WASHINGTON—Resources for the Future (RFF) has posted a new in-depth study: Plugging the Gaps in Inactive Well Policy. In it, researchers conclude that states—and therefore taxpayers—bear a significant financial burden due to orphaned oil and gas wells (those without a responsible owner) throughout much of the United States.
Inactive wells—those that are temporarily out of production or not yet properly plugged (decommissioned)—can leak pollutants, including methane (a potent greenhouse gas) and brine, as well as heavy metals and naturally occurring radioactive substances due to mechanical integrity failure, failed well casings, and cement failure. These pollutants can contaminate groundwater, surface water, or be released into the atmosphere—as can be the case with the potent greenhouse gas, methane.
The research team found that an exact count of inactive and abandoned wells in the United States is hard to determine, but the numbers are not small. They present data provided directly from oil and gas agencies in 13 states. Across those states, the population of inactive wells is as large as 557,000, 12 percent of which has not been decommissioned. Average costs within each state range from $10,470 to $78,715 for plugging and reclamation, and from $5,021 to $30,877 for plugging only.
There also are orphaned wells on federal lands. From 1988 to 2009, the Bureau of Land Management reported spending $3.78 million to plug 295 wells in 12 states at an average cost of $12,800 per well.
According to the report’s Executive Summary, states bear the financial burden of decommissioning these wells because the bond amounts required of operators are generally too low to cover decommissioning costs, should a well owner become bankrupt or be otherwise unavailable to pay.
Ensuring that effective regulations are in place to manage these wells is therefore essential for protecting the state and public against costs, both environmental and financial. To that end, the report offers a number of important recommendations for regulatory reform. Those recommendations include steps that range from ensuring bond amounts required of operators more closely approximate decommissioning costs to recommendations that urge states to consider the introduction of surface damage agreements in addition to traditional plugging or plugging-and-reclamation bonds.
The authors of the new report are RFF Senior Fellow Alan Krupnick, RFF Fellow Jhih-Shyang Shih, RFF Research Associate Clayton Munnings and RFF Research Assistants Jacqueline Ho and Katrina McLaughlin. The work was assisted by RFF Visiting Fellows Nathan Richardson, University of South Carolina Law School, and Lucija Muehlenbachs, University of Calgary.
Read the executive summary and full report:
The authors would like to thank the Paul G. Allen Family Foundation for funding this project and providing helpful and extensive comments on the draft.
* * * * * * * *Resources for the Future (RFF) is an independent, nonpartisan organization based in Washington, DC, that conducts rigorous economic research and analysis to improve environmental and natural resource policy.