A report released today suggests Ohio taxpayers could be on the hook for costs if something goes wrong at an oil and gas drilling operation.
The report from advocacy group Environment Ohio looks at the costs related to “fracking,” an extraction technique that involves pumping millions of gallons of water underground to unlock oil and gas reserves.
Recent technological advancements have spurred a boom in fracking, leading to hundreds of new wells in Ohio and thousands more around the nation.
When oil and gas companies obtain a permit to build a fracking well, they typically have to provide some financial assurance to the state in case something goes wrong. In Ohio, that assurance comes through bonds and specific insurance requirements.
If a well operation is completed without a problem, the cost of the bonds is returned to the operator. If something goes wrong, the company has to fix the mess before it gets its money back.
But Environment Ohio finds companies in Ohio only have to secure $5,000 in upfront bonds per well. That’s not enough for a company to fear the financial consequences of a disaster, which means it could act recklessly with little disincentive, according to the report.
The report says that could pose a huge cost to taxpayers: Simply reclaiming a well and its property can cost hundreds of thousands of dollars.
Under normal circumstances, private and public entities could sue for the damages, but that’s unrealistic if a well operator goes bankrupt or is otherwise unwilling or incapable of paying.
Another potential problem: The bond payments are only held by the state until a well is plugged and the site is reclaimed to the satisfaction of state operators. That doesn’t account for health and environmental damages that can surface after a drilling operation ends, according to the report.
The issues are further compounded by loopholes, which allow companies to avoid bonding requirements altogether if they prove they hold a certain amount of in-state assets. Environment Ohio calls it “an exceedingly easy test to meet.”
In what it calls “common sense” reforms, Environment Ohio says the state should impose more assurances for longer periods of time. The organization favorably cites other states that require $250,000 in upfront bonds — much higher than Ohio’s $5,000. For companies, that would mean a much higher financial hurdle when taking on a fracking project, but the high cost could provide a powerful incentive to avoid dangerous risks.
The report also finds that insurance requirements in the state are weak, with operators required to fulfill a $5 million liability cap regardless of whether they’re running one well or 100.
The organization recommends Ohio work to build stricter financial and regulatory safeguards.
“At a minimum, Ohio needs an adequate severance tax to fund impacts on communities and provide a cushion for long-term risk management,” said Wendy Patton, director at left-leaning think tank Policy Matters Ohio, in a statement released by Environment Ohio.
An oil and gas severance tax was suggested by Republican
Gov. John Kasich to pay for income tax cuts, but Republican legislators
rejected the proposal.
The report’s findings were not exclusive to Ohio. It also found issues and suggested solutions for other states and the federal government, including a similar call for stronger bonding requirements on federal lands.
CityBeat covered the fracking boom and its effects on Ohio in further detail here.