Coal-bed methane gas activity in the Powder River Basin is depicted by new road and pipeline installations in this 2002 file photo. Thousands of wells and related facilities have been orphaned, leaving a cleanup liability in the tens of millions of dollars. (Photo courtesy of Powder River Basin Resource Council — click to enlarge)

Time for Wyoming to reform oil and gas bonding regs

Guest column by Gillian Malone
— July 29, 2014

It is high time that Wyoming began reforming oil and gas bonding.

The state is facing the daunting and expensive task of reclaiming over 1,500 orphaned coal-bed methane (CBM) wells left by bankrupt oil and gas companies at an estimated cost of $50 million. And the list is growing. For the past few years, on a nearly monthly basis, the Wyoming Oil and Gas Conservation Commission has been holding hearings about “delinquent” oil and gas operators that do not have sufficient bonding money to ensure reclamation of their wells.

Gillian Malone

In every case it seems the operator either: 1) is a no-show, leading to the minimal bonding the state holds being seized to pay a tiny portion of plugging and surface reclamation costs; or 2) has a list of excuses and a plea for more time to come up with the money they owe.

Unfortunately, nine times out of 10 the outcome is the same: the oil and gas company fails to come up with the required money and the wells get added to the list of orphaned wells the State of Wyoming must pay to clean up.

This scenario unfolded yet again at the Oil and Gas Commission’s July meeting when commissioners had to decide whether to revoke a company’s inadequate reclamation bonds or give the company — High Plains Gas — more time to come up with the $6.7 million they owe the state.

High Plains already admits to being at least $50 million in debt. They also have millions in default judgments against them from landowners, mineral owners and businesses, and they owe millions in back taxes to local and state governments. And to complicate matters, they recently acquired an additional 1,200 idle CBM wells from another derelict company in bankruptcy court.

But instead of providing the Commission with a plan and a timeline for bringing the 2,251 idle wells back into operation, High Plains CEO Ed Presley — during three hours of testimony — only mentioned reactivating five or 10 wells.

Despite grave doubts, commissioners opted to give the company another 120 days. The Commission decision in this case — and in others — only delays the inevitable, because in all likelihood, 120 days from now High Plains will still be unable to post the additional bond, and the state will be left holding the bag.

All of these problems could be avoided if Wyoming simply reformed its oil and gas bonding requirements. In fact, this case clearly illustrates the need for substantial reform at both the state and the national level. People are shocked when they learn that an oil and gas company can post a “statewide” bond of $75,000 for all of its wells in Wyoming.

And federal Bureau of Land Management (BLM) bonding is almost laughable, requiring a company to post a mere $150,000 “nationwide” bond for all of its wells in the entire country. In both cases, a company could operate literally thousands of wells costing many millions to plug, abandon and reclaim.

Dozens of operators drilled more than 25,000 coal-bed methane gas wells in the Powder River Basin, requiring water storage, pipelines, compressors and other related facilities. Thousands of wells and related facilities have been orphaned, leaving a cleanup liability in the tens of millions of dollars. (Dustin Bleizeffer/WyoFile).

In contrast, other industries such as coal mines must post site-specific bonds to cover the cost of reclamation. These costs are reviewed annually and include hiring third party contractors to complete the reclamation work if the company defaults. Why doesn’t the oil and gas industry have to live up to this same standard?

Although Governor Mead’s Energy Strategy includes a review of oil and gas bonding, we urge the state to act quickly. For years, Powder River Basin Resource Council has suggested simple and effective bonding reforms to state agencies and the legislature. It is time to take reform seriously. As history has shown us repeatedly, oil and gas booms are inevitably followed by busts. Now is the time to implement site-specific oil and gas bonding — before the next bust hits.

Gillian Malone, Chair of the Powder River Basin Resource Council, lives in Sheridan County. As the youngest founding member of the organization in 1973, she has seen the state struggle with numerous booms and busts.

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2 Comments

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  1. If the coal industry is held accountable, oil and gas companies should be as well. Sure the industry makes money for the state. That does not give them a free pass to trash it with abandoned wells, polluted water, and hundreds of roads to nowhere. These companies are making a slick profit themselves. Why should we have to pay to clean up their mess? If Wyoming is serious about not having the Sage Grouse listed(which let’s face it will be devastating) perhaps more pressure should be put on the oil and gas industry to reclaim the habitat they destroyed when they are through with their operations.

  2. Oh the poor state of Wyoming. They’ve only made BILLIONS off Oil and Gas taxes and minerals. I think we will be ok. The positives far out way the negatives. I would say your reporting is less then honest when you leave this major detail out. I’m not saying its a good system but the revenue earned covers any possible negative cost associated with the development.