The Boom, the Bust, and the Cost of the Cleanup: Abandoned Oil and Gas Wells in Pennsylvania and Implications for Shale Gas Governance

Abstract

Pennsylvania has the longest history of oil and gas drilling in the world, and the state’s governance of the industry has matured and continues to evolve. The long history of policy development provides a panoramic perspective useful for the governance challenges of ensuring responsible oil and gas development in the shale era. We make three observations from the Pennsylvania experience. First, sensible policies can be slow to emerge, especially ones that address long-term issues like well reclamation. A second observation is that the mere presence of reclamation requirements and knowledge of well locations does not ensure proper reclamation as evidenced by a high abandonment rate under such a policy regime. Lastly, bonding requirements for conventional wells have been–and are still–far less than actual reclamation costs (roughly half of the costs by our estimates). The same is now true of shale well bonding requirements. A single shale well bond is $10,000, but our analysis of reclamation data for more than 1,200 wells suggests that reclaiming a typical shale well would cost more than $90,000. Bonding requirements are not the only means for encouraging and paying for proper reclamation, but other methods, such as setting aside revenue raised through the state’s Impact Fee on unconventional wells, are not currently used.

Keywords: Shale Gas; Pennsylvania; Abandoned Oil and Gas Wells; Bonding

JEL Classification: Q38, Q32, Q58