Despite federal and state laws requiring oil and gas companies to clean up and properly cap abandoned wells, there is overwhelming evidence that this is not happening.
Amid a record wave of bankruptcies, the U.S. oil and gas industry is on the verge of defaulting on billions of dollars in environmental cleanup obligations.
Even the largest companies in the industry appear to have few plans to properly clean up and plug oil and gas wells after the wells stop producing — despite being legally required to do so. While the bankruptcy process could be an opportunity to hold accountable either these firms, or the firms acquiring the assets via bankruptcy, it instead has offered more opportunities for companies to walk away from cleanup responsibilities — while often rewarding the same executives who bankrupted them.
The results may be publicly funded cleanups of the millions of oil and gas wells that these companies have left behind. In a new report, Carbon Tracker, an independent climate-focused financial think tank, has estimated the costs to plug the 2.6 million documented onshore wells in the U.S. at $280 billion. This estimate does not include the costs to address an estimated 1.2 million undocumented wells.
Greg Rogers, a former Big Oil advisor, and co-author of a previous Carbon Tracker reported on the likely costs of properly shutting down shale wells, suggested to DeSmog that oil and gas companies have factored walking away from their cleanup responsibilities into their business planning.
“The plan is that these costs will be transferred, these obligations will be transferred to the state at some point,” Rogers told DeSmog, “Why would a company want to go out and spend hundreds of millions of dollars plugging all of these wells when it could instead pay its executives?”
Whiting Petroleum’s CEO is leaving after getting a $6.4 million bonus for driving the company into bankruptcy https://t.co/NQ0ushyMAP
— Bloomberg Energy (@BloombergNRG) August 17, 2020
One major reason why is that often, regulators lack the power to enforce compliance once the permits to drill the wells have been issued.
The best method to guarantee the wells are properly capped and abandoned is for regulators to require the companies to put up the money to do that before the well is drilled. This is most often done via a process known as surety bonding.
However, if the amount of money required for bonding is small enough, there is no incentive for companies to spend the additional money to properly cap the wells once the wells are no longer producing oil or gas. From a business standpoint, it is smarter for the well owner to walk away from the obligations at that point.
The new report from Carbon Tracker also notes that current bonding monies allocated for well cleanup are equal to roughly only 1% of that total expected cost.
State and federal regulators have failed to require sufficient bonding from the industry, giving the industry no incentive to spend the money to properly cap and abandon wells once they are no longer producing significant amounts of oil and gas.
Rogers told DeSmog that although companies can’t use the bankruptcy process to avoid cleanup liabilities, the reality is that when state regulators are forced to argue for these cleanup costs during the bankruptcy process, they may simply be “first in line when there is nothing there.” […]