High Plains Gas, Inc.(fka HPGS)

[cautiousinvesting]

Malone: We need oil, gas well bonding reform now
http://trib.com/opinion/columns/malone-we-need-oil-gas-well-bonding-reform-now/article_434a4226-4d5b-5b3b-825a-a9ff00eca94c.html

August 17, 2014 10:45 am • By GILLIAN MALONE

It is high time that Wyoming began reforming oil and gas bonding. The state is facing the daunting and expensive task of reclaiming over 1500 orphaned coal-bed methane (CBM) wells left by bankrupt oil and gas companies at an estimated cost of $50 million. And the list is growing. For the past few years, on a nearly monthly basis, the Wyoming Oil and Gas Conservation Commission has been holding hearings about “delinquent” oil and gas operators that do not have sufficient bonding money to ensure reclamation of their wells.

In every case it seems the operator either: 1) is a no-show, leading to the minimal bonding the state holds being seized to pay a tiny portion of plugging and surface reclamation costs; or 2) has a list of excuses and a plea for more time to come up with the money they owe. Unfortunately, nine times out of 10 the outcome is the same: the oil and gas company fails to come up with the required money and the wells get added to the list of orphaned wells the state of Wyoming must pay to clean up.

This scenario unfolded yet again at the Oil and Gas Commission’s July meeting when commissioners had to decide whether to revoke a company’s inadequate reclamation bonds or give the company—High Plains Gas—more time to come up with the $6.7 million they owe the state.

High Plains already admits to being at least $50 million in debt. They also have millions in default judgments against them from landowners, mineral owners and businesses, and they owe millions in back taxes to local and state governments. And to complicate matters, they recently acquired an additional 1200 idle CBM wells from another derelict company in bankruptcy court. But instead of providing the commission with a plan and a timeline for bringing the 2,251 idle wells back into operation, High Plains CEO Ed Presley—during three hours of testimony—only mentioned reactivating five or ten wells.

Despite grave doubts, commissioners opted to give the company another 120 days. The commission decision in this case—and in others—only delays the inevitable, because in all likelihood, 120 days from now High Plains will still be unable to post the additional bond, and the state will be left holding the bag.

All of these problems could be avoided if Wyoming simply reformed its oil and gas bonding requirements. In fact, this case clearly illustrates the need for substantial reform at both the state and the national level. People are shocked when they learn that an oil and gas company can post a “statewide” bond of $75,000 for all of its wells in Wyoming. And federal Bureau of Land Management (BLM) bonding is almost laughable, requiring a company to post a mere $150,000 “nationwide” bond for all of its wells in the entire country. In both cases, a company could operate literally thousands of wells costing many millions to plug, abandon and reclaim.

In contrast, other industries such as coal mines must post site-specific bonds to cover the cost of reclamation. These costs are reviewed annually and include hiring third party contractors to complete the reclamation work if the company defaults. Why doesn’t the oil and gas industry have to live up to this same standard?

Although Governor Mead’s energy strategy includes a review of oil and gas bonding, we urge the state to act quickly. For years, Powder River Basin Resource Council has suggested simple and effective bonding reforms to state agencies and the legislature. It is time to take reform seriously. As history has shown us repeatedly, oil and gas booms are inevitably followed by busts. Now is the time to implement site-specific oil and gas bonding—before the next bust hits.