Diversified Gas & Oil Reaches Well-Plugging Deal with PA DEP

Thousands of Pennsylvania’s abandoned or unproductive natural gas wells will finally be plugged after a new deal between the state and oil and gas industry. The PA Department of Environmental Protection will be outsourcing the task to oil and gas giant Diversified Gas & Oil.

The agreement between the DEP and Diversified is essentially a win-win for both parties involved and will result in at least 1,400 abandoned wells to be capped or restarted by the year 2034. Diversified was previously ordered by the DEP to plug 1,058 of their abandoned wells before 2024. The new terms give them a much longer time frame to complete the work and allow for the restarting of wells. However, the criteria for what constitutes an “abandoned” well have tightened. Under the legal definition, a well is considered abandoned if it produces less than 1 cubic foot of natural gas annually. Under the new agreement, that threshold is raised to 100,000 cubic feet of gas. Diversified will also be allowed to continue their purchasing of abandoned wells, but any new wells are subject to an even stricter threshold of 500,000 cubic feet per year.

In exchange, Diversified must secure a $7M performance bond for the project. What exactly is a performance bond? It is essentially an insurance policy that protects one party of an agreement if the other party does not perform the task agreed upon. In this case, if Diversified were to abandon their obligation per the agreement, the DEP would be entitled to the $7M. It is a way of protecting one entity of an agreement from a breach of contract by the other.

DEP officials have stated that this is the “largest performance bond [they’ve] secured in the oil and gas program”. In this case, it is a kind of private-public partnership that allows business to continue to operate in the state while alleviating Pennsylvania taxpayers from being stuck with the bill for plugging abandoned wells.