The Powder River Basin Resource Council, Taxpayers for Common Sense, Western Organization of Resource Councils and Natural Resources Defense Council have petitioned the Bureau of Land Management to make the oil industry responsible for cleaning up after itself by modernizing bonding requirements to ensure that there is funding available for well plugging and reclamation.
Federal leases require operators to plug their wells and remediate well sites, but today’s rules are so outdated that huge liabilities are left to taxpayers.
Required federal bonds are ludicrously small and don’t cover the actual costs of plugging and reclamation.
Current minimum sizes of cleanup bonds on federal leases were set by the BLM 71 years ago and have never been adjusted for inflation or for changes in drilling practices. These bonds are unrelated to the specific wells they guarantee. They’re the same for a simple 1,000-foot-deep coal-bed methane well on a flat field near a highway and for an 11,000-foot-deep well with a five-mile horizontal extension in a rugged mountainous area.
The current requirements also allow “blanket” bonds. Minimum individual lease bonds cover $10,000 in costs regardless of how many wells are drilled on that lease; statewide bonds require $25,000 coverage for all wells drilled in any one state; and a nationwide bond covers only $150,000 in cleanup costs — regardless of how many thousands of wells an operator may drill around the country. These amounts are laughably inadequate. The federal Government Accountability Office calculates that the typical reclamation cost of a single low-cost well is $20,000, and it typically costs $145,000 to reclaim a high-cost well.
These shortfalls add up. In the Intermountain West, there are more than 8,000 orphan or inactive wells, covered by only $17 million in bonds. Those bonds total a miniscule 1.3% of the $1.3 billion it will likely cost to plug and reclaim these wells. If operators default on their cleanup obligations, taxpayers will cover the other $1.283 billion.
These liabilities are real. When oil prices plummeted in 2020, more than 100 drillers declared bankruptcy, and the first quarter of 2021 saw more companies filing bankruptcy and leaving tiny bond amounts to clean up their drill sites. The BLM wrote, “Liquidations often result in wells becoming orphaned, which then fall to the Federal Government or States to address, while some companies have used Chapter 11 restructuring to get out of reclamation obligations.”
Congress acknowledged the problem in its recent infrastructure bill and bailed out the richest industry on Earth with $4.7 billion in taxpayer monies allocated to pay for plugging and reclaiming oil and gas wells — wells that have given the industry untold billions of dollars in profits from public minerals. That huge appropriation addressed only a small part of the growing nationwide liability. Most importantly, this gift to industry did nothing to resolve the root cause or to prevent burgeoning future liabilities.
The BLM promised new regulations in 2015 and more recently, last fall. But nothing has happened since then to move this liability to the responsible industry. The new petition, filed Nov. 16, shines a light on the BLM’s delay and prods the agency to put the responsibility where it belongs. The petition recommends that the BLM:
• Eliminate blanket bonds and require well-specific bonds on federal leases for every new or transferred drilling permit to cover the full cost of plugging wells and reclaiming sites.
• Require that bonds cover costs of removing infrastructure and reclaiming the land, as well as plugging the well.
• Phase in full-cost bonding of existing wells, associated infrastructure, pads and other surface disturbances.
• Require review of each bond every five years and adjust the bond for inflation, new technology and other circumstances.
Those who profit from producing public resources should become truly accountable. The BLM must make them accountable by requiring bonds that will actually pay for restoring the private and public lands they have used, rather than requiring taxpayers to pay for it.
Bob LeResche is a former commissioner of Natural Resources of Alaska, energy executive and investment banker. He is a board member of the Powder River Basin Resource Council and the Western Organization of Resource Councils. He and his wife, Carol, own a ranch and heirloom vegetable farm near Clearmont, Wyoming. The views expressed here are solely his own.
Bob LeResche is a former Commissioner of Natural Resources of Alaska, energy executive and investment banker. He is a board member of the Powder River Basin Resource Council and the Western Organization of Resource Councils. He and his wife Carol own a ranch and heirloom vegetable farm near Clearmont, Wyoming. The views expressed here are solely his own.
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