Taxpayers foot bill for oil and gas well cleanup on federal land

Introduction

Oil and gas companies producing on federal land are required to pay a bond to the Bureau of Land Management, which serves as an incentive for the operator to eventually plug the well and clean up the area. But the bond minimum hasn’t changed since 1960.

For five decades, the bond minimum has been set at $10,000 and has not been adjusted for inflation, which would be $59,360 in 2009 dollars. With such a low bond, operators have little incentive to clean up the area and instead stomach the loss of $10,000, pushing the cost of cleanup onto the taxpayer.

The cost of plugging a single well can amount to more than $100,000 and just getting a work crew to a well site might cost $10,000. “These minimum bond amounts are inadequate for managing potential liability,” the Government Accountability Office said.

Bureau offices applied bond amount increases differently. Some only increased the amount if the operator didn’t comply with contract terms. Other offices calculated the potential liability mathematically to identify if a bond should be increased.

A lack of accurate data also restricts the Bureau’s ability to evaluate potential liabilities or monitor agency performance. For example, the Bureau reported 2,300 inactive wells, while the Department of the Interior indicated the number is almost double that.

“The challenges the Bureau of Land Management faces in managing potential liabilities are interdependent and cannot be solved in a piecemeal fashion,” the GAO report said. The GAO recommends increasing the bond minimum and improving the system to evaluate liabilities.

FAST FACT: In 2009, the wells on federal lands produced 11 percent of the nation’s gas supply and 5 percent of the oil supply.

Following are other new watchdog reports released by the Government Accountability Office (GAO), various federal Offices of Inspector General (OIG), and other government entities.

MISC.

• An audit of Rural Development Service loans provided to victims of Hurricanes Katrina and Rita found that some victims received duplicate assistance, and some aid went to people unaffected by the storms. Some recipients also used grant fund for prohibited repairs and improvements. A total of $452,000 in grant money was questioned. (Inspector General USDA)