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Oil, gas bonds leave residents with huge cleanup burden

WASHINGTON -- Bonds posted by companies with federal oil and gas leases cover only a small fraction of the projected costs of plugging wells and restoring land once the fuel is extracted, leaving taxpayers with the potential for huge cleanup bills, an Associated Press analysis of federal records shows.

The Bureau of Land Management has collected only $132 million in bonds from oil and gas companies responsible for more than 100,000 wells on federal lands. The government estimates it costs between $2,500 and $75,000 to cap each well and restore the surface area.

In the past five years, the bureau has spent $2.2 million to clean up 187 wells where operators defaulted on their bonds.

At that average rate of $13,066 per well, the shortfall between the bonds and the cleanup costs could leave taxpayers with as much as a $1 billion potential liability if companies reneged on their cleanup responsibilities, the analysis found.

The Bush administration quietly shelved an eight-year effort this fall to increase the minimum bond requirements for oil and gas drilling on federal lands.

The current rates were set in 1960, and gas and oil companies are the only federal mineral lease holders that are not required to post full reclamation bonds. Coal and hard rock mineral companies must post bonds equivalent to the estimated cleanup costs.

Bush administration officials say they do not want high bonds to discourage oil and gas exploration on federal lands amid an energy crunch and believe the risks are minimal given that relatively few companies have reneged on cleanup obligations in recent years.

In the past five years, 17 companies defaulted on their cleanup, causing their bonds to be revoked.

"There is a small risk here," said Bob Anderson, the bureau's deputy assistant director for minerals. "And it's a risk that we think is an equitable one."

But others, including landowners struggling to get legacy wells plugged, think it is unfair.

Eric Barlow, a rancher in Wyoming who has been trying for years to get two nonproducing oil wells on his 18,000-acre spread plugged and abandoned, said the bureau's bonding requirements are little more than "window dressing."

Barlow owns the land, but the government owns the rights to the minerals underneath and leases them.

"If you're accused of a felony crime and you go in front of a judge and you have a bond hearing, they're going to set a bond that will reasonably assure that you stick around to face the charges," he said.

"What we have in this situation is these guys are released from custody immediately, or never even taken into custody, because the amount of the bonding is such a minimal amount. They have no incentive to take care of things that need to be cleaned up."

The Bush administration concluded this fall that rather than raise the minimum bonds for all oil and gas leases, they would use existing authority to selectively impose higher bond requirements on those companies they deem risky.

"The BLM has reviewed its policies and procedures and believes that the existing regulations . . . already provide the needed authority to increase bonds when the BLM determines that operators pose a risk on federal oil and gas leases," the land management bureau's director, Kathleen Clark, and Assistant Secretary of the Interior Rebecca Watson wrote Sept. 30.

In the past five years, Anderson said the agency has increased 35 bonds, requiring operators to post $3.6 million more. The increases account for less than 3 percent of total oil and gas bonds.

The September decision amounted to an about-face. A year earlier, Watson told a Denver newspaper that increases in a proposed new bond rule would take effect "sooner rather than later."

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