Oil wells can stretch for thousands of feet below the Earth’s surface. And when they stop producing, they pose a serious environmental threat if not properly sealed. Oil and gas industry operators refer to sealing an oil well as "plugging."
Adam Peltz is a senior director and lead counsel at the Environmental Defense Fund. Plugging oil wells with concrete, he said, is crucial to make sure that "you don't have migration of toxic chemicals into groundwater and into the air.”
But not all operators diligently plug their wells after production ceases.
“One of the not great things about oil and gas production in the United States," Peltz said, "is that historically operators have not always plugged their wells when they're done.”
Plugging is expensive, but oil companies are required to purchase surety bonds from the government to prove that they have the financial resources to plug wells. The bond acts as collateral; if the oil company plugs the well, the money from the bond is returned. If not, it is considered an "orphan well," and the Utah Department of Natural Resources uses the bond money to plug it.
One major problem with this system is that the cost to plug orphan wells has increased in recent years, while bond requirements have stayed the same since the early 2000s. So, the additional cost of well plugging falls on the Utah taxpayer.
A new rule will change that.
The Utah Department of Oil, Gas, and Mining has announced a new permitting procedure that would allow only operators who can demonstrate economic viability to be eligible for blanket bonds, which are single bonds that vouch for multiple wells. In Utah, that bond has been stuck at $120,000 for over 20 years.
While this amount might cover the cost of plugging three or four wells, Peltz said that some blanket bond holders operate hundreds or thousands of wells. And $120,000 is not nearly enough to plug all of them.
"If an operator is not eligible for blanket bonds," he said, "they need to get a bond for each of their wells based on the well’s depth, which more or less corresponds to the cost of plugging.”
The new rules would tailor bonding requirements to individual well operators based on the status of their wells. Operators with more wells considered by the Department of Natural Resources to be at risk will likely see their bonding requirements increase.
Steve Lund is a former state legislator and the operator of two wells in Utah. He said extensive monitoring and infrastructure inspection is already an important part of the oil and gas industry.
“There's multiple inspections that go on throughout the operation of the life of a well," he said. "And so there are already wellness checks for an oil and gas well to see the health of it.”
Lund said that these tests could be used to compile a report card of sorts for well operators.
“You can actually follow the history of an operator through the wells that they have. Do I think it's a good idea? Yeah, I think I do," he said. "I think that you need to look at some of the operators and figure out what kind of a risk they are, and if it looks like they're a high risk, then there ought to be a way to almost pay as you go.”
For environmental activists like Ashley Miller, the rule making process shows a willingness from the Department of Natural Resources to engage in updating bond requirements. She is the executive director of Breathe Utah, a nonprofit dedicated to policy, advocacy, and education related to air quality.
“We have a lot of faith in these periodic reviews undergoing that same sort of stakeholder engagement," she said, "which is crucial, because then you won't just have operators' voices and business voices, you'll have the health aspect come through; you'll have the environmental aspect come through.”
The drafted rule will likely come into effect in July, but it only affects bonding requirements on state-owned land.
On June 22, the Bureau of Land Management announced that statewide bonds on federal land would be reduced from $500,000 to $25,000, a move aimed at “strengthening the nation’s long-term energy leadership.” A lower bond requirement would make it easier for smaller producers to drill on federal lands, but it also might increase the number of orphan wells around the state.
Utah’s oil wells sit on a complicated patchwork of state, federal, private, and tribal lands. As shifting policies related to bond requirements and energy exploration come into effect, the economic, public health, and environmental impacts remain to be seen.
