Outdated rules mean taxpayers, not industry, end up paying for abandoned oil and gas wells

Trump administration favors current system that benefits fossil fuel industry.

An oil rig operates in Weld County, Colorado,. CREDIT: RJ Sangosti/The Denver Post via Getty Images
An oil rig operates in Weld County, Colorado,. CREDIT: RJ Sangosti/The Denver Post via Getty Images

U.S. taxpayers are being left on the hook for the costs of cleaning up after oil and gas companies that fail to properly shut down their operations on federal lands. These companies often make big money for their owners during boom times but force the public to pay for clean-up costs when oil and gas wells run dry or prices go bust.

Cleaning up the roughly 94,000 oil and gas wells on U.S. public lands managed by the U.S. Department of the Interior (DOI) could cost a potential $6.1 billion, far exceeding the $162 million in reclamation bonds paid by oil and gas operators, according to a new study commissioned by the Center for Western Priorities, a nonprofit conservation and advocacy organization in the western United States.

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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 a risk to lands and water when a company abandons them or goes bankrupt. The criteria for these bonds, however, hasn’t been updated since the 1960s.

According to Jennifer Rokala, executive director of the Center for Western Priorities, if Interior Secretary Ryan Zinke is committed to guaranteeing taxpayers receive a fair share from energy development, this should begin with making sure all oil and gas wells on U.S. public lands have an appropriately-valued bond.

“That’s certainly not the case today,” Rokala said Monday in a statement. “The current system leaves taxpayers holding the bag while oil and gas companies can walk away from their reclamation responsibilities, paying pennies on the dollar. It’s beyond irresponsible.”

It’s not uncommon for companies to shirk their clean-up responsibilities, whether operating on public or private lands. After high natural gas prices went bust in the late 2000s, companies abandoned thousands of coal-bed methane wells in Wyoming. Last year, two oil and gas companies walked away from more than 50 wells located on private property in southwest Colorado, leaving state taxpayers on the hook for the cost of cleaning up after the oil and gas companies.

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The Interior Department’s Office of Inspector General warned the Trump administration last month that the DOI’s Bureau of Land Management (BLM) — the agency that administers the nation’s public lands — 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 inspector general’s report highlighted a single BLM field office that expects 97 idle wells to become “orphaned” in the near future. An orphan well is one that has been confirmed as not having any legally responsible or financially able party to deal with its abandonment responsibilities and returning the land to how it was prior to oil and gas development.

For those 97 wells, oil and gas companies held only $150,000 in bonds, despite an estimated reclamation cost of $1.5 million. The result: Taxpayers will be responsible for more than $1.3 million in cleanup costs from those 97 wells alone.

The Center for Western Priorities added that it is unaware of any estimates of how much taxpayers have already spent on reclamation overall. The BLM itself doesn’t know how many orphaned wells there are on public lands right now, noted Aaron Weiss, the group’s spokesperson.

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One potential fix would be for the federal government to update its bonding requirements. They have not been updated since they were originally set in the 1950s and 1960s, according to the study, prepared by economic consulting firm ECONorthwest. The 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 stands at $10,000. Keeping pace with inflation, that bond would be roughly $64,000 today. The researchers found that the average well reclamation cost today is an estimated $65,200, which would be nearly covered if the 1960 bond price was indexed to inflation.

Unlike the federal government, many states have updated their bond rates for oil and gas producers. In most states, operators of deeper wells are required to pay higher bond amounts because of the greater time and complexity need to properly reclaim them, according to the report.

The Interior Department’s Royalty Policy Committee is scheduled to meet Wednesday to discuss potential updates to how oil and gas production is managed on public lands. Last September, Zinke appointed members to the committee that he announced he would form in March.

The Trump administration is working to eliminate regulations that protect public lands to clear a path for expanded oil and gas drilling. Last month, the Interior Department sent a memo to its field offices directing them “to simplify and streamline the leasing process … to ensure quarterly oil and gas lease sales are consistently held.”

As part of this push to expand drilling on public lands, the Royalty Policy Committee is heavily skewed toward oil and gas companies, without any organization or individual representing taxpayers and the public interest, Jesse Prentice-Dunn, advocacy director for the Center for Western Priorities, wrote Monday in a blog post.

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“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,” Prentice-Dunn wrote.

In testimony before Congress last year, Zinke pledged to be a “responsible steward” of the nation’s “magnificent lands.”

But the Center for Western Priorities isn’t optimistic the Royalty Policy Committee will update the rules for bonding. There’s no one on the committee looking out for U.S. taxpayers or the well-being of public lands, Aaron Weiss, the group’s spokesperson, said in an email to ThinkProgress. “It’s like convening an expert panel of eight-year-olds and asking them if they think they should have ice cream for dinner,” he said. “The outcome is predetermined.”