CNX Resources Corp. has reached a settlement with Pennsylvania regulators requiring the company to post a $1.48 million performance bond to ensure coverage for the costs of plugging 141 natural gas wells in the southwestern part of the state.
Under the consent order and agreement (COA) with the state Department of Environmental Protection (DEP), CNX is posting a bond that far exceeds what’s required by state law. The COA also provides the company with an extended schedule to plug the wells and restore their sites. The 141 wells covered by the settlement mostly include coalbed methane and conventional wells, but five are unconventional shale wells. All of them are located in Allegheny, Greene, Washington and Westmoreland counties.
While the COA resolves what the DEP said are well-plugging violations, the wells have not technically been abandoned by CNX. They are not producing. Under state law, a well is considered abandoned if it has not been used to produce or inject any natural gas within 12 months.
“We have always worked cooperatively with the DEP regarding our well plugging obligations and are pleased that we were again able to arrive at an equitable agreement which reflects our firm commitment to safety and environmental compliance,” CNX spokesman Brian Aiello told NGI’s Shale Daily.
Last year, DEP ordered CNX, XTO Energy Inc. and an affiliate of Diversified Gas & Oil plc to plug 1,000 wells across the state. All of the companies appealed that order, but eventually withdrew their challenges.
Diversified acquired the bulk of the wells in question from CNX and XTO, and later reached its own settlement with the DEP to cover them, resolving the broader order. The 141 wells covered in the recently announced CNX settlement were those that the company still owns. CNX finished divesting the bulk of its shallow assets in the sale to Diversified last year after it split from the coal business, which is now Consol Energy Inc.
Diversified, Appalachia’s largest conventional oil and gas producer, has struck similar deals covering its plugging liabilities in Ohio, West Virginia and Kentucky. As regulators have noted in those states, the DEP said orphaned and abandoned wells remain a problem in Pennsylvania.
DEP Secretary Patick McDonnell said both bonding and blanket bonding amounts “prescribed under state law are woefully inadequate to actually plug an abandoned oil or gas well.”
Bonding amounts required by the state are $2,500 per conventional well or a blanket bond of $25,000 for all legacy wells owned by an operator. Plugging a problematic well, however, can cost more than $100,000.
The U.S. Government Accountability Office recently aired similar frustrations, saying in a report that the bonds posted by oil and gas producers to help prevent orphaned wells on federal lands are too low, with most not high enough to cover the costs of reclamation.
Pennsylvania alone has more than 9,000 confirmed orphaned and abandoned oil and gas wells in its inventory. Estimates are far higher.
“Hundreds of thousands of legacy wells may be unaccounted for, posing a major financial liability and environmental, public health and safety risk,” the DEP said.