Oil and gas drilling has been occurring in Pennsylvania since 1859, when the first commercial oil well was drilled.
A major problem exists with so-called abandoned “conventional” wells, which were drilled vertically into a reservoir of oil or gas, which was then pumped out. This was the only form of drilling until the advent of “unconventional” well drilling in the early 2000s Unconventional drilling allows the wellhead to first travel downward vertically and then extend horizontally along long lateral lines. Those lateral lines are then fractured with hydraulic pressure, chemicals, and sand to allow gas to be captured from rock formations that previously could not be accessed.
In Pennsylvania alone, it is estimated that as many as 300,000 to 760,000 wells have been drilled, and that between 100,000 and 560,000 remain unaccounted for in state records. These abandoned wells present environmental problems due to methane emissions and water contamination as well as the potential for an explosion from a gas buildup. Consequently, many states are working to identify the owners of these legacy wells and require that they be plugged.
The state Department of Environmental Resources in early October issued a consent order agreement with CNX Gas Co. for well-plugging violations at 141 conventional coalbed methane and gas wells and five unconventional wells in four Southwestern Pennsylvania counties. The vast majority of the wells are in Greene County. The agreement requires CNX to post a $1.48 million performance bond to guarantee plugging and restoration of the sites and sets a schedule for that work.
The Oil and Gas Act requires owners and operators to plug wells when they are abandoned. That occurs if a well has not been in use within the preceding 12 months. While owners are required to pay a bond to guarantee the well will be plugged, the amounts are many times less than the actual cost of the work.
“Unfortunately, bonding – in particular blanket bonding – amounts prescribed under state law are woefully inadequate to plug an abandoned oil or gas well,” said DEP Secretary Patrick McDonnell in a press release announcing the CNX agreement. “If a conventional well owner walks away, they’ve put up just pennies on the dollar and the commonwealth is forced to cover the rest.”
The Oil and Gas Act was updated in 2012, but bond amounts for conventional wells are set at $2,500 per well or $25,000 for all wells owned by an operator. The bond requirements for unconventional wells are set on a sliding scale depending on the number and lateral length, but are much higher.
In July 2018, the DEP issued orders to operators to plug more than 1,000 abandoned wells after looking at production data for the previous year.
Several companies, including CNX, appealed the orders to the state Environmental Hearing Board. In March, Diversified Gas & Oil Corp. and subsidiaries Alliance Petroleum and Diversified Oil & Gas, entered into a consent agreement to put up a $7 million performance bond to cover plugging costs for 1,400 conventional wells and setting a schedule for the work over the next 14 years.
“We believe we have over 200,000 unplugged or improperly plugged wells,” Perry told the audience at the recent Shale Insight conference in Pittsburgh.
The state has an abandoned and orphan well plugging program that provides funds to help pay for the work if an owner cannot be located. It is paid for with a modest surcharge of oil and gas well permits. “Although well intentioned, the surcharges are not sufficient to allow the commonwealth to address the liability associated with legacy oil and gas wells,” the DEP website states.
Perry said the state has only about $400,000 a year to address abandoned wells, and at that funding level it will “take approximately 17,500 years to address the issue.” The state is actively seeking to partner with industry to address the problem and to prevent the transfer of legacy wells to lower-capital operators, he said.
While Pennsylvania, with its long history of oil and gas drilling, may have the most abandoned wells, the problem exists in other Appalachian states.
Austin Caperton, secretary of the West Virginia Department of Environmental Protection, said that state has about 14,000 uncapped wells and 4,000 orphan wells, yet has only about $70,000 a year for plugging.
Mary Mertz, director of Ohio’s Department of Natural Resources, said at the Shale Insight conference that abandoned well plugging is “one of our top priorities.” The state sets aside a significant portion of its severance tax for well plugging and is actively pushing operators to undertake projects.