Will the Public End up Paying to Clean up the Fracking Boom?

By Justin Mikulka, a freelance writer, audio and video producer living in Trumansburg, NY. Originally published at DeSmog Blog

Increasingly, U.S. shale firms appear unable to pay back investors for the money borrowed to fuel the last decade of the fracking boom. In a similar vein, those companies also seem poised to stiff the public on cleanup costs for abandoned oil and gas wells once the producers have moved on.

“It’s starting to become out of control, and we want to rein this in,” Bruce Hicks, Assistant Director of the North Dakota Oil and Gas Division, said in August about companies abandoning oil and gas wells. If North Dakota’s regulators, some of the most industry-friendly in the country, are sounding the alarm, then that doesn’t bode well for the rest of the nation.

In fact, officials in North Dakota are using Pennsylvania as an example of what they want to avoid when it comes to abandoned wells, and with good reason.

The first oil well drilled in America was in Pennsylvania in 1859, and the oil and gas industry has been drilling — and abandoning — wells there ever since. Pennsylvania’s Department of Environmental Protection (DEP) says that while it only has documentation of 8,000 orphaned and abandoned wells, it estimates the state actually has over a half million.

“We anticipate as many as 560,000 are in existence that we just don’t know of yet,” DEP spokesperson Laura Fraley told StateImpact Pennsylvania. “There’s no responsible party and so it’s on state government to pay to have those potential environmental and public health hazards remediated.”

According to StateImpact, “The state considers any well that doesn’t produce oil and gas for a calendar year to be an abandoned well.”

That first oil well drilled in Pennsylvania was 70 feet deep. Modern fracked wells, however, can be well over 10,000 feet in total length (most new fracked wells are drilled vertically to a depth where they turn horizontal to fracture the shale that contains the oil and gas). Because the longer the total length of the well, the more it costs to clean up, the funding required to properly clean up and cap wells has grown as drillers have continued to use new technologies to greatly extend well lengths. Evidence from the federal government points to the potential for these costs being shifted to the tax-paying public.

The Government Accountability Office (GAO) released a report this September about the risks from insufficient bonds to reclaim wells on public lands. It said, “the bonds operators provide as insurance are often not enough to cover the costs of this cleanup.” The report cited a Bureau of Land Management (BLM) official’s estimate of $10 a foot for well cleanup costs.

StateImpact Pennsylvania noted that costs to reclaim a well could add up to $20,000, and DEPspokesperson Fraley said they could be “much, much higher.” The GAO report noted that “low-cost wells typically cost about $20,000 to reclaim, and high-cost wells typically cost about $145,000 to reclaim.”

In North Dakota, where state regulators have raised concerns about this growing problem, one of the top industry regulators, State Mineral Resources Director Lynn Helms, estimated that wells there cost $150,000 to plug and reclaim.

And this problem isn’t just in the U.S. Canada is facing a similar cleanup crisis.

Financial Bonding Requirements for Well Cleanup

Legally, oil and gas companies are required to set aside money to pay for well cleanup costs, a process known as bonding. These requirements vary by state and for public lands, but in all cases, the amounts required are so small as to be practically irrelevant.

The GAO report reviewed the bonds held by the Bureau of Land Management for wells on public lands and found that the average bond per well in 2018 was worth $2,122.

The Western Organization of Resource Councils summarized bonding requirements by state, and none of them came even close to being adequate to cover estimated costs to deal with old wells. In North Dakota, a $50,000 bond is required for a well. But a $100,000 bond can cover up to 6 wells, which comes out to $16,667 per well — or approximately one tenth of the estimated cost to reclaim a well in that state.

North Dakota has a history of bending to oil and gas industry pressure when it comes to regulations. While North Dakota’s bonding rules fall far short of what’s needed to actually cover full cleanup costs, the reality on the ground is much worse. Regulators allow companies to “temporarily abandon” wells, which requires no action from companies for at least seven years. Wells can hold this “temporary status” for decades. And another practice in the state allows a company to sell old, under-performing wells to another company, passing along the liability but not the bonding funds.

