Idle oil wells a multi-million dollar liability to taxpayers

In an article published last week, the Salt Lake Tribune explored the costs, conflicts and risks associated with a growing number of inactive, un-reclaimed oil and gas wells on federal lands in the state of Utah. According to the article, a former BLM employee identified more than 550 federal oil and gas wells in Utah that have been inactive for at least a decade and require reclamation. These wells can leak methane, contaminate soil and groundwater, and cause explosions and blowouts; they also carry millions of dollars in potential taxpayer liability.

In addition to the hundreds of un-reclaimed federal wells in Utah, BLM records obtained by the Western Values Project (available at this link) point to a much broader well reclamation problem on federal lands across the West.[1] According to the records, as of September 2015, Wyoming, California and New Mexico all had more “idle” federal oil and gas wells than Utah, wells that have been inactive for at least 7 years, are presumptively abandoned, but are un-reclaimed.

Looking more broadly, the BLM records also show more than 4,000 idle wells on federal lands nationally. Among these wells, approximately 3,200 have been inactive between 7-20 years, 860 have been inactive between 20 and 50 years, and 130 have been inactive more than 50 years. Since there are roughly 90,000 total wells on federal lands in the United States, this means that roughly 1 in 20 wells on federal lands currently require reclamation.

There is also growing evidence that BLM is ill-equipped and un-prepared to ensure proper reclamation of these wells, putting taxpayers at risk. Current federal regulations—not updated since 1960—allow operators on federal leases to bond all their wells nationwide for as little as $150,000, or statewide for as little as $25,000. Yet, the cost of reclaiming a single contemporary, hydraulically-fractured well can cost several hundred thousand dollars alone.

These weak federal bonding requirements have created a massive shortfall between federal well reclamation liability and the bonds held by BLM. As of December 2008, BLM held only $162 million in federal bonds for 88,000 wells on federal public lands. Assuming a conservative well reclamation cost of about $40,000/well, the liability associated with reclaiming the 88,000 wells on federal lands in 2008 would be more than $3.5 billion.

Since thousands of new, hydraulically fractured wells have been drilled on federal wells since December 2008, existing federal well reclamation liability is actually much larger. And with a rising number of wells being shut-in and decommissioned in response to low oil and gas prices, and a growing number of industry bankruptcies, the number of inactive, orphaned and abandoned wells on federal lands is increasingly rapidly.

The vast disparity between the amount of money held in federal bonds by the BLM and the liability associated with oil and gas wells on our federal public lands begs the question: Will the domestic oil and gas boom (the U.S. is now the largest producer of oil and gas in the world) leave the same legacy as the hard-rock mining boom of the 19th Century? Will taxpayers be forced to pick up the tab left by the oil and gas industry on our federal public lands?

[1] These records are available upon request. Specifically, the records are BLM’s FY 2015 Idle Well Review, prepared pursuant to IM No. 2012-181.

 

 

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