On Monday, September 21, Senator Michael Bennet introduced the Oil and Gas Bonding Reform and Orphaned Well Remediation Act of 2019. In response, TCS issued the following press statement:
Taxpayers for Common Sense applauds Senator Bennet for taking steps to tackle one of the too many ways the oil and gas industry receives generous and unjustified taxpayer subsidies. The Oil and Gas Bonding Reform and Orphaned Well Remediation Act of 2019 takes the important step of addressing outdated bonding rates.
Taxpayers are subsidizing the oil and gas industry by assuming much of the financial responsibility of cleaning up their operations on federal lands. Oil and gas companies already benefit generously from embedded subsidies throughout the leasing process, from inadequate royalty rates and outdated rental rates, to below-market minimum bids and allowing noncompetitive leasing.
Abandoned oil and gas wells can contaminate ground water, public lands, vegetation and wildlife. Bonds are supposed to guarantee oil and gas companies will reclaim their abandoned wells. But today’s extremely low bonding rates offer little incentive for producers to ensure proper clean-up, often sticking taxpayers with the tab.
This legislation would finally bring bonding rates into the 21st Century by requiring oil and gas companies – not taxpayers – to assume the potential cost of reclaiming their abandoned and orphaned wells.
Minimum bond prices for individual leases were determined by law in 1960 and state and nationwide minimum prices were determined by law in 1951. To cover a bond for an individual lease, oil and gas companies must pay a minimum bond of $10,000. Alternatively, a single oil and gas operator can cover all of their leases in a single state for $25,000. Or, even still, a single operator can cover all their bonds nationwide for $150,000.
A 2019 report by the GAO details the steps the DOI should take to better manage potential oil and gas well liability. The report found that reclamation costs for wells orphaned from 2017-2019 would cost $46 million. The report encourages the BLM to “increase bonds as necessary to ensure they reflect risks posed by the operator.” The report finds: “In 2008, BLM held bonds worth an average of $2,207 per well in 2018 dollars. BLM held bonds worth an average of $2,122 per well in 2018, a decrease of 3.9 percent as compared to 2008.”
Despite significant risks to taxpayers and the environment, BLM has increased potential costs to taxpayers from future liabilities by decreasing bond amounts per well.