Who will pay for plugging and abandonment of PA’s shale gas wells?

1. Who will pay for plugging and abandonment of PA’s shale gas wells? Austin Mitchell 2 August 2013

2. Plugging and abandonment at the end of a well’s life… • Permanently isolate groundwater: pull production casing, insert cement plugs • Restoration of well pad: remove equipment and gravel, replace topsoil, re-vegetate land Producing Marcellus Shale gas well source: propublica.org Source: propublica.org source: statoil.com

3. What are the risks of orphan shale gas well sites? Land degradation Habitat loss and fragmentation source: Ohio DNR Allegheny National Forest, Pennsylvania Stray gas / methane emissions source: witf.org source: PADEP

4. Shale gas wells can be very profitable in the initial years of production… Pennsylvania's oil and gas bonds: $10,000 per well, capped at $600,000 per operator … and discounted plugging and abandonment costs have a small effect on near-term accounting. Annual production (Bcf) Net production revenue ($ millions) time Plugging and abandonment ($100-700,000 today)

5. Managing the risks of orphan shale gas well sites… • Financial assurance (bond, surety, letter of credit, etc.) required for each well in Pennsylvania: $10,000, capped at $600,000 per operator • Only a small fraction of actual plugging and abandonment costs are covered, and in an industry where the risk of insolvency is high, billions of dollars in unfunded liabilities are a problem. Creating individual well trusts funded by a pre-drilling fee or tax on initial production would have a small impact on profitability trust deficit (Mitchell & Casman, 2011)

6. Plugging and abandonment Who will pay for plugging and abandonment of PA’s shale gas wells? Developing Pennsylvania’s shale gas will require tens of thousands of new wells and hundreds of thousands of acres of land… …and this means tens of billions in unfunded environmental liabilities. source: wired.com PA oil & gas production source: NETL Future Today 1859 1940’s

7. Acknowledgements • We are grateful to W. Michael Griffin and Joel Tarr from Carnegie Mellon, and Roma Sidortsov from Vermont Law School. • This work was funded by the Climate Decision Making Center (SES-3045798) and by the Center for Climate and Energy Decision Making (SES-0949710), both through cooperative agreements between the National Science Foundation and Carnegie Mellon University; and by the Gordon and Betty Moore Foundation (Award Number 1625) in support of the Carnegie Energy Research Initiative.