Reclaiming Oil and Gas Wells on Federal Lands: Estimate of Costs

Feb 27, 2018

ANALYSIS: U.S. taxpayers could be on the hook for billions of dollars in oil and gas well cleanup costs

Federal oil and gas bonding levels have not changed since the 1950s and 60s, despite deeper wells and rising reclamation costs

new report from the Center for Western Priorities estimates the costs of reclaiming oil and gas wells on U.S. public lands. The first-of-its-kind analysis, conducted by the economic consulting firm ECONorthwest, finds that reclaiming—plugging and cleaning up—all producible wells on federal lands could cost a potential $6.1 billion, far exceeding the $162 million in reclamation bonds that the Government Accountability Office last estimated had been provided by oil and gas operators.

Oil and gas companies are required to post bonds, effectively an insurance policy, when drilling on federal lands. The bonds ensure retired wells are cleaned up and do not pose an ongoing risk to lands and water should a company abandon them or go bankrupt. It is not uncommon for companies to shirk their reclamation responsibility.

The Department of the Interior has not updated bonding requirements since they were originally set in the 1950s and 60s. These outdated requirements fail to account for decades of inflation and the increasing costs to clean up ever-deeper wells created by new drilling technologies. The bond for a single well, set in 1960, still sits at $10,000. Keeping pace with inflation, that bond would be roughly $64,000 today.

According to the analysis by ECONorthwest, the average well reclamation cost is an estimated $65,200, which would be nearly covered if the 1960 bond price had been indexed to inflation. However, reclamation costs have grown in recent years as the average well depth has increased to nearly 9,000 feet. Reclaiming a typical well at that depth costs more than $100,000.

Read the report