Environmental News for a Healthier Planet and Life

Help Support EcoWatch

As Fracking Companies Face Bankruptcy, U.S. Regulators Enable Firms to Duck Cleanup Costs

Heavy equipment sits on the edge of a rocky stream bank as part of U.S. Bureau of Land Management-Forest Service reclamation efforts for abandoned oil and gas wells in the eastern U.S. Bureau of Land Management

By Justin Mikulka

In over their heads with debt, U.S. shale oil and gas firms are now moving from a boom in fracking to a boom in bankruptcies. This trend of failing finances has the potential for the U.S. public, both at the state and federal levels, to be left on the hook for paying to properly shut down and clean up even more drilling sites.

Expect these companies to try reducing their debt through the process of bankruptcy and, like the coal industry, attempting to get out of environmental and employee-related financial obligations.

The Bankruptcy of EP Energy

In October, EP Energy — one of the largest oil producers in the Eagle Ford Shale region in Texas — filed for bankruptcy because the firm couldn't pay back almost $5 billion in debt, making it the largest oil and gas bankruptcy since 2016.

EP Energy hasn't produced a profit since 2014 and Bloomberg reported that the company would need oil to be at "a price closer to $70 per barrel" for EP to be profitable. Oil has not come close to averaging over $70 a barrel since 2014.

Despite its financial struggles at current low oil prices, the company plans to continue operating after restructuring and eliminating up to $3 billion in debt. However, EP has not identified any funds that it would be setting aside for well cleanup, which is not unusual for an oil and gas company.

In response, as part of the bankruptcy proceedings, the U.S. Department of the Interior filed a document arguing that EP Energy is still responsible for its obligations to assure the "decommissioning, plugging, and abandonment" of any of the EP Energy wells that are located on leased federal and tribal lands.

Ideally, that would mean EP Energy sets aside funds for the proper cleanup and end-of-life processes for its oil and gas wells, which number more than 800 in the Eagle Ford region.

However, the federal government hasn't even named a number yet for how much that should be. The Bureau of Land Management and Bureau of Indian Affairs "are currently still assessing the status of reclamation and plugging and abandonment obligations across the Debtors' onshore federal and Indian leases," writes the Interior Department.

The federal government is only getting around to assessing EP Energy's potential liabilities once the firm is already in the bankruptcy process, revealing one of the flaws in the current system. Federal and state governments have not been holding fracking companies fully liable for the environmental damage and cleanup costs of their drilling activity.

Joshua Caleb Macey, a visiting assistant professor at Cornell law school who specializes in bankruptcy and energy law, told DeSmog that the situation with EP Energy was "frustrating and completely normal."

According to the Interior Department filing, "Regardless of its bankruptcy, the Debtor is required to comply with all applicable federal laws."

As I've reported before, oil and gas companies are legally required to hold a certain amount of funds to pay for well cleanup costs, a process known as bonding that varies by state and for public lands.

Because companies are rarely required to have those funds available before they start drilling (and thanks to industry-friendly regulators and politicians), in reality oil and gas companies can walk away from cleanup obligations with relative ease, which has become the pattern for bankrupt coal companies.

Including Cleanup Costs Would Make Extraction 'Uneconomic'

Federal and state regulators have been failing to require companies to fully fund expected cleanup liabilities, which helps mask the true cost of oil and gas production. Passing environmental cleanup costs on to the taxpayer amounts to a backdoor subsidy for the oil and gas industry.

Requiring oil and gas companies to pay for shutting down and cleaning up wells would greatly increase the cost of drilling for many oil and gas wells. The fracking industry already can't make money pumping fossil fuels out of shale in the U.S., and that's without these firms coming even close to fully funding their cleanup costs.

However, more state governments are realizing the scale of this problem and starting to look at increasing and enforcing bonding requirements for oil and gas well cleanup. However, in oil-rich places like Alberta, Canada, and Alaska, regulators are realizing that the money just isn't there.

In 2018, the natural gas driller Amaroq Resources acquired the Nicolai Creek assets in southwest Alaska from the bankrupt Aurora Gas. This transaction was delayed when the Alaska Oil and Gas Conservation Commission (AOGCC) announced $7 million in bonding required for the gas wells associated with the purchase. This is the point where the state government had the power to make Amaroq provide adequate bonding for well cleanup.

The AOGCC then agreed to reduce that amount to $200,000 and the deal went ahead.

Since that deal, the commission increased the minimum statewide bonding level to $400,000 per well for the first one to 10 wells. Amaroq would be required to abide by these new regulations and has appealed this decision. Company president Scott Pfoff explained that these new bonding requirements make the business "uneconomic."

And that is the reality. If oil and gas companies were required to pay for the full end-of-life cost of their wells, much of their inventory becomes uneconomic. This is where taxpayers come in.

Fracking Industry Wants to Dump Wastewater in Streams and Rivers to Save Money

Failure to require adequate bonding for oil and gas cleanup costs is just one of many backdoor government subsidies for the oil and gas industry. The failure to regulate flaring and venting of the potent greenhouse gas methane during oil drilling is another example.

Fracking firms, which spend a lot of borrowed money to pump out a lot of oil and gas for not much (or any) profit, are experiencing a collapse in financing. Thanks to the industry's failed business model, these companies are desperate for ways to cut costs.

One of the major costs associated with hydraulic fracturing, or fracking, is acquiring, pumping and disposing of water, which, after a driller is finished with it, typically contains corrosive levels of salts and contaminants including naturally occurring radioactive materials, chemicals and oil residues. This area has become a major target for the industry to save money.

