Group Demands Higher Bonding Requirements for Fracking



Citing the risk that the public will be saddled with cleanup costs from gas-drilling mishaps, a new report calls for massive increases in bonding and other financial assurances that government requires of drillers.

Who Pays the Cost of Fracking,” released yesterday by Penn Environment, says the financial assurances required by most states, including Pennsylvania, are woefully inadequate.

The 54-page report says that Pennsylvania’s financial safeguards don’t cover all possible drilling-related problems; don’t sufficiently cover those they do address; and don’t look far enough into the future, when even plugged wells might cause problems.

Such problems include not only contaminated drinking water, but also damage to wildlife habitat, stresses on local roads and bridges, release of greenhouse gasses, and emissions of air pollutants that could harm the health of nearby residents.

The report notes that currently, state regulations require drillers to secure $4,000 to $10,000 in bonds up front for single wells. Those bonds cover site-restoration and well-plugging — but not “compensation for victims for damage to property or health, provision for alternative source of drinking water in case of contamination, and full restoration of damage to public infrastructure.” And drillers are released from this assurance “one year after the well is plugged and the site reclaimed, leaving impacted residents, communities, and taxpayers on the hook for longer-term damage.”

While Pennsylvania levies a $50,000-per-well impact fee on shale-gas drillers, the report contends that proceeds are not enough to address the many impacts of fracking. Penn Environment also critiques the state’s use of “blanket bonding,” a sort of bulk-rate discount for drillers with multiple wells. The report cites a 2001 case in Wyoming in which an oil producer went bankrupt, leaving the federal and state governments on the hook for more than $3 million in clean-up costs at 120 wells.

Penn Environment recommends that states require financial assurances of at least $250,000 per well to cover plugging and reclamation; at least $5 million per well for restitution; and an assurance period of 30 years.

If those numbers sound high, Penn Environment notes that a study out of Carnegie Mellon University estimates the average cost of plugging and abandoning a gas well in Pennsylvania’s Marcellus region is about $100,000 per well. Moreover, the group cites a case in which Cabot Oil and Gas paid about $2.2 million to abandon three sites in Susquehanna County, an average of about $700,00 each.

And if raising assurances by that much sounds politically infeasible — or regulatorily implausible — Penn Environment notes that New York state already requires $250,000 in assurance for a single well. And Ohio makes drillers hold up to $5 million in liability insurance for bodily injury and damage to property for all a driller’s wells in the state.

Moreover, the group notes that this year alone, in the midst of both the gas boom and rising concern about drilling’s impact, three states — Illinois, Maryland and South Dakota —have raised their financial-assurance requirements, though not to the levels recommended by Penn Environment.

As precedent for the unwanted legacies of extractive industries, Penn Environment cites the widespread water-pollution problems caused by a century’s worth of abandoned coal mines. And the report says that the U.S. is home to 59,000 orphaned oil and gas wells, plus an estimated 90,000 or more whose status is undocumented.

The group says upfront financial assurances are crucial because of the cyclical nature of the fossil-fuel industry: Firms whose sites do damage might be unable or unwilling to pay for cleanup or restitution years from now.

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