Processing drilling permits takes priority over protecting taxpayers from liability, GAO report says

U.S. taxpayers are being left on the hook for the costs of cleaning up after oil and gas companies.

A rig drills for natural gas, near the cliffs of the Roan Plateau in Colorado. CREDIT: Steven D Starr/Corbis via Getty Images
A rig drills for natural gas, near the cliffs of the Roan Plateau in Colorado. CREDIT: Steven D Starr/Corbis via Getty Images

The federal government’s oversight of oil and gas wells located on federal lands remains in disarray. According to a new report by the Government Accountability Office (GAO), U.S. taxpayers are often left to pay for the restoration of abandoned oil and gas well sites because companies improperly shut down their operations or are unable to cover the restoration costs.

The lack of attention to liability for oil and gas wells can be partly attributed to Congress failing to allocate sufficient funds to the Bureau of Land Management (BLM), the Department of the Interior agency that oversees oil and gas drilling on millions of acres of federal lands, according to the report.

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But in its report, the GAO also noted the BLM’s highest priority is processing new oil and gas drilling permits as quickly as possible, not enforcing corporate cleanup of drill sites. Taxpayers are then often forced to foot the bill for cleanup, a predicament that could have been avoided if the BLM had weeded out the financially struggling companies that would not have the financial resources to repair the damage they caused to the environment.

“BLM prioritizes processing drilling permits over well and bond adequacy reviews in part because the agency is required by statute to process drilling permits within 30 days of receiving a complete application,” the GAO explained in the report, released Tuesday.

The BLM’s responsibilities are immense. The agency manages millions of acres where oil and gas drilling occurs. In fiscal year 2016, oil and gas companies operated about 94,000 oil and gas wells on federal lands overseen by the BLM.

Once these wells stop production, they can become inactive. Inactive wells, which are non-producing wells, have the potential to create physical and environmental hazards if the companies fail to reclaim the well sites. Inactive wells that are not plugged, or not properly plugged, can leak methane or contaminate surface water and groundwater.

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Reclamation helps ensure that the effects of oil and gas development on the land are not permanent. According to the BLM, the ultimate objective of reclamation is ecosystem restoration, including restoration of natural vegetation and wildlife habitats. In most cases, this means restoring the sites to a condition equal to that which existed before the land was disturbed by drilling operations.

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.

It’s not uncommon, however, 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.

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

According to the GAO report, federal rules and requirements are extremely lenient for companies that drill for oil and gas on public lands. For example, companies are not required to notify the BLM when they stop operations at an oil and gas well.

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The GAO report was requested by three members of Congress — Reps. Raúl Grijalva (D-AZ), the top Democrat on the House Natural Resources Committee, Alan Lowenthal (D-CA), the top Democrat on the House Subcommittee on Energy and Mineral Resources; and Jared Polis (D-CO).

The lawmakers asked the GAO to research how the BLM manages its potential oil and gas well liabilities and how its costs and potential liabilities changed from 2010 through 2017.

The GAO noted that the costs and potential liabilities for the BLM — and U.S. taxpayers — “likely increased” from 2010 through 2017, the GAO said. The full extent of the increase is not known, though, because the BLM does not systematically track whether the companies that drilled the wells handled the cleanup or if they shirked their legal responsibilities, forcing U.S. taxpayers to pay the costs.

The BLM’s database does not collect information on costs incurred or on potential liabilities that might result from an increase in the number of orphaned wells. “Without systematically tracking such information, BLM does not have assurance that it has sufficient bonds or financial assurances to cover the costs of reclaiming orphaned wells,” the GAO said in its report.

Bureau of Land Management state offices. Source: BLM
Bureau of Land Management state offices. Source: BLM

Drilling for oil and gas on federal lands, however, is a big business. In fiscal year 2015, the most recent year for which data is available, wells on federal and Native American lands were responsible for providing 11 percent of the natural gas and 7 percent of the oil used in the United States.

The BLM administers its programs through its headquarters office in Washington, D.C. and 12 state offices. Most of the state offices are located in the western United States. At the end of FY’15, about 32 million acres of BLM-managed lands were leased for oil and gas operations. The agency also oversees oil and gas operations on 56 million acres of Native American lands.

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Among its other recommendations, the GAO suggested the BLM develop a management plan that addresses resources needed for conducting well and bond adequacy reviews and reclaiming orphaned wells. In addition, upon revising its bond adequacy review policy, the BLM should ensure that the reviews of nationwide and statewide bonds reflect the overall risk presented by oil and gas companies.