Many Wyomingites find it surprising when the federal government does something worthy of our approval, but the Bureau of Land Management actually did so last month.
In mid-July, the BLM proposed new rules to hold drillers of oil and gas wells financially responsible for cleaning up after themselves.
The new rules would update 60-year-old requirements for financial assurance to plug and reclaim oil and gas wells drilled into federal subsurface. Many of these wells in Wyoming are drilled from private surface, and many have sat for decades unplugged and unreclaimed on our ranches and other private lands. The new standards will do something landowner, conservation, and taxpayer advocates have long called on BLM to do – make industry pay for cleaning up.
The need for this proposal is clear. Thousands of idle and orphan wells are left abandoned, causing groundwater contamination, leaking methane, polluting the air, spreading noxious weeds, lowering property values and interfering with other uses of the land. Federal leases do theoretically require operators to plug their wells and remediate well sites. But the reality is today’s federal rules are so outdated that huge liabilities are left to taxpayers. Rules in place today require ludicrously tiny bond amounts that don’t come close to covering actual costs of plugging and reclamation. The half-century old minimum sizes of cleanup bonds on federal leases have since never been adjusted for inflation.
Worse yet, bond sizes are unrelated to the specific wells they supposedly guarantee. They’re the same for a simple 1,000-foot-deep well on a flat field near a highway as for an 11,000-foot well with a five-mile horizontal extension in a rugged mountainous area. Today, the bond required for all wells drilled on one lease is only $10,000. Bonds covering all leases in one state are only $25,000. This is patently ridiculous given that it costs $71,000 to plug and reclaim the average single well. A driller can even purchase a nationwide bond that covers only $150,000 in cleanup costs – regardless of how many thousands of wells the operator may drill around the country.
Our current bonding system incentivizes irresponsible operating procedures. Wells become orphaned when companies that drilled and profited from them declare bankruptcy or simply walk away. This has become standard operating procedure for many companies because it’s the economically rational decision. Why spend $71,000 or more to plug and reclaim a well when it’s a lot cheaper to simply forfeit your $10,000 single-lease bond?
In my part of Wyoming, we’ve lived this reality through the bust of the coalbed methane industry. Thousands of wells have been left to languish on the landscape in the Powder River Basin as companies filed bankruptcy or simply evaporated. The companies understood the simple economics of BLM’s current rules – it was cheaper to forfeit the minimal bonds than pay to plug and reclaim the wells.
Wyoming State regulators have in recent years made great headway improving our bonding and financial assurance standards to ensure companies clean up after drilling, and Wyoming levies a “conservation tax” on production that pays to plug and reclaim orphan wells. But the federal government has yet to follow suit. Without strong rules in place, it is left to us taxpayers to pay for cleanup. Congress recently appropriated $4.7 billion taxpayer dollars to clean up wells that should have been the responsibility of companies that drilled them.
The proposed BLM rules raise bond amounts across the board and do away with nationwide bonds. Higher bond amounts will guarantee industry wraps up their oil and gas development in a responsible manner, benefiting landowners, taxpayers, and the environment. Industry groups may bemoan this new level of accountability, arguing that higher bond requirements hurt smaller operators. However, the cost of a bond to the driller is usually only 1% to 5% of the bond’s face value. Purchasing a bond is NOT a financial burden on an operator, but just a small part of the cost of doing business.
Accountability is not a novel concept. The coal industry is required to post bonds sufficient to completely reclaim their mines when they close. Building contractors must be fully bonded. Each of us who owns a pickup is required to carry meaningful levels of liability insurance. But the oil and gas industry hasn’t been held to these standards for a long time. The new rules would change that. Those who profit from extracting public resources should be held truly accountable. I hope BLM does so by swiftly adopting this proposal to require bonds that will actually pay for restoring the private and public lands they have used, rather than seeking taxpayer dollars after the fact to clean up this multi-billion dollar industry’s mess.
