Will the Public End up Paying to Clean up the Fracking Boom?
Susan Vineyard / iStock / Getty Images Plus
By Justin Mikulka
Increasingly, U.S. shale firms appear unable to pay back investors for the money borrowed to fuel the last decade of the fracking boom. In a similar vein, those companies also seem poised to stiff the public on cleanup costs for abandoned oil and gas wells once the producers have moved on.
"It's starting to become out of control, and we want to rein this in," Bruce Hicks, assistant director of the North Dakota Oil and Gas Division, said in August about companies abandoning oil and gas wells. If North Dakota's regulators, some of the most industry-friendly in the country, are sounding the alarm, then that doesn't bode well for the rest of the nation.
In fact, officials in North Dakota are using Pennsylvania as an example of what they want to avoid when it comes to abandoned wells, and with good reason.
The first oil well drilled in America was in Pennsylvania in 1859, and the oil and gas industry has been drilling — and abandoning — wells there ever since. Pennsylvania's Department of Environmental Protection (DEP) says that while it only has documentation of 8,000 orphaned and abandoned wells, it estimates the state actually has over a half million.
"We anticipate as many as 560,000 are in existence that we just don't know of yet," DEP spokesperson Laura Fraley told StateImpact Pennsylvania. "There's no responsible party and so it's on state government to pay to have those potential environmental and public health hazards remediated."
According to StateImpact, "The state considers any well that doesn't produce oil and gas for a calendar year to be an abandoned well."
That first oil well drilled in Pennsylvania was 70 feet deep. Modern fracked wells, however, can be well over 10,000 feet in total length (most new fracked wells are drilled vertically to a depth where they turn horizontal to fracture the shale that contains the oil and gas). Because the longer the total length of the well, the more it costs to clean up, the funding required to properly clean up and cap wells has grown as drillers have continued to use new technologies to greatly extend well lengths. Evidence from the federal government points to the potential for these costs being shifted to the tax-paying public.
The Government Accountability Office (GAO) released a report this September about the risks from insufficient bonds to reclaim wells on public lands. It said, "the bonds operators provide as insurance are often not enough to cover the costs of this cleanup." The report cited a Bureau of Land Management (BLM) official's estimate of $10 a foot for well cleanup costs.
StateImpact Pennsylvania noted that costs to reclaim a well could add up to $20,000, and DEP spokesperson Fraley said they could be "much, much higher." The GAO report noted that "low-cost wells typically cost about $20,000 to reclaim, and high-cost wells typically cost about $145,000 to reclaim."
In North Dakota, where state regulators have raised concerns about this growing problem, one of the top industry regulators, State Mineral Resources Director Lynn Helms, estimated that wells there cost $150,000 to plug and reclaim.
And this problem isn't just in the U.S. Canada is facing a similar cleanup crisis.
We always talk about the oil biz in Canada as BIG MONEY on the one hand, environmental issues on the other. But this episode taught me that cleaning up abandoned oil wells will soon COST Canada $50 Billion+. So....? https://t.co/qcn3d2invI— Jesse Brown (@JesseBrown) May 14, 2019
Financial Bonding Requirements for Well Cleanup
Legally, oil and gas companies are required to set aside money to pay for well cleanup costs, a process known as bonding. These requirements vary by state and for public lands, but in all cases, the amounts required are so small as to be practically irrelevant.
The GAO report reviewed the bonds held by the Bureau of Land Management for wells on public lands and found that the average bond per well in 2018 was worth $2,122.
The Western Organization of Resource Councils summarized bonding requirements by state, and none of them came even close to being adequate to cover estimated costs to deal with old wells. In North Dakota, a $50,000 bond is required for a well. But a $100,000 bond can cover up to 6 wells, which comes out to $16,667 per well — or approximately one tenth of the estimated cost to reclaim a well in that state.
North Dakota has a history of bending to oil and gas industry pressure when it comes to regulations. While North Dakota's bonding rules fall far short of what's needed to actually cover full cleanup costs, the reality on the ground is much worse. Regulators allow companies to "temporarily abandon" wells, which requires no action from companies for at least seven years. Wells can hold this "temporary status" for decades. And another practice in the state allows a company to sell old, under-performing wells to another company, passing along the liability but not the bonding funds.
By any measure, the amount of private money currently allocated in the U.S. to plug and reclaim oil and gas wells is a small fraction of the real costs. That means oil and gas wells — and the U.S. had one million active wells in 2017, and even more abandoned — will either be left to fail and potentially contaminate the surrounding water, air and soil, or the public will have to pick up the tab. This represents just one of the many ways the public subsidizes the oil and gas industry.