By any measure, the amount of private money currently allocated in the U.S. to plug and reclaim oil and gas wells is a small fraction of the real costs. That means oil and gas wells — and the U.S. had one million active wells in 2017, and even more abandoned — will either be left to fail and potentially contaminate the surrounding water, air, and soil, or the public will have to pick up the tab. This represents just one of the many ways the public subsidizes the oil and gas industry.

A South Dakota Case Study

South Dakota allows companies to post a $30,000 bond for as many wells as the company chooses to drill. Spyglass Cedar Creek is a Texas-based company that was operating in South Dakota and recently abandoned 40 wells, which the state has estimated will have a cleanup cost of $1.2 million.

However, there is a twist to this story. That $30,000 bond doesn’t really exist. The owners of the company had put $20,000 of it into a Certificate of Deposit. But when the state went looking for that money, the owners said they had cashed it in 2015 because, as reported by the Rapid City Journal, “company officials did not remember what the money was for.”

Spyglass Cedar Creek does not have the money set aside that was required to clean up these wells, the state does not have recourse to get that money, and some of the wells are reportedly leaking. So, what can be done?

According to Doyle Karpen, member of the South Dakota Board of Minerals and Environment, the answer is for the taxpayers of that state to cover the cost.

I think the only way we can correct this is go to the Legislature and ask for money,” Karpen said earlier this year.

Following the Coal Industry Business Model

What is starting to unfold with the oil and gas industry is very similar to what has already been playing out with the U.S. coal industry.

According to a Center for Public Integrity investigation, more than 150 coal mines (and dozens of uranium mines) have been allowed to idle indefinitely, enabling their owners to avoid paying for the costs of cleanup.

In April, the Stanford Law Review published the paper, “Bankruptcy as Bailout: Coal Company Insolvency and the Erosion of Federal Law,” which notes that almost half the coal mined in the U.S. is done so by companies that have recently declared bankruptcy.

The paper notes how the bankruptcy process is used by coal companies to rid themselves of environmental cleanup liabilities and pension costs “in a manner that has eviscerated the regulatory schemes that gave rise to those obligations.”

Yet coal company executives often receive healthy bonuses, even as they are driving companies into bankruptcy.

This summer, Blackjewel famously failed to pay its coal miners, and even pulled funds out of their bank accounts, after the company suddenly declared bankruptcy in July. That prompted workers to sit on train tracks in Kentucky, blocking a $1 million shipment of coal, in a two-month protest. And Blackjewel is poised to leave behind thousands of acres of mined land in Appalachia without adequate reclamation.

Privatize the Profits, Socialize the Losses

The mineral extraction business model in the U.S. is set up to maximize profits for executives, even as they lose investor money and bankrupt their companies. That is true of the coal industry and that is true of the shale oil and gas industry.

At the same time, the regulatory capture by these industries at both state and federal levels allows private companies to pass on environmental cleanup costs to the public, and the inadequate bonding system for oil and gas well reclamation represents just one more example.

The so-called fracking revolution in America has resulted in many new records: record amounts of U.S. oil and gas exported (to the detriment of a livable climate), new levels of human health impacts on surrounding communities, record numbers of industry-induced earthquakes, record amounts of flaring natural gas in oil and gas fields, and record-breaking depths and lengths of wells.

And the cleanup costs for the fracking boom are also poised to be staggering.

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41 comments

  1. jackiebass

    The answer to the question posed is yes. History confirms this. Present laws allow companies to get away with this. I don’t see this changing in the future.

    Reply
    1. Phacops

      Socializing the cost of cleanup/decommissioning was one of the reasons the people in our township fought, and won, to stop Duke Energy’s wind power project which would have put a few hundred industrial turbines over three townships.

