Pennsylvania, like several other oil and gas producing states, has a broken system when it comes to preventing orphaned and abandoned wells. Its inadequate bonding and regulatory systems incentivize the indefinite delay of plugging responsibilities and the orphaning of aging oil and gas wells. As a result, Pennsylvania holds the dubious distinction of being at the epicenter of the orphaned well crisis. The state has less than $50 million in bonding coverage, which is less than one percent of the total cost to decommission its inventory of unplugged owner operated wells.
On Monday, March 25, Senior Researcher Ted Boettner testified at the Pennsylvania House Environmental Resources and Energy Committee Hearing on Plugging and Abandonment of Conventional Oil and Gas Wells. Read Boettner’s full testimony below:
Chairman Vitali, Chairman Causer, and members of the Committee, thank you for inviting me to testify today on the issue of abandoned wells in Pennsylvania. My name is Ted Boettner and I am a Senior Researcher for the Ohio River Valley Institute where my research and analysis has focused extensively on solving problems associated with abandoned wells in Appalachia.
Pennsylvania has an enormous opportunity with the projected $401 million in Infrastructure Investment and Jobs Act (IIJA) funds to find, clean up, and prevent orphaned wells while lowering greenhouse gas emissions and growing good paying jobs in economically distressed areas of the state. The state also has an opportunity to enact long-overdue reforms to prevent companies from orphaning wells in the future and to deal with the inventory of unplugged wells we have today. These reforms include creating a dedicated orphaned well trust fund so that the industry pays for its own mess instead of average Pennsylvanians. Think of it as Social Security for the oil and gas industry. These reforms can reduce pollution from hazardous wells, create thousands of good-paying jobs for decades to come, boost economic development, and make Pennsylvania a national leader in this emerging public good.
The Abandoned Well Crisis in Pennsylvania
Pennsylvania, like several other oil and gas producing states, has a broken system when it comes to preventing orphaned and abandoned wells. Its inadequate bonding and regulatory systems incentivize the indefinite delay of plugging responsibilities and the orphaning of aging oil and gas wells. As a result, Pennsylvania holds the dubious distinction of being at the epicenter of the orphaned well crisis. The state has less than $50 million in bonding coverage, which is less than one percent of the total cost to decommission its inventory of unplugged owner operated wells.
Pennsylvania has approximately 218,000 documented drilled oil and gas wells in its inventory database, including 147,000 unplugged wells and 71,000 plugged wells. Of the unplugged documented wells, around 80 percent, or 116,000, are orphaned or likely to be orphaned because they currently produce little oil or gas – less than 1 barrel of oil equivalent per day (BOED) – or haven’t produced in over five years. The state also has the largest undocumented abandoned well inventory (legacy wells) in the nation, with a mid-range estimate of approximately 330,000 wells. Add this all together, and the state could be looking at decommissioning around 446,000 wells at a cost of $49 billion (based on a decommissioning cost of $110,000 per well from IIJA’s Initial grant of $25 million to decommission 227 plugged wells). In today’s dollars, that amounts to the State of Pennsylvania’s entire fiscal year budget. And this figure doesn’t include the thousands of wells that are likely improperly plugged – or the fact that well decommissioning is not a “one and done” process, and most wells will need to be re-plugged in the future – nor does it include other discarded oil and gas infrastructure.
Preventing Future Orphaned Wells
There are several concrete steps lawmakers can take to prevent future orphaned wells and address the state’s large inventory of orphaned and abandoned wells. To help prevent additional orphaned wells, the state could implement several reforms:
- Ensure that all new permitted wells to be drilled are bonded at the cost of decommissioning or set to a specific amount, such as $75,000 per well.
- Enact predecessor liability enforcement to hold previous operators or state lessees responsible for decommissioning if the current operator has defaulted on its responsibilities, like the U.S. Bureau of Land Management’s policy for federal leases.
- Require full-cost bonding, or a set amount of at least $35,000 per well like Arkansas, upon the transfer of low-producing wells.
- Remove blanket bonds and gradually increase bond amounts on existing unplugged wells, especially non-stripper wells.
- Prohibit consent orders or other agreements under which the state agrees to not enforce existing plugging requirements.
