Gas and oil drillers should have to post higher bonds and carry more liability insurance so as to protect the public from bearing the environmental, health and infrastructure costs of fracking, a state environmental group says.
Gas and oil drillers should have to post higher bonds and carry more liability insurance to protect the public from bearing the environmental, health and infrastructure costs of fracking, a state environmental group says.
Environment Ohio released a report Thursday proposing reforms to what it says are lax state and federal bonding and insurance requirements.
Drillers have already sunk 387 horizontal wells into the Utica Shale, and have permits for another 400 wells, according to the Ohio Department of Natural Resources. Much of the activity is happening in Carroll County.
“Too many times the boom-and-bust cycle of [natural resource extraction] can leave the public on the hook,” said Julian Boggs, policy advocate for Environment Ohio. “Requiring such assurance up front, before drilling occurs, helps ensure that the public is not left holding the bag when the boom is gone and after the drilling operator has left the state.”
Ohio requires a $5,000 bond per well, but drillers can cover all of their wells with a single $15,000 bond. The bond is released when the well is plugged and all restoration requirements are performed. Operators don’t have to file a bond if they can show a net in-state worth of at least $30,000.
Given the costs associated with some wells, Boggs said, the state should require a $250,000 bond per well that stays in effect for as long as 30 years after the well is closed.
West Virginia, Pennsylvania and Michigan require higher bonds than Ohio, but New York is the only state that comes close to the amount proposed by Environment Ohio.
Unlike those states, Ohio is one of the few states where drillers must have liability insurance. Boggs said the law should be strengthened.
Drillers have to carry at least $1 million in liability insurance for vertical wells, and up to $5 million for horizontal wells. The amount is the same whether a company has one well or 100 wells across the state.
Boggs said drillers should have to carry liability insurance on every well, and called on the state to eliminate blanket bonds and financial health exceptions.
Strengthening the rules would protect the public from cleanup costs, give companies an incentive to follow good practices, and speed cleanup and victim compensation, according to the report.
“I don’t think it’s credible for oil and gas companies to say that they can’t provide financial assurance, but they’ll be able to clean up their own mess,” Boggs said.
Additionally, a 7 percent severance tax on wells could be used to help communities impacted by drilling right now, and provide revenue for a permanent fund, said Wendy Patton, director of Policy Matters Ohio.
Money in the reserve would be used in the event of an environmental catastrophe or for development “after the boom goes bust,” Patton said.
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So far, state lawmakers have rejected more modest proposals to increase the severance tax, which is opposed by the oil and natural gas industry and other groups.
Thomas Stewart, executive vice president of the Ohio Oil and Gas Association, said the state has already increased the bonding and insurance rules for drillers in recent years.
Bonds don’t exist to cover the cost of some action, such as rebuilding a road, he said. Rather, they are a credential that allows companies to operate.
“They jerk your bond, you can’t do your business,” Stewart said. “You can’t do your business, you are under financial distress and must liquidate your business.”
He called the idea of requiring liability insurance on each well “absurd” and “unrealistic,” saying that no insurance company would write such a policy.
Steward said it’s ludicrous to question whether big drillers developing the Utica Shale have the financial wherewithal to pay their bills, and increasing bonding and insurance requirements would set up barriers for independent drillers in the state, “which is probably the goal of the anti-oil-and-gas crowd.”