EQB approves well bonding petitions for study

The following article appears in the December 2021 issue of The PIOGA Press:

By a vote of 16-3, the Environmental Quality Board (EQB) on November 16 accepted a pair of rulemaking petitions asking EQB to greatly increase the cost of oil and gas well bonds for both new and existing conventional and unconventional (shale) wells. The Department of Environmental Protection must study the petitions and report back in 60 days with further recommendations for action on the issues raised by the petitions, or state at the next EQB meeting how much additional time is necessary to complete the report.

The petitions were submitted by five activist organizations―the Sierra Club, Clean Air Council, Earthworks, Mountain Watershed Association, PennFuture and Protect Penn-Trafford. One petition calls for well bonds for conventional oil and gas wells to be increased from $2,500 per well, or a blanket bond of $25,000 for 10 or more wells, to $38,000 per well. The second petition asks that bonds for unconventional wells to be increased to $83,000 per well. Currently, unconventional well bonds are on a tiered system based on well bore length and range from $4,000 to $10,000, with provisions for blanket bonds.

Under both petitions, the higher bonding amounts would apply to any well drilled after April 17, 1985, and would require DEP to report to EQB every two years (or four years, if two is not feasible) on whether the bond amount should be adjusted  (October PIOGA Press, page 1).

EQB has the statutory authority to adjust unconventional bonding amounts every two years to reflect the projected costs to the Commonwealth of plugging a well if abandoned by the operator. The petitioners provided data on plugging costs they say justifies the amounts they are demanding. DEP has said its average cost of plugging an abandoned or orphan well is $33,000, but can be as low as $15,000.

Voting against accepting the petitions at EQB’s November 16 meeting were state Senator Gene Yaw (R-Lycoming) and Representative Daryl Metcalfe (R-Butler)—respectively, the chairs of the Senate and House Environmental Resources and Energy Committees―and James Welty of the Marcellus Shale Coalition (MSC).

The MSC sent a letter on November 15 to EQB members asking them to reject the petitions. The letter challenged the statutory authority of the board to set bonding amounts for conventional wells, citing language included in the July 2012 Fiscal Code legislation that was part of the FY2012-2013 state budget package.

After analyzing the statutory language cited by the MSC, PIOGA respectfully disagrees with the coalition’s conclusion regarding the effect of the Fiscal Code amendment on the EQB’s authority to consider the petition to increase conventional well bonding, and believes that the amendment removes the two-year limitation applicable to unconventional well bonding adjustments. However, we wholeheartedly agree with the MSC’s reasons for rejecting the unconventional well bonding increase request, as well as that the conventional well bonding increase request should be rejected for the same reasons—which we will show in formal comments at the appropriate time.

PIOGA contends that the bonding proposals would financially harm operators, with the potential to put some out of business; that the petitions rely on less-than-accurate data; that full cost bonding for conventional wells that are likely to continue to produce for 30-60 years  would do nothing to solve the Commonwealth’s existing orphan and abandoned well problem.

Among other points about the unconventional well bond petition raised in the MSC letter:

• It is a misrepresentation of the statutory authority and intent of Act 13 of 2012 that bond amounts must be equal to the total financial cost of plugging a well. Pennsylvania law makes it clear that a bond is intended to represent a reasonable proportion of the cost to plug and reclaim a well that, combined with an operator’s other assets and in consideration with DEP’s permitting and compliance authority, will ensure a well is properly plugged at the end of its useful life.
• The EQB has the authority to adjust bond amounts for unconventional wells, but not the authority to abolish the tiered bonding system established by Act 13 nor to eliminate bonding caps or blanket bonds.
• DEP’s authority to retroactively raise bond amounts on existing wells is questionable. Retroactively raising bond amounts on existing wells could cost operators in excess of $500 million.

As a side note, DEP officials explained at the most recent DEP/industry quarterly meeting that there are three conditions a rulemaking petition must meet to be approved for DEP review—the petition is complete as defined in Chapter 23, the petition requests an action that can be taken by EQB; and the requested action does not conflict with federal law. DEP emphasized that the well bonding petitions meet all three tests.