Speaking out: Use of COVID-19 aid to plug oil wells shows North Dakota’s failure

Speaking out: Use of COVID-19 aid to plug oil wells shows North Dakota’s failure

Tory Jackson

Tory Jackson

The North Dakota Emergency Commission recently approved the use of $33.1 million in federal coronavirus aid to plug abandoned oil wells. State and oil industry officials portrayed the decision as an energy sector jobs program and an attempt to solve the growing problem of abandoned oil wells. Both are worthy goals.

But the decision also shows the negligence of state officials. If the North Dakota Industrial Commission required sufficient reclamation bonds, it wouldn’t be necessary to use federal taxpayer money to plug abandoned oil wells.

The NDIC’s bond requirements are insufficient to deal with the 549 abandoned wells that the state has identified as candidates for plugging, not to mention the tens of thousands that eventually will need to be plugged.

State Mineral Resources Director Lynn Helms recently claimed that oil companies are required to post a $100,000 bond for a producing well. That’s actually not true, and even if it were, that amount is not high enough to cover plugging and reclamation costs.

The $100,000 bond Helms referred to is what’s known as a “blanket bond.” The NDIC allows an oil company that operates more than one well (i.e. almost all oil companies) to post a single bond of $100,000.

A blanket bond is limited to six wells, but that doesn’t mean for every six wells an oil company operates it must post a $100,000 bond. The regulation is worded so that the limit seems to apply to how many of an oil company’s wells need to be plugged at a given time, not to every six wells it actually owns.

Regardless of how the six-well limit is applied, it’s obvious the NDIC’s bond requirements are completely inadequate. The cost of plugging a well averages about $150,000, not including site reclamation costs. Even if an oil company is required to post a $100,000 bond for every six wells, that works out to only $16,666.67 per well, a small fraction of the total cost of plugging and reclamation. If the six-well limit is applied to wells that need to be plugged instead of all wells owned (as one suspects), the amount per well is even lower.

According to Helms, oil companies can’t afford to plug and reclaim wells and are unable to obtain bonds, given the state of the oil industry. But that’s precisely why adequate bonds are needed. At the time of drilling, oil companies are flush with cash and can easily obtain bonds. Since the oil industry’s business model is essentially boom and bust, requiring adequate bonds up front ensures money will be available when the oil stops flowing. Without sufficient bonds, taxpayers are stuck with a bill that eventually will run into the billions.

The Legislature can protect taxpayers by increasing bond requirements. The minimum bond should be $150,000 for each well drilled or operated and should increase over time to track inflation. Each bond should be dedicated to the plugging and reclamation of a specific well. Blanket bonds should only be allowed if the aggregate amount equals at least $150,000 per well.

The state is using federal taxpayer dollars to provide a band-aid solution to a problem it created. Unless bond requirements are increased, the use of coronavirus aid will be merely a small down payment from taxpayers on billions of eventual costs.

If the NDIC really cared about the problem of abandoned oil wells, it would increase bond requirements and hold oil companies accountable for cleaning up their own mess. Instead, the NDIC is giving its friends in the oil industry a taxpayer-funded bailout.

It’s obvious whose side state officials are on, and it’s certainly not the side of North Dakota taxpayers.

Tory Jackson is an attorney and writer. His legal practice involves real estate and business matters, with a particular focus on historic rehabilitation projects. He holds degrees from Bismarck State College, the University of Virginia and Harvard Law School. He lives in Bismarck, where he was born and raised.


Catch the latest in Opinion

* I understand and agree that registration on or use of this site constitutes agreement to its user agreement and privacy policy.

Related to this story

Most Popular

Will your neighborhood school open on schedule in the fall? The answer should vary by location, but some headline-grabbing declarations are prolonging the uncertainty for families and students. And uncertainty leads to fear - an infectious state of mind best treated with a dose of common sense. Special-interest groups encouraged educators to "scream bloody murder" if collective bargaining and ...

Imagine if you killed somebody on your job, and all you got that day was fired. You go into work the next day, return the keycard you swipe every morning when you get on the elevator, pack the things from your desk, toss out whatever food you have in the pantry refrigerator and say goodbye to your co-workers before two security guards escort you out of the building. And, let's just say this ...

In a tweet about violent protests in Minneapolis over the death of a black man in police custody, President Donald Trump thundered: "These THUGS are dishonoring the memory of George Floyd, and I won't let that happen ... Any difficulty and we will assume control but when the looting starts, the shooting starts." Twitter, as part of its newfound vigilance about Trump's rants, appended a note ...

In July 2001, a 28-year-old woman named Lori Klausutis fell and hit her head on a desk at work in Fort Walton Beach, Fla. She was found dead the next morning. The medical examiner concluded that there was no foul play, and it later turned out that Klausutis had an undiagnosed heart condition. There would be no reason today to publicly discuss this tragic accident, but for the fact that ...

The COVID-19 health crisis has had a devastating effect on the nation's restaurant industry. According to a National Restaurant Association survey taken April 20, 8 million of the nation's 11 million restaurant workers are currently unemployed. Hundreds of thousands of restaurants have closed, and one in five will not reopen. For the remaining restaurants, delivery sales have increased from ...

Get up-to-the-minute news sent straight to your device.


News Alerts

Breaking News