Orphaned oil wells costing taxpayers a bundle
David Jenkins, opinion contributor, The Hill
The bipartisan infrastructure package signed into law back in November included $4.7 billion of our tax dollars for plugging and cleaning up abandoned or orphaned oil and gas wells. These are wells that the oil companies themselves were required to plug and clean up as a condition of their drilling permit.
So far, 26 states have notified the Department of Interior (DOI) that they intend to apply for grants under DOI’s program to distribute that money.
So, why are U.S. taxpayers footing the bill for all of this orphaned well clean up? It is because the companies responsible are being allowed to skip out on their obligations. In fact, the Department of Interior recently announced that it has documented at least 130,000 of these orphaned oil wells.
Unfortunately, that $4.7 billion is just a down payment. Not only is the full cost of remediating those 130,000 orphan wells likely double that amount, the Environmental Protection Agency (EPA) estimates that the actual number of orphaned and abandoned wells could be as high as 3 million.
These wells typically become orphaned when the company that drilled, extracted and profited from them ceases to exist or declares bankruptcy – not exactly a rare occurrence in the boom-and-bust oil business. But what used to be a company’s last resort, has now morphed into a popular way to skip out on clean-up obligations.
It’s not uncommon to see principal players from a company that just went belly-up, immediately show up as the principal players of a new company. The drilling business has essentially become a parasitic shell game. They suck wealth from our public lands, shift much of the cost of doing business onto taxpayers, and then create a new entity to repeat the process somewhere else.
Equally galling, is the fact that our government has been complicit in this fraud. Across many administrations, the Bureau of Land Management (BLM), which oversees public lands drilling, has allowed this to happen by not requiring drilling companies to post bonds in amounts adequate to fully cover the plugging and clean-up costs of their wells in the event of default.
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Instead, these companies are allowed to post bonds at “regulatory minimum values,” which only cover a small fraction of the actual clean-up costs and have not been updated since the 1950s.
This is not a case of the law preventing BLM from requiring full cost bonding. Quite the contrary, current law states that the secretary of Interior, “shall, by rule or regulation, establish such standards as may be necessary to ensure that an adequate bond, surety, or other financial arrangement will be established… to ensure the complete and timely reclamation of the lease tract.”
That is all the authority the Biden administration needs to stop these individuals and companies from reneging on their obligations and bilking us taxpayers out of billions.
There is a provision in the Build Back Better reconciliation bill that more explicitly requires full cost bonding, but the failure of that legislation to pass the Senate is not an excuse for the Biden administration to delay. This reform can be implemented immediately.
To its credit, the administration says that it plans to update its bonding requirements in an upcoming rulemaking. Let’s hope so – especially with new lease sales coming up – but this clearly belongs in the “I’ll believe it when I see it” category.
Inadequate bonding has proven to be a deeply ingrained and chronic problem across at least seven administrations. Perhaps the culture at BLM has been one that favors placating oil and gas executives at the expense of everyone else. Whatever the reason, this practice creates an unfair and costly subsidy that needs to end.
If BLM had just been doing a halfway competent job at fiscal stewardship, we would not need to spend billions in taxpayer dollars today for orphaned well plugging and clean up.
Everyone, from fiscal conservatives and taxpayer advocates, to outdoor enthusiasts and conservationists should demand that going forward, full cost bonding be required for every new lease or drilling permit.
Anything less represents fiscal malpractice and a failure of leadership.
David Jenkins is president of Conservatives for Responsible Stewardship, a national non-profit organization with 20,000 members.