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Wyoming Regulators Increase Oil/Gas Well Bonding Requirements

Wyoming's five-member Oil and Gas Conservation Commission (OGCC) chaired by Gov. Matt Mead on Tuesday unanimously raised bonding requirements on oil/natural gas companies from $25,000 to $100,000. Operators will have a year to obtain the higher coverage once the new rule is final early next year.

Although less than an earlier proposed jump to $150,000, the OGCC move was nevertheless a clear reaction to the plugging and reclamation of nearly 4,000 abandoned wells that the state energy regulators are dealing with under initiatives from Mead to get them cleaned up (see Daily GPISept. 24).

As the move has been expected, the Petroleum Association of Wyoming (PAW) is supportive of the increase, according to PAW vice president John Robitaille, who noted that OGCC also raised the fees for drilling permits from $50 to $500/application. "That's a pretty significant increase," Robitaille said.

In addition, the duration for drilling permits was doubled from one to two years, recognizing that the low current commodity price environment is causing more delays in the use of the permits.

"The big reason for this increase was to raise enough funding to pay for what it takes to process a drilling permit application right now," said Robitaille, noting the process is all done manually still and is very people-intensive. "Eventually the applications will be handled by an electronic system and that should take a tremendous amount of time off the table," he said.

Well clean up costs are funded by fees paid by oil/gas producers and through forfeited bonds, but industry has contended over the years that it should be financed by higher taxes on oil/gas production.

Noting that the case of coalbed methane wells (CBM) and their high amount of abandoned wells needing plugging is isolated from the relatively small amount of abandonment for all of the state's other wells, Oil/Gas Supervisor Mark Watson said the commission didn't want to do a major change in the bonding based on what he considered an "anomaly" of the CBM wells.

In the past 18 months, Wyoming has plugged around 1,200 CBM wells  on state lands for a cost of less than $5 million; and Watson noted that a 2013 report had estimated the cost at $7.7 million to plug the same number of wells. It took about half the time previously estimated, he noted.

OGCC currently holds $23.9 million in bonding as insurance to cover companies' reclamation obligations, and the amount will rise to around $43.5 million under the state's current plan.

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