve or reject the petitions.
The reports are due in 60 days, but DEP can, and often does, extend the timeline.
If DEP recommends accepting the petitions, it will have six months to develop proposed changes to the bond rates, which wouldn’t have to match the petitioners’ recommended levels.
If the board opts not to raise bonding levels, the environmental groups can file an appeal in court.
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