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Report: Coronavirus, Historic Low Oil Prices Expose Risk of Inadequate BLM Bonds

A new report calls on the U.S. Bureau of Land Management to establish oil and gas bonds based on the actual cost of reclamation at each well. (Simon Fraser University)
A new report calls on the U.S. Bureau of Land Management to establish oil and gas bonds based on the actual cost of reclamation at each well. (Simon Fraser University)
April 9, 2020

CHEYENNE, Wyo. -- Wyoming could see hundreds of oil and gas wells abandoned as over-leveraged operators declare bankruptcy, according to a new report.

The report by the Western Organization of Resource Councils says historically low oil prices and falling demand because of coronavirus restrictions, combined with low bonding requirements by the Bureau of Land Management, could make it easier for operators to walk away from wells.

Bob LeResche, a member of the group's board, says that's a problem because rusted-out well casings can release toxic chemicals including benzene.

"And drinking water that people get out of their wells will contain these poisonous chemicals sometimes," he states. "So it's very important that the wells get plugged, which means filled with cement, and cleaned up."

Industry groups argue that critics of low bonding requirements are overstating risks, because most wells are not abandoned and are plugged by oil and gas companies.

Currently, the BLM requires just a $25,000 minimum bond to cover all of an operator's federal leases, wells and operations in an entire state.

The BLM has not yet responded to a request for comment on the report's findings.

LeResche says while it's true that financially stable operators who don't want to lose their bonds do clean up their former well sites to continue business as usual. But he says that's not the case for an increasing number of drillers headed to bankruptcy.

"Which leaves no capability beyond the small bonds," he points out. "They're correct that most are plugged by industry, but that doesn't mean that of tens of thousands of wells that there's not going to be a lot more obligation than there are bonds."

Regulators say plugging and reclaiming a single well site can cost between $80,000 and $150,000.

The BLM has the authority to increase bonds, but according to a 2019 Government Accountability Office report, 82% of federal bonds are set at the minimum amount.

The report's recommendations call for the BLM to end blanket bonding, and establishing bonds based on the actual cost of reclamation at each well.

Eric Galatas, Public News Service - WY