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Pa. agency orders Diversified units to plug abandoned wells, pay $7M surety bond

Diversified Gas & Oil PLC subsidiaries Diversified Gas & Oil Corp., Diversified Oil & Gas LLC and Alliance Petroleum Co. LLC reached a settlement with a Pennsylvania environmental regulator over oil and gas well plugging violations in 23 counties in the state.

The companies agreed with the Pennsylvania Department of Environmental Protection, or DEP, to plug or restore its nonproducing or abandoned wells in the counties within the next 15 years, according to a March 11 news release. The company has an option to restart production on the wells, as long as it maintains minimum production levels. The agreement may be extended for another five years, with additional bonding of $30,000 per well plugged during the extension.

"This agreement is a win for the commonwealth because it ensures that over 1,400 oil and gas wells are properly maintained or plugged and that these operators, not Pennsylvania citizens, bear the full cost of operating or plugging them," DEP Secretary Patrick McDonnell said.

Diversified agreed to a $7 million surety bond to cover plugging costs if the companies fail to meet their obligations. They are also required to pay an additional $20,000 to $30,000 bond for every abandoned or producing well acquired in the future. Compared to blanket bonding of $25,000 required by law to cover all of a conventional oil and gas operator's wells, amounting to about $2 per well, the DEP's agreement better reflects actual plugging costs that start at around $20,000 per well.

In July 2018, the DEP also ordered Diversified unit Alliance Petroleum Corp., XTO Energy Inc. and CNX Gas Co. LLC to plug 1,058 abandoned oil and gas wells across the state to comply with the Pennsylvania Oil and Gas Act. Abandoned wells are defined as wells that have "not been used to produce, extract or inject any gas, petroleum or other liquid within the preceding 12 months."