New measure shows taxpayers in largest oil and gas drilling states face $220 bln cleanup bill

NEW YORK/OCTOBER 14 – Compared to other large oil and gas producing states, California and Ohio rank last in forcing the closure of idled, abandoned and low-producing oil and gas wells.  This is a key finding of the new report, Race to the Top issued by Carbon Tracker today.

These findings are based on a new measurement created by Carbon Tracker that gauge a state’s effectiveness at getting companies to close and cleanup wells called the Producer Ratio (PR).  A state’s PR score comes from dividing the number productive wells by the total number of unplugged wells drilled after 1970, the year modern drilling regulations were implemented across most jurisdictions. The higher a state’s PR score, the lower its risk of having to pay billions in cleanup costs.

To highlight how exposed states are to paying billions in cleanup costs, none of the top oil and gas producing states have a PR of greater than 50%. In total, taxpayers face paying $219.6 billion in cleanup costs. Here is the complete ranking of states:

To provide a full measure of state performance, Race to the Top identifies key sources of risk and develops a framework for evaluating regulatory policy effectiveness at ensuring that the industry responsibly manages their legal cleanup obligations.

Rob Schuwerk, executive director, Carbon Tracker North America and co-author of the report, said:  “For years, states have encouraged companies to drill oil and gas wells but failed to create incentives to close unproductive wells.  This has left a legacy problem of orphaned wells that taxpayers could be stuck paying to clean up.  But lax regulation is a forward-looking problem as well; if state regulations don’t provide incentives to close old wells, the problem could be many times worse, leaving taxpayers to pay to clean them up.”

Currently, in an attempt to address the problem, the U.S. Congress is looking at ways to tie funding for closing older wells to states creating incentives to close newer and future wells once they become unproductive.  It could address both the legacy problem and the incentive problem by conditioning support on legacy wells with improvements on plugging incentives for older wells.

Greg Rogers,  senior advisor to Carbon Tracker lead author of the report said: “Government policies designed to maximize domestic oil and gas production created the orphan well problem, and only new policies designed to transition the industry toward net zero can solve it. Without significant reforms to regulatory financial assurance programs, federal and state governments will be unable to ensure that private capital is available to plug wells once they became non-economic.”

The report lists several incentives for states to consider using that include eliminating blanket bonds, requiring operators to obtain single well bonds to 100% of estimated plugging costs, and mandating regulators approve transactions that move the responsibility for well closure from one entity to another.

Once the embargo lifts the report can be downloaded here:

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Daniel Cronin                                       1-617-678-5263

About Carbon Tracker

The Carbon Tracker Initiative is a not-for-profit financial think tank that seeks to promote a climate-secure global energy market by aligning capital markets with climate reality. Our research to date on the carbon bubble unburnable carbon and stranded assets has begun a new debate on how to align the financial system with the energy transition to a low carbon future.