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“The analysis suggests that, in aggregate, future cash flows from wells in the Big Horn Basin will be insufficient to cover existing liabilities, that high-producing wells are concentrated in the hands of a select few producers, and that a distribution of many smaller players operate portfolios of low-producing wells without new production on the horizon. BLM’s proposed amendments to financial assurance will not fundamentally change these dynamics,” said Dwayne Purvis of Purvis Energy Advisors and the lead author of the report.

“Increasing financial assurance is one piece of the puzzle, but this is an example of too little, too late. Financial assurance needs to be commensurate with the expected costs so that it provides operators with the incentives to plug wells with end-of-life cashflows,” said Rob Schuwerk, Executive Director of Carbon Tracker Initiative, Inc.

Nearly 70 years after the last update and more than 10 years after formal recognition of the inadequacy of federal onshore bonding requirements for oil and gas operations, the Bureau of Land Management last summer proposed a significant increase in bonding thresholds.

But it fundamentally maintained the same system of financial assurance and the same requirements for decommissioning.

While most public comments seemed to support the proposal, the oil industry and some oil-producing states objected that the change is unnecessary, will drive some smaller companies out of business, and will thus increase the rate of orphaning in the near term. On a broader scale, advocates assert that the loss of existing production and production growth, in particular by smaller companies, will harm the economy and finances of state and local governments as well as national energy security.

To investigate how the higher level of bonding could play out in the current dynamics of the oil industry, this report looks to the state of Wyoming as a case study because it is dominated by federal lands and because it has championed opposition to the proposed rules. A detailed study of one productive area in Wyoming, the Big Horn Basin, provides a closer look at a sample of the kinds of old production that occupies most federal lands.