      I was offered a contract and it was truly toxic. Duke would not have been required to fund decommissioning until 20 years into what is a 25 year lifespan for the generators and that bond would have been held in Duke’s accounts. Duke could have merely walked away before 20 years leaving a liability for any landowner. My expectation would be a $250,000 escrow for each tower/generator and held by the landowner so that Duke would have no access to it until decommissioning.

      Reply
      1. Olga

        My reaction to seeing the headline was “is the Pope Catholic?”
        Of course, the public will pay. Texas govt already pays to cap abandoned wells.
        As for decommissioning costs, utilities typically keep decom accounts, and include the costs of decom in their revenue requirement, when coming in for a rate case. The money should be there, when needed. (Of course, anything can happen – but if that were the case, we’ll have bigger things to worry about than the decommissioning of wind turbines.)

        Reply
          1. drumlin woodchuckles

            Rich Texans like small government when they can profit from governmental smallness.
            Rich Texans like big government when they can profit from governmental bigness. If Rich Texans can make the Texas government pay bigly for capping abandoned privately profitable frack well, such Texas big government payments to cap the abandoned wells just make the Rich Texans richer by relieving them of paying themselves for the costs they themselves caused by fracking those wells.

            Reply
        1. Nakheed

          There are several opportunities for enhancing the public good in this process.

          There are superfund sites in every state, allowing all Americans equal opportunities to contribute to the health of Earth. Moreover:

          The Superfund law also authorizes … Native American tribes to recover natural resource damages caused by hazardous substances

          What can Congress do?

          Easy.

          1. Increase the EPA budget tenfold or more for cleanup, adding fracksites to the superfund list. This will provide much-needed jobs for millions of Americans as they help in greening Earth.

          2. Require that Native American tribes get busy recovering natural resource damages. If they refuse, this would provide a much-needed opportunity to establish military bases on reservations to quell rebellions against superfund cleanup.

          3. Some alarmists have alleged that cleanup of toxic superfund sites can pose health risks, which is a well-known talking point of enemies of Earth. Even so, Congress can require healthcare providers to deliver all necessary treatments to superfund workers in order to assuage any concerns of the workforce.

          4. Congress can relax labor laws so that undocumented migrants and their children are allowed to participate in healing Earth by joining the superfund cleanup workforce.

          These measures will ensure Full Employment, Earthhealth, Native Pacification, and Demographic Diversity throughout the nation.

          Reply
          1. JBird4049

            >>>Require that N<ative American tribes get busy recovering natural resource damages. If they refuse, this would provide a much-needed opportunity to establish military bases on reservations to quell rebellions against superfund cleanup.<<<

            It has been a decade since I have done any research, but that said, requiring the destitute to demand that they somehow get the money needed to get recompense from the Feds and corporations is silly. Many tribes are dirt poor and others are marginal, even though many nations have been trying for decades, perhaps longer than anyone alive, to get the payments owned from the mineral and oil extraction from their lands. Records and payments that the federal government are supposed to manage, but never have. Records go missing, the decision making process is obfuscated, and billions have gone missing.

            One of the big reasons I just loathe Identity Politics, victim blaming, and other current dodges is that the current political establishment and all their little minions in social media and nonprofits pay no mind to the continuing financial, political, legal and social rape, impoverishment, and degradation of millions of Americans have and do endure is just…ignored. Although Standing Rock was a nice blip. At least the Disposables are worthy of conscious contempt. The Indians are sent to oblivion where they can go finish dying.

            Reply
  2. HotFlash

    Well, yes and no. Yes, the public will pay for any ‘cleanup’ that is actually done (ie, YOOGE dollars to ‘remediation’ companies), but really, my bet is that most of these orphan wells and mines will just be left as they are.

    Reply
    1. xkeyscored

      Exactly what I was about to say. The wells will leak their toxins, the rich will escape to some idyllic bunker, while the poor are offered oxycodone or fentanyl to alleviate their suffering.

      Reply
    2. JTMcPhee

      Just like the zillions of abandoned coal and metal mines, those other gifts from the fossil fuel “industrial revolution.”

