BLM should beef up bonding/reclamation  on idle oil and gas wells

— A guest column by Jill Morrison, Powder River Basin Resource Council

Over the past several years, Powder River Basin Resource Council has repeatedly asked the Wyoming Bureau of Land Management (BLM) for information regarding reclamation of old oil and gas wells, and has requested increased bonding be required from coal-bed methane (CBM) operators to ensure that testing, cleanup and reclamation actually occur. All our requests have fallen on deaf ears.

Jill Morrison

Jill Morrison, Powder River Basin Resource Council

In contrast, the state of Wyoming has recognized the growing problems caused by abandoned wells, and has stepped up actions to increase bonding for idle fee (private) and state wells under its jurisdiction. The Wyoming Oil and Gas Conservation Commission (WOGCC) now requests an increase in bonds ($10 per foot of well depth) when a well becomes idle, to cover plugging and reclamation costs. Even with this increased surety, WOGCC has been forced to take the lead in plugging and reclaiming orphaned wells from bankrupt companies. Since 1997 the WOGCC has spent over $5 million from the Wyoming Oil and Gas Conservation Orphan Well Fund to plug and reclaim 416 oil and gas wells.

The bust in natural gas prices and subsequent default by producers is increasing the number of wells the state is going to be required to reclaim itself. In response to the questions and concerns we have raised about adequate bonding WOGCC has established a new link on their website dedicated to information about orphan and idle wells, which landowners can use to gain real time information about wells on their surface. According to the new link on the website, “The Orphan Well Program account is funded at $4,000,000 and earmarked in the Commission budget at $1,000,000 per biennium. The approved Commission 2013-2014 budget was increased to $2,000,000 as natural gas price decline puts many small coal-bed methane operators at risk for bankruptcy. As of May 1, 2012, six operators have 506 orphaned coal-bed methane wells in Wyoming.”

In stark contrast, BLM says it cannot even tell us how many CBM wells are idle, or by how much or even if they have increased bonding on idle wells to ensure reclamation. If history is any indication, BLM has not increased bonds. This is critically important to many of our members because, absent adequate bonds, split-estate landowners are faced with thousands of unplugged and un-reclaimed CBM wells on their property, and with the financial and environmental liabilities that go with them. Several landowners in the Powder River Basin still have abandoned BLM oil wells littering their ranches from 30 or 40 years ago – and deteriorating every day — that BLM still has not tested, plugged or reclaimed.

According to the WOGCC orphaned and idle wells website link the BLM is sitting on about 3,500 idle or shut in federal CBM wells in the Powder River Basin. There appears to be no accounting for the number of decades-old unplugged and un-reclaimed stripper oil wells. The huge and burgeoning number of end-of-life federal oil and gas wells, variously defined as “idle,” “abandoned,” or “orphaned,” in our state is a coming calamity that threatens property values, land and water conservation and the national treasury.

The problem at the federal level is rooted in the fact that BLM requires oil and gas operations to post a nationwide reclamation bond of only $150,000 — regardless of the hundreds or even thousands of wells that an operator may have across the U.S. In 2011, the General Accounting Office reported on this problem and documented a growing taxpayer liability over grossly inadequate reclamation bonding and shoddy BLM record-keeping.

The University of Wyoming also analyzed data and authored studies in 2009 and 2010 (click to read the 2009 study) regarding the inadequacy of current bonds (at both state and federal levels) to cover the costs of plugging and reclamation and regarding the failure of bonding to properly insure against the loss of land values. The studies noted, “The biggest weakness of the current bonding requirements is that they are not linked to production, but are instead a fixed cost that is essentially a sunk cost from the perspective of the operator. The bonding requirements are poorly designed, and the bond amounts posted are low relative to the cost of actually performing the reclamation, which is the subject of the remainder of this study. Given accurate reclamation cost estimates, appropriate bonding requirements can be established that fully account for the cost of reclamation.”

In April, Powder River Basin Resource Council wrote to Governor Matt Mead and our Congressional delegation asking their help in getting the BLM to provide a full accounting of bond levels and plugging and reclamation status over the past 10 years. We also asked for: a) a 10-year forecast of the potential plugging and reclamation costs for federal wells in Wyoming; b) administrative changes to require automatic reclamation bond increases for all idle wells and to reduce the time limit BLM has to act on idle wells from 7 years to 3 years; c) a BLM requirement and state requirement that the oil and gas industry provide site specific reclamation bonds like the coal industry; and, d) establishment of a federal conservation fund – similar to Wyoming’s – where the oil and gas industry itself is taxed to assure that costs of plugging and reclamation are covered when operators default on their lease obligations.

We wrote, “This issue has tremendous ramifications for Wyoming’s landowners and federal taxpayers. We request your assistance in keeping ‘red, white and blue energy’ from being black and blue energy.”

In response, Rep. Cynthia Lummis met with us in June and is exploring some recommended changes. Sen. John Barrasso has asked the BLM to respond to our questions and concerns, and Sen. Mike Enzi has recommended we continue to work with Governor Mead and relevant congressional committees to address the problem. We believe the time is ripe for requiring the powerful oil and gas industry to shoulder responsibility and be held to the same bonding and reclamation standards as is the coal industry, and for the Federal government to behave at least as responsibly as has the state in these matters.

— Jill Morrison is an organizer with the Powder River Basin Resource Council and works with landowners and citizens impacted by oil and gas development.

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Published on June 26, 2012

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