Statewide, 639 oil wells are considered abandoned.— TXsharon (@TXsharon) October 3, 2019
The fund has a balance of $22 million, yet Helms estimates the state could potentially be on the hook for a far greater amount.https://t.co/58Oz4rrQ5i
A South Dakota Case Study
South Dakota allows companies to post a $30,000 bond for as many wells as the company chooses to drill. Spyglass Cedar Creek is a Texas-based company that was operating in South Dakota and recently abandoned 40 wells, which the state has estimated will have a cleanup cost of $1.2 million.
However, there is a twist to this story. That $30,000 bond doesn't really exist. The owners of the company had put $20,000 of it into a Certificate of Deposit. But when the state went looking for that money, the owners said they had cashed it in 2015 because, as reported by the Rapid City Journal, "company officials did not remember what the money was for."
Spyglass Cedar Creek does not have the money set aside that was required to clean up these wells, the state does not have recourse to get that money, and some of the wells are reportedly leaking. So, what can be done?
According to Doyle Karpen, member of the South Dakota Board of Minerals and Environment, the answer is for the taxpayers of that state to cover the cost.
"I think the only way we can correct this is go to the Legislature and ask for money," Karpen said earlier this year.
Following the Coal Industry Business Model
What is starting to unfold with the oil and gas industry is very similar to what has already been playing out with the U.S. coal industry.
According to a Center for Public Integrity investigation, more than 150 coal mines (and dozens of uranium mines) have been allowed to idle indefinitely, enabling their owners to avoid paying for the costs of cleanup.
In April, the Stanford Law Review published the paper, "Bankruptcy as Bailout: Coal Company Insolvency and the Erosion of Federal Law," which notes that almost half the coal mined in the U.S. is done so by companies that have recently declared bankruptcy.
The paper notes how the bankruptcy process is used by coal companies to rid themselves of environmental cleanup liabilities and pension costs "in a manner that has eviscerated the regulatory schemes that gave rise to those obligations."
This summer, Blackjewel famously failed to pay its coal miners, and even pulled funds out of their bank accounts, after the company suddenly declared bankruptcy in July. That prompted workers to sit on train tracks in Kentucky, blocking a $1 million shipment of coal, in a two-month protest. And Blackjewel is poised to leave behind thousands of acres of mined land in Appalachia without adequate reclamation.
Privatize the Profits, Socialize the Losses
The mineral extraction business model in the U.S. is set up to maximize profits for executives, even as they lose investor money and bankrupt their companies. That is true of the coal industry and that is true of the shale oil and gas industry.
At the same time, the regulatory capture by these industries at both state and federal levels allows private companies to pass on environmental cleanup costs to the public, and the inadequate bonding system for oil and gas well reclamation represents just one more example.
The so-called fracking revolution in America has resulted in many new records: record amounts of U.S. oil and gas exported (to the detriment of a livable climate), new levels of human health impacts on surrounding communities, record numbers of industry-induced earthquakes, record amounts of flaring natural gas in oil and gas fields, and record-breaking depths and lengths of wells.
And the cleanup costs for the fracking boom are also poised to be staggering.
Reposted with permission from our media associate DeSmogBlog.
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By D. André Green II
One of nature's epic events is underway: Monarch butterflies' fall migration. Departing from all across the United States and Canada, the butterflies travel up to 2,500 miles to cluster at the same locations in Mexico or along the Pacific Coast where their great-grandparents spent the previous winter.
