Bonding Requirements for Oil and Gas Wells in Pennsylvania: Cost-Based Recommendations

Weber, Jeremy (2021): Bonding Requirements for Oil and Gas Wells in Pennsylvania: Cost-Based Recommendations.

Abstract

Pennsylvania law requires that all oil and gas well operators properly decommission their wells at the end of the well’s useful life, an act often referred to as well plugging. Since 1985, it has also required that operators set aside money, a bond, before drilling so as to guarantee funds for the well’s plugging. The law sets bond amounts but gives the Pennsylvania Environmental Quality Board (EQB) the authority to adjust amounts “every two years to reflect the projected costs to the Commonwealth of performing well plugging.” From 1989 to 2020, the Commonwealth has paid to plug more than 3,000 wells, spending $15,100 per well on average and a minimum of $3,400 per well. By comparison, the current bond amount for a conventional well is $2,500 for an operator with few wells and, because of blanket bond provisions, $250 for an operator with 100 wells. Using data on the wells the Commonwealth has paid to plug, this report projects the cost to the Commonwealth of plugging wells in the future and makes three recommendations to the Environmental Quality Board: Adjust the bond amount to $25,000 per conventional well and $70,000 per unconventional well for the 2021-2022 period; Revisit bond amounts every two years to consider new information on plugging costs and to update bond amounts accordingly, and; Discontinue the use of blanket bonds or bond caps.

• Item Type: MPRA Paper
• Language: English
• Keywords: Oil and gas; wells; plugging; bonding
• Subjects: Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q48 - Government Policy; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q52 - Pollution Control Adoption and Costs ; Distributional Effects ; Employment Effects; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q58 - Government Policy

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