By Nicholas Kiss | Staff Editor

April 5, 2024

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In the summer of 2023, the Bureau of Land Management (BLM) proposed a rule to increase federal bonding rates for onshore oil and gas wells.[1] This rule would seemingly adjust blanket bonding requirements and further eliminate the ability to acquire nationwide bond coverage for oil and gas wells on federal lands.[2] These rules and regulations may seem insignificant to the untrained eye, but they dramatically impact the ability to clean up harmful spills caused by oil and gas wells.

The procurement of natural gas wells has increased significantly in recent years, with many energy companies purchasing orphaned and abandoned natural gas wells. This profit comes at a time when carbon dioxide emissions create a climate crisis to rival the more significant issues of our generation. Natural gas, which burns clean, seemingly solves this issue, but what is not stated is the impact methane emissions have on global warming. Methane which possesses a warming potential 84 times that of Carbon Dioxide over a 20-year period is just the beginning.[3] What often results are natural gas wells that have been abandoned, leaking into their surrounding environment.[4] This creates billions in potential cleanup costs around the United States and the required financial assurances only amount to fractions of the cost.[5]

To remedy this issue both federal and state governments require proof of bond coverage: money set aside in the case of an environmental accident.[6] However, federal blanket bonding rates are caught in time as companies can acquire a nationwide bond for $100,000 that can cover every oil and gas lease within their operation.[7] BLM has not adjusted these rates for inflation since 1951,[8] and they pale in comparison to state bonding requirements.[9] This prompted BLM to act. Last year BLM released a proposed rule that would eliminate nationwide blanket bonding and raise statewide blanket bonds from $25,000 to $500,000 on federal lands.[10]

It is not clear why these rules haven’t seen updates, but reports suggest that BLM officials had no desire for updating the bonding requirements due to fears that energy companies would struggle paying higher bond costs.[11] Nevertheless, BLM has now proposed a rule which it believes falls within its statutory discretion from the Federal Land Policy and Management Act, the Mineral Leasing Act, and the recently enacted Inflation Reduction Act.[12] The discretion given within these statutes directs BLM to manage federal lands with the principle of multiple use and sustained yield.[13] Or in other words, BLM must manage the lands to preserve a balanced use of the land that considers both long-term and short-term needs and desires.[14]

This proposed rule is not perfect, but it is a step in the right direction. The practice of blanket bonding should end, and the proposed rule does well to end this practice nationally.[15] However, BLM still allows statewide bonds, and despite increasing bond minimums there would still exist a significant disparity of funds available for clean-up costs.[16] Financial assurances should be completed on a case-by-case basis where the oil or gas well is evaluated on its individual risk to the surrounding environment. States are already doing this with oil and gas drilling on state specific land and coal mines use this process.[17] Of course, it is often that fully abandoned oil and gas wells are the most dangerous, a common occurrence when an energy company declares bankruptcy. Often state sponsored taxes and reclamation funds are the only options to plug these wells.[18] This does not exist on the federal level, and BLM must include this provision in its proposed rule. Further, BLM has authority to seek fees from oil and gas operators that provide more financial assurances for plugging oil and gas wells under the Energy Policy Act of 2005.[19] This should look like the establishment of a tax on oil and gas wells, where the revenue generated returns directly to the conservation of unplugged oil and gas wells’ surrounding environment.[20]

BLM’s approval of blanket bonding has created a custom that encourages energy companies to abandon oil and gas wells causing pollution. The propensity of greenhouse gas emissions to warm our planet among other public pressures have caused BLM to adjust its current rule on blanket bonding.[21] However, this proposed rule does not go far enough as energy companies can easily sidestep well plugging obligations and still provide financial assurances for wells that fall short of the necessary clean-up costs. The Energy Policy Act provides BLM with the statutory authority to collect reclamation funds from oil and gas operators to force operators to clean up their wells. The only question left is: will they act?

