Bill Would Raise Shale Well Site Bonds

August 30, 2016 Power Source
PEC in the News

The Pittsburgh Post-Gazette today ran an important article on the adequacy of bonding for oil and gas operations, prompted by recent legislation (HB2277) that would increase bonding requirements on operators. PEC is quoted at the end of the article, and we’d like to expand a bit on our perspective.

The Commonwealth faces extraordinary legacy costs from past resource extraction. Certainly with modern controls in place – which will hopefully be accomplished this fall through finalization of proposed regulations with respect to unconventional oil and gas activities – concerns about long term financial assurance are abated to a significant degree. Nonetheless, the state must have the resources it needs to address incidents or relinquishment of responsibility at well sites. Otherwise it will be left to taxpayers to pay for remediation, as we are now faced with tens if not hundreds of thousands of legacy wells across the state.

Setting adequate bonding amounts is tricky – operators need cost predictability when planning, and the state needs certainty that bonding will in fact be sufficient. For this reason, PEC has supported giving the Department of Environmental Protection greater discretion in setting bonding amounts, but also allowing for flexibility, including the idea of returning a portion of bond proceeds to operators once the riskiest aspects of well operation are completed and inspections performed.

HB2277 does make improvements to the current process – particularly by shifting away from specific dollar limits on blanket bonds for unconventional operations, where an operator is given the option to provide one sum amount to cover all of their operations in the state. This should be expanded to cover conventional operations as well, where existing state law caps blanket bonding at a paltry $25,000 no matter how many wells are active or idle.

There is no “one size fits all” answer for financial assurance. We commend efforts to improve bonding, but the essential principle should always be ensuring that the state has sufficient discretion to adjust requirements based on the type and scale of activity, as well as the compliance capacity of the operator.

We look forward to further dialogue on this important issue.

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