What goes up must come down. The boom and bust economy that goes with oil and gas drilling can leave state and local governments and local landowners with big problems when boom times dry up.
The New York Times reports that the bust has hit in eastern Wyoming, where a natural gas boom has dried up as a result of rapidly falling natural gas prices. As a result,
Hundreds of abandoned drilling wells dot eastern Wyoming like sagebrush….The companies that once operated the wells have all but vanished into the prairie, many seeking bankruptcy protection and unable to pay the cost of reclaiming the land they leased. Recent estimates have put the number of abandoned drilling operations in Wyoming at more than 1,200, and state officials said several thousand more might soon be orphaned by their operators.
As a result, the state of Wyoming is scrambling to plug the wells and keep toxins from seeping into groundwater. The governor is advocating that taxpayers pay $3 million to plug the wells, and landowners are left with a mess — unproductive land that needs to be cleaned up and is at risk for long-term chemical damage. If thousands more wells go bust, this money won’t come close to paying the cost.
In Wyoming companies often disappear when their wells go under:
Companies must pay a $75,000 blanket bond to cover all of the wells they operate — often numbering in the hundreds — on state and private land in Wyoming. Once a well stops producing and is deemed idle, the operator must pay up to $10 a linear foot in bonding to offset the cost of reclamation.
But it is at that point that some companies drift into financial trouble and cannot pay the additional fees, leaving the state to scramble to make up the cost.
It’s easy for legislators and landowners to get excited about the prospect of energy independence, profits and jobs when production is increasing and prospects are great. But oil and gas are cyclical businesses, prone to booms and busts. When the bust hits, it’s local residents and taxpayers who get left holding the bag.