Repairing the Damage from Hazardous Abandoned Oil & Gas Wells

AOG Four-Pager

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Executive Summary

After more than a century of oil and gas drilling, unplugged or improperly plugged abandoned oil and gas wells are causing extensive environmental damage and imposing health and safety risks because they are leaching pollutants into the air and water. Some of these abandoned wells are leaking large amounts of harmful methane into the atmosphere, which is a powerful greenhouse gas that contributes to climate change, as well as volatile organic compounds (VOCs) that damage local air quality, and both of which can – under certain circumstances – pose serious public safety concerns. Leaks from abandoned wells, such as oil, brine and drilling byproducts, have also been linked to the contamination of groundwater supplies and soil, which can undermine drinking water, agriculture activity and property values. There have also been a number of dangerous explosions due to leaking gas or methane from wells.

Over the last several years there has been growing attention at the state and federal level to address the problems associated with millions of abandoned and orphaned oil and gas wells across the nation. There is also great concern about the large share of low-producing wells that could be abandoned relatively soon, as well as the cost of plugging high volume hydraulic fracturing wells.

How many abandoned oil and gas wells need to be cleaned up? No one knows for sure. The Interstate Oil and Gas Compact Commission’s (IOGCC) periodic survey of idle and orphan wells estimates in 2018 that there were 56,600 documented unplugged orphan wells, and up to 746,000 additional undocumented orphan wells, nationwide. The U.S. Environmental Protection Agency (EPA) estimates there are 2.1 million unplugged onshore abandoned wells. A recent report by Carbon Tracker estimates that there over 2.6 million unplugged onshore wells in the United States that are at risk of being orphaned with a total closure cost between $78 billion and $280 billion.

While states allocate additional funds to plug abandoned and orphaned wells and conduct site restoration and remediation, the scale and cost of the problem is likely greater than they can afford, and it could take decades to plug and restore these well sites. Complicating matters, it is impossible to determine the owners of many of the wells because they predate modern regulation, so there is no way to recoup funds to pay for the restoration and plugging costs. As more oil and gas companies declare bankruptcy, it could make it harder for states to recover the cost of cleaning up well sites.  In fact, a recent survey of seven large oil and gas producing states found that the total financial assurance coverage (bonds) for all wells at risk of being orphaned in those states would cover just one to six percent of the costs to plug them.  There have been several federal proposals in 2020 to deal with the abandoned and orphan well crisis, including bills in congress and proposals by researchers.

The purpose of this report is to examine the potential benefits of a large-scale federal program to plug abandoned oil and gas wells in the Ohio River Valley states of Kentucky, Ohio, Pennsylvania, and West Virginia. The report unfolds in five parts. First, it explores the estimated number of onshore abandoned and orphan oil and gas wells in the nation and the four-state region. Section Two discusses the problems associated with unplugged wells, including unfunded liabilities, greenhouse gas emissions, health and safety hazards, and problems with plugging.  Section Three looks at the cost of plugging abandoned wells and the factors behind those costs in order to estimate the level of investment needed to plug abandoned wells in the four-state region. The fourth section looks at how a large-scale abandoned well cleanup program could boost employment in the region and reduce harmful greenhouse gases that are contributing to climate change. Lastly, the report reviews federal proposals to address abandoned and orphan oil and gas wells and proposes ways to fund a large-scale abandoned well federal program and makes recommendations.

As we shall see, the four states of the mid and upper Ohio River Valley region make up a large portion of the nation’s abandoned wells – one-third – and one in five wells that are in production today. The region would not only disproportionately benefit from a large-scale well plugging program, but it would also greatly benefit from more local jobs and income, especially since many of these rural areas have been economically stressed for decades.

Key Findings

  • Based on the best available date, there are an estimated 538,000 unplugged abandoned oil and wells in the four states that make up the mid and upper Ohio River Valley region, along with another 177,000 low-producing wells in the region. There could be hundreds of thousands of additional unplugged abandoned wells in the region. Nationally, the number of unplugged abandoned oil and gas wells ranges from 2.1 million to 2.3 million.
  • Unplugged abandoned oil and gas wells pose significant health, safety, and environmental problems, including hazardous waste that contaminates water supplies, greenhouse gases that contribute to climate change, lower property values, and in some cases explosions. There are also significant unfunded liabilities associated with unplugged abandoned oil and gas wells. For example, the bonding requirement for a single well vertical well in the four states is just 7.6% of the plugging cost, on average.
  • The cost to plug wells varies by state and is determined by a number of factors, including contract size, geology, the depth of the well, and surrounding terrain. The cost to plug wells in the four states ranges from $6,500 to at least $87,500. The estimated cost to plug the 538,000 abandoned wells identified in the region is approximately $25 billion but could be as high as $34 billion.
  • In 2018, only 2,372 orphan wells were plugged in the United States. At this pace it would take over about 895 years to plug the estimated 2.1 million unplugged abandoned orphan wells, not including the nearly one million wells that are still in production today and others that may be drilled in the future.
  • A federal program to plug and restore the estimated 538,000 unplugged abandoned oil and gas wells in the Ohio River Valley states of West Virginia, Kentucky, Ohio, and Pennsylvania could create about 15,151 jobs per year over 20 years or 303,000 job-years at a total cost of $25 billion This annual amount is nearly equivalent to the decline in upstream oil and gas jobs in the region from 2014 to 2019.
  • The estimated methane emissions from 538,000 unplugged abandoned oil and gas wells in the Ohio River Valley region is 71,000 metric tons or 1.8 million metric tons of carbon dioxide equivalent (CO2e). This is the equivalent to the greenhouse gas emissions produced from 383,000 passenger vehicles driven or about 2 million pounds of coal burned in one year.
  • A federal program to plug the estimated 538,000 wells in the four Ohio River Valley states would cost an estimated $349 per ton of carbon dioxide equivalent (CO2e) that the program would prevent from entering the atmosphere, which is higher than the estimated social cost of carbon (SCC) in 2020 but is likely cost-effective given the additional savings, related job impacts, and ecosystem benefit.
  • Over the short-term, Congress should appropriate funds to states and tribes to address abandoned and orphan wells issues, including giving the jurisdictions the capacity to grow their well inventories, establish best practices, hire more field inspectors, and boost jobs. Over the long run, a large-scale federal program is needed to address the billions in clean-up costs that will grow over time.
  • To pay for a large-scale federal well plugging and reclamation program, the federal government could scale back or eliminate the estimated $11 billion in annual federal oil and gas subsides or place a small fee per unit fee on crude oil and natural gas production similar to the fee on coal production from the Abandoned Mine Land (AML) program that pays for pre-1977 coal mine reclamation. Such a fee could raise about $3.7 billion per year and be distributed to states and tribes through a formula.
  • A federal program should also create a national inventory system of wells based on a risk assessment and a monitoring system, invest in research and development, establish best practices, and increase funds for staffing and administration as well as job training and safety. To ensure the jobs created are good paying jobs with benefits that support a diverse workforce, there would also need to be prevailing wage requirement and/or local hiring provisions to federal allocations and an intentional effort made to hire women, people of color, and others who are often left out of such programs in these industries.