Pa. reaches settlement on abandoned wells

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deep well drilling rig
(Farm and Dairy file photo. Not an actual orphan well).

HARRISBURG, Pa. — The Pennsylvania Department of Environmental Protection (DEP) has announced a settlement with Diversified Gas & Oil Corp. and Diversified Oil & Gas, (collectively referred to as Diversified) and Alliance Petroleum Co LLC (Alliance) over well-plugging violations in 23 Pennsylvania counties.

“This agreement is a win for the commonwealth because it ensures that over 1,400 oil and gas wells are properly maintained or plugged and that these operators, not Pennsylvania citizens, bear the full cost of operating or plugging them,” said DEP Secretary Patrick McDonnell.

Diversified and Alliance have agreed to a $7 million surety bond for the wells covered by this settlement, plus an additional $20,000 to $30,000 bond for each abandoned or non-producing oil and gas well acquired in the future.

Blanket bonding

Under current law, adopted in 2012 as an amendment to Pennsylvania’s Fiscal Code, conventional oil and gas operators such as Diversified and Alliance are only required to secure $25,000 of blanket bonding to cover all of their wells, which in the case of the two companies, amounts to bonding of approximately $2 per well.

The performance bonding negotiated in this settlement is closer to actual plugging costs that can begin around $20,000 per well and go much higher depending on well and site conditions. With this Consent Order and Agreement (COA) in place, DEP has approved pending transfers of non-producing mostly conventional oil and gas wells to Alliance and Diversified.

The COA allows some wells to be put back into production, so long as minimum production levels are maintained, and sets a plugging and restoration schedule for non-producing wells of 15 years while prioritizing the plugging of wells that pose health, safety, and/or environmental threats.

The COA may be extended for an additional five years, subject to additional bonding of $30,000 per well for wells to be plugged during the extension. The Oil and Gas Act requires owners and operators to plug wells upon abandonment.

Wells included

In July 2018, DEP issued orders to Alliance, XTO Energy Inc. (XTO), and CNX Gas Company LLC (CNX) to plug 1,058 abandoned oil and gas wells across the state — based on required self-reporting of well production data — and held pending transfers of those wells.

Those wells, along with wells that Diversified also reported as non-producing, make up the approximately 1,400 wells specifically addressed in the COA. Alliance, XTO, and CNX appealed DEP’s orders to the Pennsylvania Environmental Hearing Board.

Pennsylvania has more than 8,000 orphaned and abandoned oil and gas wells on its inventory and hundreds of thousands of legacy wells may be unaccounted for, posing a major financial liability and environmental, public health, and safety risk.

The signed COA document can be viewed at http://files.dep.state.pa.us/Newsroom/NewsroomPortalFiles/DiversifiedCOA.PDF.

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