A graphic showing the water cycle during hydraulic fracturing. U.S. Environmental Protection Agency, 2016

As The Washington Post pointed out in 2015 (and as I highlighted last year), when it comes to fracked shale oil and gas production, "currently there is no way to treat, store, and release the billions of gallons of wastewater at the surface." The industry's current range of (legal) approaches to disposing of its massive amounts of wastewater involves injecting it underground, which in some cases is tied to increased earthquake activity, using it to irrigate crops or de-ice roads, and sending it to municipal water treatment plants lacking equipment to properly treat it.

Treating oil and gas drilling wastewater is possible, but expensive. As S&P Global Platts recently reported, according to a study by the Texas Alliance of Energy Producers and Independent Petroleum Association of America, for Permian drillers in Texas, "Economically, treatment costs must come down."

The study concludes that dealing with wastewater is already a limiting factor in this prolific region: "Some Permian sub-basins are currently constrained due to insufficient injection well capacity. Projected production growth will worsen the situation."

With this glut of wastewater combined with high costs, the industry is looking for a cheap alternative. The latest preferred approach seems to be lobbying governments to change the rules to allow dumping wastewater with limited treatment into rivers and streams.

In November, E&E News reported that there's movement to allow or expand such wastewater dumping in Oklahoma, Texas, New Mexico and Pennsylvania, all states with major fracking industries. "Within a year, Oklahoma could get approval from EPA to start issuing permits that will allow the oil industry to dispose of briny oil field waste in waterways," E&E wrote.

As space for injection wells becomes scarce, the industry hopes to dump its wastewater in streams and rivers, once again passing on potential environmental and financial liabilities to the public.

A 2017 working group looking for alternatives for Oklahoma oil field wastewater (also known as "produced water") found "the most cost-effective means of reducing disposal is for oil companies to treat and clean that produced water so it can be reused for things like fracking," reported NPR's StateImpact Oklahoma.

However, recycling produced water to again frack wells results in more toxic produced water, which can't be recycled indefinitely. With injection wells increasingly unable to handle the volume of water produced by the industry, shale firms have been seeking cheap alternative disposal methods, including dumping the water in rivers and streams.

However, the 2017 analysis concluded that treating produced frack water to the point it could be safely dumped into rivers or used to irrigate agriculture wasn't economically viable.

Owen Mills, the director of water planning for the Oklahoma Water Resources Board, explained to StateImpact Oklahoma why this wasn't an option for the industry: "It's incredibly expensive to do that and it takes a lot of energy."

To properly treat the fracking wastewater to the point it is no longer a threat to human health and the environment would be incredibly expensive, and that is why the industry is lobbying to change the rules about disposing its wastewater. If it succeeds, expect the eventual clean up costs — also incredibly expensive — to be billed to the American public.

Reposted with permission from DeSmogBlog.

EcoWatch Daily Newsletter

The sun shines over the Southern Ocean in Antarctica. Rebecca Yale / Moment / Getty Images Plus

Atmospheric researchers have pinpointed the spot on Earth with the cleanest air. It's not in the midst of a remote jungle, nor on a deserted tropical island. Instead, the cleanest air in the world is in the air above the frigid Southern Ocean surrounding Antarctica, as CNN reported.

Read More Show Less
Brazil burnt, logged and bulldozed a third of the area lost, with the Democratic Republic of Congo and Indonesia placing second and third. Brasil2 / Getty Images

Satellite data collated for the World Resources Institute (WRI) showed primal rainforest was lost across 38,000 square kilometers (14,500 square miles) globally — ruining habitats and releasing carbon once locked in wood into the atmosphere.

Read More Show Less
People sit in circles to observe social distance in Domino Park amid the coronavirus pandemic on May 21, 2020 in New York City. New research says preventative measures such as social distancing and wearing face masks should not be relaxed as temperatures warm up. Alexi Rosenfeld / Getty Images

Researchers have found that warm temperatures in the U.S. this summer are unlikely to stop the coronavirus that causes the infectious disease COVID-19, according to a new study published in the journal Clinical Infectious Disease.

Read More Show Less
Protesters gather to protest the killing of George Floyd in Minnesota by police, on May 27, 2020 in Los Angeles, California. Jason Armond / Los Angeles Times via Getty Images

The glaring numbers that show how disproportionately racial minorities have been affected by the coronavirus and by police brutality go hand-in-hand. The two are byproducts of systemic racism that has kept people of color marginalized and contributed to a public health crisis, according to three prominent medical organizations — the American Academy of Pediatrics, American Medical Association and American College of Physicians, as CNN reported.

Read More Show Less
In a series of major wins for climate campaigners, New York regulators and Cuomo have repeatedly blocked construction of the $1 billion Williams Pipeline. Michael Brochstein / SOPA Images / LightRocket / Getty Images

By Jessica Corbett

With the nation focused on the coronavirus pandemic and protests against U.S. police brutality that have sprung up across the globe, the Trump administration continues to quietly attack federal policies that protect public health and the environment to limit the legal burdens faced by planet-wrecking fossil fuel companies.

Read More Show Less
Photo credit: Black Birders Week seeks to highlight the experiences of Black scientists and nature lovers. Chad Springer / Image Source / Getty Images

A video of an incident in Central Park last Monday, in which a white woman named Amy Cooper called the cops on African American birder Christian Cooper after he asked her to put her dog on a leash, went viral last week, raising awareness of the racism Black people face for simply trying to enjoy nature.

Read More Show Less


Nationwide states struggle to recruit, hire and train game wardens. Jason Erickson / Getty Images

By Jodi Helmer

In Georgia there are just 213 game wardens to enforce state fish and wildlife laws, investigate violations, assist with conservation efforts and collect data on wildlife and ecological changes across 16,000 miles of rivers and 37 million acres of public and private lands. Statewide 46 counties have no designated game warden at all. The shortage could lead to wildlife crimes going undetected.

Read More Show Less