State Environmental Board Reviewing Well Bonding Amounts
The state Environmental Quality Board recently voted to review petitions asking it to substantially increase the bond amounts for new and existing conventional and unconventional oil and gas wells.
The petitions filed by a coalition of environmental groups including the Sierra Club, Clean Air Council, and PennFuture, call for the state Department of Environmental Protection to require oil and gas drillers to pay bonds equal to the full cost of plugging their wells at the end of their life span.
Under Act 13, passed by the state legislature in 2012, the bond amount for conventional wells is $2,500 per well, with the option to post a $25,000 blanket bond for multiple wells. The bond amount for unconventional wells – those that involve horizontal drilling and fracking - varies depending on the wellbore length and the number of wells, with a maximum of $600,000 for more than 150 wells. The EQB can adjust bond amounts every two years to reflect the cost of well plugging.
Pennsylvania is dealing with a growing inventory of wells that have been abandoned by their owners and “legacy” wells – conventional wells that were drilled many years ago before detailed records were kept by companies that have long since gone out of business.
Studies suggest that there may be at least 200,000 additional legacy wells that have not yet been identified in addition to 8,000 already in the state’s database. Oil and gas drillers pay a surcharge of $150 to $250 per well to the state’s well-plugging program, but both the bond amounts and surcharge do not cover the full cost if the state must step in and plug an abandoned well. The state’s liability is estimated at between $280 million and $6.6 billion, according to the DEP.
At the current bonding level, the DEP has less than $15 per conventional well available for plugging, said Seth Pelepko, of the Bureau of Oil and Gas Planning and Programs, during a recent webinar hosted by the Center for Energy Policy and Management. Leaking abandoned wells are an environmental and safety concern, as they emit can methane, a potent greenhouse gas, into the atmosphere, foul drinking water supplies, and lead to potential explosions.
The petitions call for a bond amount of $38,000 per conventional well, and $83,000 per unconventional well, and blanket bonds for multiple wells would be equal to the sum of the individual well bonds.
The increases are opposed by gas industry groups, which argue that small drillers will face financial harm or be forced out of business. The Marcellus Shale Coalition sent a letter to the EQB, asking it to reject the petitions and arguing that the board does not have the statutory authority to adjust bond amounts on conventional wells. Several MSC members operate conventional wells in addition to unconventional wells.
The EQB has 60 days from the petition acceptance to prepare a report evaluating the proposal, and if it cannot meet that deadline it must state at the next meeting, which is in February, how much additional time is needed.