04/15/24 - 66 New Stories - REAL Environmental & Conservation Leadership In PA: http://tinyurl.com/msuwtctm
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Spotlight- Who Will Pay For Shale Gas Well Reclamation In Pennsylvania?
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By Austin L. Mitchell, Ph.D. Candidate, Carnegie Mellon University Neither Pennsylvania’s current nor proposed oil and gas well bonding requirements for private lands will cover the costs of well site restoration and well plugging, over $100,000 per well. Today, shale gas operators in Pennsylvania must post either a bond of $2,500 for each well or a single bond of $25,000 to cover all the wells they drill in the state.
The Marcellus Shale Advisory Commission and Governor Corbett proposed raising the individual well bond to $10,000. These amounts undermine the intent of the bonding program enacted under the Oil and Gas Act of 1984, to ensure that private parties assume their reclamation liabilities.
1. Shale gas well production rates decline rapidly, and more than half of total production is expected to occur in the first 10 years. To minimize the risk of well owner default on reclamation liabilities, it is prudent to collect funds for reclamation when the wells are most profitable, during the first 10 years of production.
If owners cannot pay for reclamation, the burden falls on the taxpayers. The cost will exceed $100,000 per well, not $2,500 or $10,000. Improperly abandoned wells deteriorate structurally over time and cost even more to reclaim.
2. To make existing well reclamation regulations workable, Pennsylvania needs to improve production reporting.
State law requires that oil and gas wells must be properly plugged and well site restored one year after production ceases. By not reporting production, owners can indefinitely postpone enforcement of these requirements. Operators may apply for inactive status as a legal means to delay reclamation. Accurate and timely production data will prevent abuse of these rules. From 2007-2009, nearly 17,000 active oil and gas wells did not report production.
3. Alternative financial tools to ensure reclamation liabilities are privately funded should be evaluated because bonds are inflexible.
Oil and gas well bonds are inflexible to changes in the cost of reclamation, and current bonding requirements have not been adjusted since enactment in 1984. Blanket bonds should be eliminated because on a per-well basis, even less money is collected.
4. Trust accounts are used to fund long-term pollution control projects in Pennsylvania’s mining industry. In the shale gas industry, interest-bearing reclamation trust accounts, funded by fees or severance taxes are also workable solutions.
Funding an individual well trust account with a severance tax or pre-drilling fee has a small impact on operator profitability, but won’t cover reclamation costs of dry-holes and poorly producing wells. A solution to this problem could be a contract clause requiring operators to be responsible for any shortfall in the trust.
Austin L. Mitchell is a Ph.D. Candidate at Carnegie Mellon University and can be contacted by sending email to: austinmi@andrew.cmu.edu. Editor's Note: This is an abstract of an article by Austin L. Mitchell and Elizabeth A. Casman in the October 10, 2011 issue of the Journal of Environmental Science & Technology. |
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11/14/2011 |
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