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[1] Fluid Mineral Leases and Leasing Process, 88 Fed. Reg. 47562 (proposed July 24, 2023) (to be codified at 43 C.F.R. 3000–3180).

[2] Id. at 47579.

[3] Climate Change 2013: The Physical Science Basis. Contribution of Working Group I to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change 714 (Thomas F. Stocker et al. eds., 2013).

[4] Zachary R. Milder & Rachel Adams-Heard, An Empire of Dying Wells, Bloomberg (Oct. 12, 2021) https://www.bloomberg.com/features/diversified-energy-natural-gas-wells-methane-leaks-2021/; Douglas Hale Gross, Annotation, Duty and Liability as to Plugging Oil or Gas Well Abandoned or Taken Out of Production, 50 A.L.R. 3d 240, § 2 (1973) (discussing general environmental impacts from leaking abandoned oil and gas wells).

[5] See id.

[6] Nicole Layton & Ginger Sprong, Cut and Run: Bonding, Bankruptcies, and the Orphaned-Oil-Well Cut and Run: Bonding, Bankruptcies, and the Orphaned-Oil-Well Crisis, 10 LSU J. of Energy L. & Res. 1, 9 (2022).

[7] See id. at 13.

[8] Fluid Mineral Leases and Leasing Process, 88 Fed. Reg. 47579 (proposed July 24, 2023) (to be codified at 43 C.F.R. 3000–3180).

[9] See also Wyo. Admin. Code 055.0001.3 § 4 (noting that Wyoming statewide blanket bonds must be $100,000 or more).

[10] Fluid Mineral Leases and Leasing Process, 88 Fed. Reg. 47562 (proposed July 24, 2023) (to be codified at 43 C.F.R. 3000–3180).

[11] U.S. Gov’t Accountability Off., GAO-18-250, Bureau of Land Management Needs to Improve its Data and Oversight of its Potential Liabilities 29 (2018) (discussing how “officials from one BLM state office expressed concerns about operators with multiple wells covered by the minimum bond amounts, which the officials believed to be inadequate to cover total potential reclamation costs”).

[12] Fluid Mineral Leases and Leasing Process, 88 Fed. Reg. 47619 (proposed July 24, 2023) (to be codified at 43 C.F.R. 3100).

[13] 43 U.S.C. 1712 § 202.

[14] See id.

[15] Fluid Mineral Leases and Leasing Process, 88 Fed. Reg. 47579 (proposed July 24, 2023) (to be codified at 43 C.F.R. 3104).

[16] See Mark Olalde, It Will Cost Up to $21.5 Billion to Clean Up California’s Oil Sites. The Industry Won’t Make Enough Money to Pay for It, ProPublica (May 18, 2023) https://www.propublica.org/article/cost-of-california-oil-cleanup-exceeds-industry-profits (discussion of how it will cost more than the California oil and gas industry makes to clean up the state’s oil well locations).

[17] BLM Oil and Gas Bonding Rules Leave Lands a Mess and Taxpayers Responsible, Western Organization of Resource Councils (2020) https://www.worc.org/media/2020.04-Oil-and-Gas-Bonding-Federal-vs-State-sm2.pdf.

[18] Often collected through tax, reclamation funds are specifically set aside for the reclamation of an abandoned oil and gas well when bonds come up short. BLM Oil and Gas Bonding Rules Leave Lands a Mess and Taxpayers Responsible, Western Organization of Resource Councils (2020) https://www.worc.org/media/2020.04-Oil-and-Gas-Bonding-Federal-vs-State-sm2.pdf.

[19] See 43 U.S.C. § 1734(a) (establishing a reclamation tax on oil and gas well use is not directly stated; rather BLM has the authority to institute “reasonable charges,” a claim that BLM currently opposes).

[20] Layton & Sprong, supra note 6, at 22–23.

[21] Fluid Mineral Leases and Leasing Process, 88 Fed. Reg. 47562 (proposed July 24, 2023) (to be codified at 43 C.F.R. 3000–3180).