Managing
Environmental Liability: An Evaluation of
Bonding Requirements for Oil and Gas Wells in the United States
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oil and gas wells present an environmental hazard if not
properly plugged. Upon drilling a well, operators are required to
post a bond, which ensures that the operator has an incentive to plug
and abandon (P&A) at the end of the well’s life, and that,
if the state is left with the liability of managing “orphaned”
wells, it can cover the cost of P&A. Using data from 13 state
agencies on their orphaned well plugging expenditures, we provide
new estimates of P&A costs in the United States and compare them
to bond amounts. Current state bonding requirements are insufficient
to cover the average P&A cost of orphan wells in 11 of these 13
states. These should be reviewed and revised where necessary. We also
examine the factors influencing P&A costs using detailed data
on orphaned wells in Kansas. Given the variability of P&A costs,
bonds would be more effective if they varied by factors that are meaningful
in explaining P&A costs, such as well depth, location, and proximity
to groundwater. State regulators can use the statistical approach
developed in this paper to improve bonding requirements and to better
predict the P&A costs of their orphaned wells.
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Ho, Jacqueline S.; Shih, Jhih-Shyang; Muehlenbachs, Lucija A.; Munnings, Clayton; Krupnick, Alan J. (2018). Managing
Environmental Liability: An Evaluation of
Bonding Requirements for Oil and Gas Wells in the United States. ACS Publications. Collection. https://doi.org/10.1021/acs.est.7b06609