New analysis finds U.S. taxpayers could be on the hook for billions of dollars in oil and gas well cleanup costs
Federal oil and gas bonding levels have not changed since the 1950s and 60s, despite deeper wells and rising reclamation costs
What happens to oil and gas wells on public lands after they are done producing? Those wells are supposed to be reclaimed — plugged and the area around them cleaned up. Sometimes, though, companies abandon wells, either due to bankruptcy or lack of funds, leaving taxpayers on the hook for that cleanup.
A new study commissioned by the Center for Western Priorities finds that reclaiming oil and gas wells on U.S. public lands could cost a potential $6.1 billion, far exceeding the $162 million in reclamation bonds paid by oil and gas operators, according to the last government estimate. While taxpayers will not have to pay to clean up every well, the analysis underscores the need to update the Interior Department’s outdated bonding requirements.
The analysis, conducted by the economic consulting firm ECONorthwest, comes as the Interior Department’s Royalty Policy Committee meets Wednesday to hear suggestions for modernizing the management of oil and gas production on public lands. Re-established by Secretary Ryan Zinke, the committee is heavily skewed towards oil and gas companies, without any organization or individual representing taxpayers and the public interest.
Oil and gas companies are required to post bonds, effectively an insurance policy, when drilling on federal lands. The bonds ensure retired wells are cleaned up and do not pose an ongoing risk to lands and water should a company abandon them or go bankrupt. However, the Interior Department has not updated bonding requirements since they were originally set in the 1950s and 60s. These outdated requirements fail to account for decades of inflation and the increasing costs to clean up ever-deeper wells created by new drilling technologies. The bond for a single well, set in 1960, still sits at $10,000. Keeping pace with inflation, that bond would be roughly $64,000 today.
According to the analysis, the average well reclamation cost is an estimated $65,200, which would be nearly covered if the 1960 bond price had been indexed to inflation. However, reclamation costs have grown in recent years, as the average well depth has increased to nearly 9,000 feet. Reclaiming a typical well at that depth costs more than $100,000.
Recent examples show that it is not uncommon for companies to shirk their reclamation responsibility. After booming natural gas prices went bust in the late 2000s, operators walked away from thousands of coal-bed methane wells in Wyoming. In 2017, two oil and gas companies abandoned more than 50 wells in southwest Colorado, leaving the state on the hook for a massive cleanup project. In Utah, a recent report found more than 500 unplugged wells that hadn’t produced in more than a decade.
Last month, the Interior Department Inspector General warned Interior Secretary Zinke that the Bureau of Land Management (BLM) does not currently have an accurate inventory of idle wells on federal land, and that idle wells “pose notable financial risk” to taxpayers and the U.S. government. The report highlighted a single BLM field office that expected 97 idle wells to become orphaned in the near future. Oil and gas companies held just $150,000 in bonds on those wells, despite an estimated reclamation cost of $1.5 million — meaning taxpayers will likely be responsible for more than $1.3 million in cleanup costs from those 97 wells alone.
If Secretary Zinke is committed to guaranteeing taxpayers receive a fair share from energy development, a good place to start would be to ensure all oil and gas wells on America’s public lands are adequately bonded. That’s certainly not the case today.