Financial assurance (“FA”) is a part of the permitting process that ensures that Minnesota’s taxpayers will not have to pay the cost of cleaning-up gas production sites or plugging abandoned gas wells if an operator fails to do so. An operator won’t be issued a gas resource development permit until they set aside enough funds to pay for both potential corrective actions during operation, and the full cost of reclamation and site closure. Oftentimes, an FA package is vetted not only by internal DNR staff but also by independent financial experts. These funds are held by the State for the duration of the project and would only be released once reclamation and well sealing activities are completed and the permit is closed.
Financial assurance requirements for other types of natural resource development projects in Minnesota have been established for decades by both statute and rule. The FA requirements for nonferrous mining (in particular) are well-established; familiar to lawmakers, regulators and industry; and court-tested. Those rules describe ways in which to estimate closure and postclosure maintenance activities; how to determine corrective action cost estimates; and how to manage financial assurance.
Nonferrous mining FA rules served as a model when DNR made recommendations on financial assurance for a temporary regulatory framework within the GTAC report. In doing so, DNR acknowledged that while the regulatory scope may be similar, the scale of required financial assurance amounts will likely be smaller for gas resource development, given the typically smaller footprints and potential environmental impacts of gas production. These considerations will carry over as DNR writes permanent rules for gas resource development financial assurance.
Minnesota’s financial assurance regulations for gas resource development will require cost estimates that reflect the full 100% cost for well plugging and site reclamation. This will be distinctly different than the financial assurance requirements of many other U.S. states that require a bond amount for an oil or gas well that is typically less than the full cost of plugging the well. The United States Geological Survey has a database with more than 100,000 documented unplugged and abandoned oil and gas wells in the country and DNR’s financial assurance rules for gas resource development will ensure that no gas wells in Minnesota will be added to that list.