Pa. taxpayers could bear costs of old gas wells

DON HOPEY

Pittsburgh Post-Gazette

PITTSBURGH — Plugging an abandoned Marcellus Shale gas well in Pennsylvania could cost $100,000 or more, and well bonding changes proposed by the Corbett administration could stick taxpayers with almost all of that bill, according to a study from Carnegie Mellon University.

The CMU study found that the new Marcellus gas well bonding fees, recommended by Corbett’s Marcellus Shale Advisory Commission and now under consideration in the Republican-controlled Legislature, would require drilling companies to cover only a fraction of the costs of plugging and decommissioning old, nonproducing and abandoned gas wells.

The proposed new bonding requirements, while higher than those now in place, would eventually have dire economic and environmental consequences for the state, similar to those caused by the inadequate bonds required of the early coal, oil and shallow gas industries, the study said. It will appear in the journal Environmental Science & Technology and has been published online.

Neither the existing $2,500 per well bonding requirement nor the proposed increase to $10,000 per well are high enough to make gas drilling companies clean up after themselves or cover the costs of plugging and decommissioning a well, said Austin Mitchell, a doctoral student in the Department of Engineering and Public Policy at Carnegie Mellon University, who co-authored the study with Elizabeth Casman, an associate research professor in that department..

Well reclamation is important because unplugged wells allow drilling wastewater and well gases to come to the surface and cause surface and groundwater contamination, property damage and ecological harm. The state Department of Environmental Protection estimated in 2007 it would take 160 years to plug all of the already existing orphaned wells in the commonwealth.

Mitchell said continuation of the state’s “blanket bonding fee,” which allows a drilling company to cover all the wells they drill in the state for a bond of $25,000, isn’t wise either, given that in the next 20 years, tens of thousands of new gas wells will be drilled into the Marcellus, Utica and Upper Devonian shale formations of Pennsylvania. Such blanket bonds are a bargain for companies drilling hundreds of wells but leave the possibility of taxpayers holding the liability bag.

Proposals under consideration by the Legislature could increase the blanket bonds to as much as $625,000, but Mitchell said “there’s still no real attempt to make the bond match the actual cost of plugging a well” on private property.

He said gas drillers in state forests are required to post “full cost” bonds ranging from $50,000 to $100,000, and the requirement has not stopped companies from bidding on those leases. But the state’s well bonding requirements for private property drilling haven’t been adjusted since 1984.

The Department of Environmental Protection could not be reached for comment on the CMU study or the adequacy of the proposed well bonding program.

The department had earlier estimated that the cost of decommissioning 3,000-foot-deep wells in southwestern Pennsylvania has averaged approximately $60,000 each. Since the cost increases with the depth of the well, Marcellus Shale wells, which can be 5,000 to 8,000 feet deep, are expected to cost much more to plug.

Mitchell said Cabot Oil & Gas paid $2.2 million to plug three vertical Marcellus wells that had caused problems with groundwater supplies in Dimock, Susquehanna County.

Another problem, Mitchell said, is that the economics of shale gas development, demonstrated in other shale gas plays around the nation, favor transfer of assets from large companies to smaller ones as well production declines, potentially creating situations in which the smaller companies may not have the financial assets to pay for well plugging when production ends.

The study also said the state’s inadequate well production reporting system should be upgraded and enforcement increased to prevent drilling companies from postponing or avoiding well plugging requirements.

From 2007 through 2009, about 17,000 active oil and gas wells did not report production numbers, according to the study.

“State law requires that oil and gas wells must be properly plugged and the well site restored one year after production ceases,” Mitchell said. “By not reporting production, owners can indefinitely postpone enforcement of those requirements.”

The study suggests the most cost-effective way for drilling companies to meet their true cost obligations would be to pay into interest-bearing reclamation trust accounts funded by upfront pre-drilling fees and severance taxes for the peak production years.

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