- And lastly, regulators need to enforce plugging deadlines and enact meaningful consequences for violations when operators do not plug their wells when they are required to do so. For example, some very profitable large shale operators in Pennsylvania have hundreds of abandoned wells that have not produced in years but remained unplugged because there is no enforcement. [According to PA DEP records, EQT Corporation has 70 wells on the “DEP Abandoned List” and 102 wells that are “Abandoned”. The TCF Upstream database finds that EQT has 248 abandoned wells and 5 orphaned wells. Of the 248 abandoned wells, 108 abandoned wells have reported production and 96 of these wells haven’t reported production after 2020.] We need cops on the beat.
Creating an Abandoned Well Trust Fund
While full-cost bonding can help prevent wells operated by large shale companies or new wells from being orphaned, it won’t prevent most unplugged wells in Pennsylvania from being orphaned. This is largely because most low-producing “stripper” well operators would likely be unable to secure or pay for a bond set at the full cost of decommissioning or they don’t have the reserves necessary to decommission their wells.
To ensure that most oil and gas wells, including the state’s inventory of documented and undocumented orphaned and abandoned wells, are properly decommissioned will likely require a small production fee set aside in an interest-bearing Orphaned Well Trust Fund, like the federal Abandoned Mine Land Fund that pays for abandoned coal mines before 1977.
A fee of 12 cents per Mcf in Pennsylvania could raise approximately $25 billion over the next 25 years (2025-2049) based on natural gas projections from the U.S. Energy Information Administration (this doesn’t include NGL or oil). [The estimates are derived from US EIA 2023 Annual Energy Outlook of projected eastern gas production and prices (per Mcf) from 2025 to 2050 by using Pennsylvania’s share (59%) of eastern natural gas production. These estimates do not consider the impact of putting plugging funds in an interest-bearing account. If plugging funds are put into an interest-bearing account, the plugging costs could be considerably lower depending on the timing of revenue and disbursements and the investment rate of return. It is also important to consider that the projected natural gas production from the EIA may be overly optimistic, especially since more utilities are moving toward renewable energy to meet carbon reduction goals.] These funds could decommission anywhere from 250,000 to 385,000 abandoned wells (depending on costs) from 2025 to 2050 while creating approximately 4,400 direct jobs annually. The good news is that most of the production fee would not be paid by Pennsylvanians (exported out of state), and it would help provide jobs for thousands of displaced oil and gas workers such as union pipeline workers.
Investing in High-Road Workforce Development and Strong P&A Practices
Pennsylvania has taken a great first step with the Commonwealth Workforce Transformation Program, which could provide millions for on-the-job training to decommission wells. However, since there are no specific workforce development programs in Pennsylvania training people to decommission oil and gas wells, the state will need to take additional steps. The state needs to invest in and incentivize high-road workforce standards, including the development of labor-management partnerships to decommission wells. The state could do this by including apprenticeship utilization requirements in plugging contracts, bundling the contracts, incorporating project labor agreements (PLAs), and by creating a high-road training partnership grant program.
For example, the state of California allocated $14.3 million in grant funds to train apprentices and upskilling journeypersons on well-plugging projects in Los Angeles and Kern Counties. Last summer, California Legacy Well Services received a $6.4 million grant to develop a certified well abandonment training program with a labor-management partnership that included the Operating Engineers Local 12 and LiUNA Local 220. They are currently training former oil and gas workers and other union members in the program.
We need quality workers to do a quality job. And this means Pennsylvania also needs to update its plugging standards and procedures to reflect best practices. If we are to meet this task, we need a well-staffed and well-resourced Department of Environmental Protection to inspect all wells before and after plugging and perform a post-plugging test to ensure no leakage, to name just a few. Proper plugging not only requires a set of guidelines but sound judgement and expertise. Contractors should have workers who are licensed or certified to operate heavy machinery, have undergone appropriate safety training (OSHA 10), and have property safety equipment.
This will require both a professional workforce and responsible contractors but also strong processes and procedures around plugging and reclamation itself.
Conclusion
Pennsylvanians are facing a challenge that they did not create, but this Legislature, our public servants, and our union workers can be the people who face it head on. In that sense, it is an opportunity more than anything. We can eliminate the menacing impacts of these wells. We can pay well-trained Pennsylvanians to do quality work. And those paychecks will pay Pennsylvania mortgages, fund local governments and schools, and support real Pennsylvania families. All that is needed is public policy in service of the public. Thank you.
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