In Carbon Tracker’s paper, It’s Closing Time: The Huge Bill to Abandon Oilfields Comes Early, we explained how the oil and gas industry is legally obligated to plug and abandon (P&A) wells, but it hasn’t set aside the resources to do so. Billion Dollar Orphans estimates that plugging 2.6 million documented onshore wells in the U.S. alone will cost $280 billion. This estimate excludes costs to plug an additional estimated 1.2 million undocumented onshore wells. The below map previews the total bond amount and total liability amount by state.
Available bonding data suggests that states on average have secured less than 1% of that amount in surety bonds — and that assumes every insurer can and will pay. This means that oil and gas producing states are susceptible to serial operator defaults and exposed to hundreds of billions of dollars in orphan well liability risk.
Moreover, by not requiring the savings, states continue to make matters worse. Failing to require adequate bonding gives operators every incentive to spend on drilling more wells or pay investors first whilst pushing closure costs down the road.
Recent bankruptcies are showing the cracks in this system, as some states have thrown in the towel and allowed debtors to abandon unplugged wells to the state.
States can act now to protect their citizens and taxpayers. By increasing bond amounts to reflect actual costs, states can shift financial responsibility to an industry where it belongs and simultaneously position themselves to receive U.S. federal aid.
Plugging Liability and Related Surety Bonds, Key States
The ARO portal and CTI’s analysis explores the below questions regarding oilfield P&A obligations:
- How much will it cost my state to plug all of its oil and gas wells?
- How much will it cost my company to plug all of its oil and gas wells?
- What percentage of the plugging costs in my state are secured with some form of financial assurance?
- For my state, what percentage of my company’s liability is secured with some form of financial assurance?
- What is the overall picture for my state?
- Which companies have the largest liabilities?
Click on the questions to follow the links to the ARO portal pages.
View our ARO User Manual.