The Pennsylvania Department of Environmental Protection released a blistering critique Thursday of the conventional oil and gas industry’s failure to comply with state environmental rules, saying noncompliance with some state mandates is so pervasive “as to be the rule rather than the exception.”
The unusually candid report laid out steps regulators should take to enforce existing laws when they are broken by owners of Pennsylvania’s many small low-producing wells. It also calls out an industry that has a track record of dodging efforts to tighten environmental rules for having a “culture of noncompliance as an acceptable norm.”
The report was drafted in response to a July directive by outgoing Gov. Tom Wolf, after he allowed a bill to become law without his signature as part of budget negotiations with the Republican-led Legislature.
The bill stripped state regulators of authority to raise bond amounts on conventional wells for a decade, blunting an important tool to ensure oil and gas companies pay to properly plug their wells at the end of their economic lives instead of leaving taxpayers with their cleanup liabilities.
By far the industry’s most common violation of state environmental laws over a five-year period was failing to plug wells upon abandoning them. Operators of conventional wells were issued citations for improper abandonments more than 3,100 times between 2017 and 2021, the report found.
Well owners also consistently failed to file required annual reports detailing their wells’ oil and gas production, waste output and structural soundness, depriving regulators and the public of critical data for evaluating the wells’ viability and safety, the agency said. Less than a third of operators filed the required reports on time and less than half filed them at all.
“The conventional oil and gas industry’s recent record of compliance with Pennsylvania law is simply not good,” the agency said.
Conventional oil and gas wells are generally shallower, smaller, older and less productive than those fracking the Marcellus and Utica shales. The report did not address shale gas, or unconventional, wells.
Many conventional wells are owned by small little-known operators, but one company, Diversified Energy, has amassed so many low-producing wells — more than 21,000 in Pennsylvania alone — it now has the largest inventory of oil and gas wells in the country.
Trade groups for conventional oil and gas companies in the state did not respond to a request for comment.
Keeping aging wells from being improperly abandoned is a growing concern in Pennsylvania because the state already has an estimated 200,000 ownerless unplugged wells from past eras of oil and gas drilling.
Abandoned wells can pose safety and environmental risks by leaking oil, gas and brine. Cleanup costs for the state’s legacy abandoned wells could top $6 billion, DEP has estimated. Adding newly abandoned wells to that list could further add to the public cleanup bill.
Bond rates have remained the same for Pennsylvania conventional wells since 1985 and have not deterred companies from walking away from their cleanup obligations for thousands of wells in the past decade.
Operators of conventional wells pay an upfront bond of $2,500 per well or $25,000 for all of their wells. For wells drilled before 1985 — about 60% of the state’s active conventional wells — there is no bond at all.
In practice, DEP has said, the bonds on file amount to $15 per conventional well, because so many of the state’s roughly 100,000 active wells have a discounted bond or no bond.
Even the $25,000 blanket bond would not normally cover the cost of plugging a single well: State-issued contracts to clean up legacy abandoned wells this fall had an average plugging cost per well at about $75,000.
The law that froze bond rates did upgrade them in one way: It requires operators covered by the blanket bond to pay an additional $1,000 bond for every new well they drill until reaching a new cap of $100,000. The provision is expected to affect relatively few of the state’s 3,300 operators with 11 or more conventional wells, because so few companies are drilling new wells. Fewer than 40 operators drilled conventional wells in 2022, according to state databases.
The report recommended that oil and gas regulators shift toward more aggressively policing well abandonment under existing laws and rules that have not always been strictly enforced.
DEP’s oil and gas regulators and agency lawyers should develop a standard legal order setting a deadline for well plugging that should be issued every time a violation notice for improper well abandonment is handed out, the report recommended. At the same time, DEP should also begin the process of forfeiting the well’s bond.
If a company doesn’t comply with an order, state law allows DEP to deny the driller new well permits and block transfers of wells to other companies.
Regulators should also standardize, and more consistently exercise, their authority to issue fines, file liens and make criminal referrals where appropriate, the report recommended.
They should also scrutinize companies’ applications to idle wells that are not productive, so that “inactive” status is not “used as a means of delaying proper plugging until the operator can transfer the well or otherwise avoid their plugging responsibilities.”
The report warns that all of these steps will take new resources, which would require an investment in the agency’s legal and oil and gas offices that has been lacking in recent years. DEP projected in February that the oil and gas program, which is funded primarily by drilling permit fees, would end the 2022-23 fiscal year with a $4.7 million deficit and would have an annual deficit of $10.5 million going forward.
“Developing a stable funding source to fund these efforts will be critical to successfully altering the current course of widespread noncompliance in the conventional oil and gas industry in Pennsylvania,” the report concluded.