Millions of People Care About Monarchs<p>I will never forget the sights and sounds the first time I visited monarchs' overwintering sites in Mexico. Our guide pointed in the distance to what looked like hanging branches covered with dead leaves. But then I saw the leaves flash orange every so often, revealing what were actually thousands of tightly packed butterflies. The monarchs made their most striking sounds in the Sun, when they burst from the trees in massive fluttering plumes or landed on the ground in the tussle of mating.</p><p>Decades of educational outreach by teachers, researchers and hobbyists has cultivated a generation of monarch admirers who want to help preserve this phenomenon. This global network has helped restore not only monarchs' summer breeding habitat by planting milkweed, but also general pollinator habitat by planting nectaring flowers across North America.</p><p>Scientists have calculated that restoring the monarch population to a stable level of about 120 million butterflies will require <a href="https://doi.org/10.1111/icad.12198" target="_blank">planting 1.6 billion new milkweed stems</a>. And they need them fast. This is too large a target to achieve through grassroots efforts alone. A <a href="https://www.fws.gov/savethemonarch/CCAA.html" target="_blank" rel="noopener noreferrer">new plan</a>, announced in the spring of 2020, is designed to help fill the gap.</p>
Pros and Cons of Regulation<p>The top-down strategy for saving monarchs gained energy in 2014, when the U.S. Fish and Wildlife Service <a href="https://www.fws.gov/southeast/pdf/petition/monarch.pdf" target="_blank">proposed</a> listing them as threatened under the Endangered Species Act. A decision is expected in December 2020.</p><p>Listing a species as endangered or threatened <a href="https://www.fws.gov/endangered/esa-library/pdf/listing.pdf" target="_blank">triggers restrictions</a> on "taking" (hunting, collecting or killing), transporting or selling it, and on activities that negatively affect its habitat. Listing monarchs would impose restrictions on landowners in areas where monarchs are found, over vast swaths of land in the U.S.</p><p>In my opinion, this is not a reason to avoid a listing. However, a "threatened" listing might inadvertently threaten one of the best conservation tools that we have: public education.</p><p>It would severely restrict common practices, such as rearing monarchs in classrooms and back yards, as well as scientific research. Anyone who wants to take monarchs and milkweed for these purposes would have to apply for special permits. But these efforts have had a multigenerational educational impact, and they should be protected. Few public campaigns have been more successful at raising awareness of conservation issues.</p>
<span style="display:block;position:relative;padding-top:56.25%;" class="rm-shortcode" data-rm-shortcode-id="91165203d4ec0efc30e4632a00fdf57d"><iframe lazy-loadable="true" src="https://www.youtube.com/embed/KilPRvjbMrA?rel=0" width="100%" height="auto" frameborder="0" scrolling="no" style="position:absolute;top:0;left:0;width:100%;height:100%;"></iframe></span>
The Rescue Attempt<p>To preempt the need for this kind of regulation, the U.S. Fish and Wildlife Service approved a <a href="https://www.fws.gov/savethemonarch/pdfs/Monarch%20CCAA-CCA%20Public%20Comment%20Documents/Monarch-Nationwide_CCAA-CCA_Draft.pdf" target="_blank">Nationwide Candidate Conservation Agreement for Monarch Butterflies</a>. Under this plan, "rights-of-way" landowners – energy and transportation companies and private owners – commit to restoring and creating millions of acres of pollinator habitat that have been decimated by land development and herbicide use in the past half-century.</p><p>The agreement was spearheaded by the <a href="http://rightofway.erc.uic.edu/" target="_blank">Rights-of-Way Habitat Working Group</a>, a collaboration between the University of Illinois Chicago's <a href="https://erc.uic.edu/" target="_blank" rel="noopener noreferrer">Energy Resources Center</a>, the Fish and Wildlife Service and over 40 organizations from the energy and transportation sectors. These sectors control "rights-of-way" corridors such as lands near power lines, oil pipelines, railroad tracks and interstates, all valuable to monarch habitat restoration.</p><p>Under the plan, partners voluntarily agree to commit a percentage of their land to host protected monarch habitat. In exchange, general operations on their land that might directly harm monarchs or destroy milkweed will not be subject to the enhanced regulation of the Endangered Species Act – protection that would last for 25 years if monarchs are listed as threatened. The agreement is expected to create up to 2.3 million acres of new protected habitat, which ideally would avoid the need for a "threatened" listing.</p>
A Model for Collaboration<p>This agreement could be one of the few specific interventions that is big enough to allow researchers to quantify its impact on the size of the monarch population. Even if the agreement produces only 20% of its 2.3 million acre goal, this would still yield nearly half a million acres of new protected habitat. This would provide a powerful test of the role of declining breeding and nectaring habitat compared to other challenges to monarchs, such as climate change or pollution.</p><p>Scientists hope that data from this agreement will be made publicly available, like projects in the <a href="https://www.fws.gov/savethemonarch/MCD.html" target="_blank">Monarch Conservation Database</a>, which has tracked smaller on-the-ground conservation efforts since 2014. With this information we can continue to develop powerful new models with better accuracy for determining how different habitat factors, such as the number of milkweed stems or nectaring flowers on a landscape scale, affect the monarch population.</p><p>North America's monarch butterfly migration is one of the most awe-inspiring feats in the natural world. If this rescue plan succeeds, it could become a model for bridging different interests to achieve a common conservation goal.</p>
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