America’s secret fossil fuel bailout: Cleaning up orphaned oil and gas wells

The current oil crash could soon mean hundreds, or even thousands more abandoned drilling sites. Who will pay to clean up the mess?

Fracking well pad, USGS
Gideon Weissman

Former Policy Analyst, Frontier Group

“Clean up your mess.”

It’s a command that every parent has given, and every child has heard. It also applies beyond the home. When companies engage in environmentally destructive behavior and fail to clean up after themselves, the rest of us pay — either with a degraded landscape or with our tax dollars. 

Oil and gas producers have been hit in recent weeks by the economic one-two punch of low oil demand during the COVID-19 pandemic, and a supply glut resulting from a trade dispute between Russia and Saudi Arabia, leading some to seek help from Washington. But the fact is that taxpayers have already been bailing out generations of oil and gas producers by cleaning up the messes they’ve left behind. With many fracking firms already deep in debt and a wave of new bankruptcies likely in the weeks ahead, the cost of that bailout could skyrocket.

Every state requires oil and gas producers to plug and clean up their wells when they are finished producing fossil fuels. There is good reason for that. Unplugged “orphaned” wells are dangerous — they can leach toxic chemicals into groundwater; spew toxic gas into the air; and also leak methane, a potent greenhouse gas. Groundwater impacts may develop slowly: underground oil and other toxic minerals may migrate over years before reaching aquifers, constituting “ticking time bombs” for public health, as one hydrologist told the Texas Tribune.

Plugging wells and reclaiming drilling sites is not cheap. That is why every state in which oil and gas drilling takes place requires drillers to provide some form of assurance that funds will be available to pay for closure and cleanup of well sites once production has ended. These funds — often in the form of a posted bond — are designed to ensure that the drilling companies, not the public, are on the hook for site cleanup costs. If a drilling company goes bankrupt, the bond is supposed to ensure that enough money has been set aside to cover the cost. 

The problem, however, as we documented in our 2013 report Who Pays the Cost of Fracking?, is that most states’ fracking bonding policies fall far short of what’s needed to responsibly clean up well sites. Fracking wells can cost hundreds of thousands of dollars to properly plug, yet some states allow fracking companies to post bonds worth only hundreds of dollars per well.

This current oil crash could soon mean hundreds, or even thousands more abandoned drilling sites. Although it’s impossible to know exactly how many, the New York Times reports that there are hundreds of small, private drilling companies that are at particular risk of bankruptcy, operating anywhere from just a few wells to a couple hundred each.

What this ultimately means is that the coming fracking bust could leave taxpayers on the hook for cleaning up potentially thousands of new abandoned toxic well sites. 

The cleanup costs could be steep. In 2019, the director of Powder River Basin Resource Council, a Wyoming environmental group, warned NPR news that a new fracking bust could saddle the public with tens of millions of dollars of cleanup responsibility in the state of Wyoming alone. Estimates for the costs of cleaning up already-existing well sites in other states are in the billions.

Recognizing the threat posed by the spread of fracking some states have moved to improve their bonding laws the years since our report, but not by enough. A report released just this month by the Western Organization of Resource Councils examined laws in 11 states, and found that some state regulators have recently modernized or proposed improvements to bonding requirements.[pdf] Yet the report concluded that “today’s state and federal bonding requirements are dangerously below the full cost of repairing the damages caused by oil and gas drilling.” (And, the report notes, bonding requirements from the federal Bureau of Land Management are even weaker than any state’s.)

So with some oil firms on the verge of collapse, what can state policymakers do? The best thing would be to go back in time to fix bonding requirements before the current crop of wells were drilled in the first place. But that’s not an option. 

States can, however, avoid doing anything to make their current situation worse. Wyoming, for example, recently suspended its state conservation tax that funds orphan well cleanup, in an attempt to throw oil companies a lifeline. The chances that this move can save the companies that were “hanging on by a thread” even before the crisis are slim. It’s far more likely that it will simply leave Wyoming in deeper financial straits and even less able to clean up the coming mess.

States can also adjust their financial assurance rules to cover the full range of costs and risks for wells drilled in the future. That includes not just for the costs of plugging a well, but also other impacts on health and the environment. As we wrote in our 2013 report, financial assurance rules not only protect the public from having to pay, but also provide an incentive for industries to avoid pollution in the first place.

Finally, states can accelerate our transition away from fossil fuels altogether — and toward energy sources that are clean, renewable and safe. Many of the states that will be hit hard by the coming oil crash are among America’s leading producers of clean, renewable energy. In 2018, North Dakota produced wind energy equivalent to 54 percent of the state’s electricity use; Oklahoma, New Mexico, Wyoming and Texas weren’t far behind. If they wanted to, these states could show the way toward a truly clean energy economy.

The worst thing either state or federal officials could do, however, is to continue to throw good money after bad by further subsidizing an industry that not only harms our environment and health but also routinely leaves taxpayers with the responsibility to clean up the messes it has made. We’ve sacrificed enough to sustain an oil and gas industry that is fundamentally unsustainable. It’s time we bet on a different horse.

Photo: “A typical drill pad in the Marcellus Shale gas play of southwestern Pennsylvania.” Credit: USGS


Gideon Weissman

Former Policy Analyst, Frontier Group

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