Oil and gas bonding is a type of financial assurance operators submit before they start drilling on federal land to guarantee that they will plug their wells and clean up well sites when production ceases. In the event that an operator abandons its wells or goes bankrupt, the bond is forfeited to the Department of the Interior and used to cover the reclamation costs. However, current bond minimums were first set in the 1950s and 60s and have never been adjusted for inflation. When bond amounts are not sufficient to cover the full reclamation costs, taxpayers are on the hook to pay for cleanup. 

Abandoned wells pose environmental, safety, and public health risks and should be reclaimed promptly; and taxpayers should not pay for the messes that the oil and gas industry leaves behind. We need oil and gas bonding reform to protect taxpayers from the financial and environmental liabilities associated with abandoned wells.  

Several proposals have been circulated that could help address taxpayer bonding liabilities.  One proposal in the Senate, the Oil and Gas Bonding Reform and Orphaned Well Remediation Act, S.2177, introduced by Senator Bennet (D-CO) would raise bonding minimums, strengthen management of inactive wells, and implement measures to hold the industry more accountable. 

The bill would: 

• Establish a remediation program for orphaned wells on federal lands and on States and tribal lands 
• Direct the Treasury to transfer $8 billion of the federal share of royalty revenues from oil and gas production over the next decade for the Orphaned Well Remediation Program, with 75% going to States and Tribal lands and 25% going to federal lands 
• Direct the Secretary of the Interior to develop a database that includes information on the number, location and status of producing, inactive, and orphaned wells, responsible parties and bond amount, etc. 
• Raise minimum bonding rates  

• • From $10,000 to $150,000 for an operator’s wells on an individual lease; 

• • From $25,000 to $500,000 for all wells owned by an operator in one state; and 
  • Eliminate nationwide bonds 

• Implement other measures like periodical bond reviews and stronger inactive well management to protect taxpayers from future abandoned wells liabilities 

S.2177 would hold the oil and gas industry more accountable and protect taxpayers from paying for the messes oil and gas companies left behind. Current cleanup liabilities would be addressed using the federal share of royalty revenues from oil and gas production, instead of taxpayer dollars. The bill would also protect taxpayers from any future liabilities that would arise if currently active or inactive wells are abandoned. Developing an inventory of wells and strengthening the management of inactive wells decreases the chances of wells becoming abandoned. And in the case they do get abandoned, higher bonding minimums make sure that reclamation costs are fully covered by the bonds oil and gas companies submit.  

Despite a pause early in the current Administration, oil and gas leasing has resumed on federal lands. And the Department of the Interior has already announced more lease sales in 2023. More than 260,000 acres of federal lands in Wyoming, New Mexico, Nebraska, and Kansas will be open to bidding for oil and gas development. Moving forward with more leasing without oil and gas bonding and reclamation reforms would saddle taxpayers with more financial and environmental liabilities down the road.