      Reply
    3. rjs

      Cleveland is an example…not one of the dying industries that once flourished here cleaned up after themselves before they shut down…most of the former degraded sites don’t rise to the level of a superfund problem, but they are virtually irredeemable nonetheless…

      Reply
  3. Peter

    do not know how the figure for abandoned well cleanup is derived. In Canada, estimates by the industry friendly Fraser Institute and the CD Howe Institute claim those figures:

    C.D. Howe estimates there are more than 155,000 wells with no economic potential that must be reclaimed, with cleanup costs for an orphan well ranging from $129 million to $257 million, with a total provincial cleanup bill of $8 billion. Glen cites a far higher estimate from the Orphan Well Association—$47 billion.

    And the problems regarding financing are the same as in the USA – although the Supreme Court of Canada has ruled in favour of clean-up cost coverage before debtor payout:

    Glen quotes Daryl Bennett of My Landman Group who observes that not only are the funds on deposit insufficient, but “the cost to reclaim all these assets is now far higher than the value of those assets.” With the oil and gas sector unable to shoulder these costs, the costs look likely to land in two places—the pockets of landowners with land dotted with abandoned wells, and the taxpayers who will pay those landowners to ensure the land is kept in productive use.

    https://www.fraserinstitute.org/article/albertas-abandoned-wells-need-tending

    Energy companies must fulfil their environmental obligations before paying back creditors in the case of insolvency or bankruptcy, Canada’s Supreme Court has ruled.

    The top court’s ruling released Thursday overturns two lower court decisions that said bankruptcy law has paramountcy over provincial environmental responsibilities in the case of Redwater Energy, which became insolvent in 2015. That meant energy companies could first pay back creditors before cleaning up old wells. In practical terms, that means energy companies could walk away from old oil and gas wells, leaving them someone else’s responsibility.

    https://www.cbc.ca/news/business/supreme-court-redwater-decision-orphan-wells-1.4998995

    Reply
  4. Karma Fubar

    I live in the hills of SE Ohio. Gas is everywhere down here, but (fortunately) not in the commercial quantities needed for major fracking operations. Small gas wells dot the landscape. Due to the crash and the oversupply of the fracking boom, gas prices fetch a small fraction (about 20%) of their previous peak. No new wells have been placed in years.

    A neighbor of mine has a has well that has ceased commercial operation. He still gets free gas from it as per the lease agreement, but the small local gas company no longer wants to pay to maintain and operate it, as in no longer yields any appreciable commercial output. The gas company initially said that they would sell him the well for $7,000, and he agreed (verbally, I believe) to that price. The gas company then said it wasn’t even worth that, and would just give him the well.

    It struck me as decidedly odd that a business, which by all accounts is cash-strapped and barely getting by, would voluntarily forgo any amount of money. It makes me think that there must be certain laws and regulations that apply to a commercial transaction that do not apply to what is in effect a donation.

    Does anyone know if there are reasons why someone would give away as opposed to sell an asset, particularly one that has clear and significant liabilities and/or associated cleanup expenses? I know that the landowner should be responsible for cleanup and capping costs whether they bought for money or were given the gas well for free, but does the gas company get out of something by giving as opposed to selling the asset? They certainly did not do it out of the kindness of their hearts; they hate that landowner. He opened up a business and a commercial kitchen and hooked it to his gas well, which was almost certainly responsible for its commercial depletion.

    Reply
    1. Rod

      Can’t give you that answer but have a similar observation. My homeplace is just up the road a bit–bought sans Mineral Rights in the 1960’s–and had a well placed just off the property line on a pad located in the swamp/drainage next door in 1981.
      We got no free gas–but hundreds in the Township couldn’t resist. Too good to be true. Lots of wells installed–with FREE GAS and a Royalty Check which helped many heat through winter and constant Lay-offs in that churning, rust-belting economy of late 80’s and 90’s
      It was a 90 day drill–24/7, then pumped with an electric skip jack until early 2000s when production petered out.
      Still idled–however that swampland finally sold 2 months ago–and Seller was insistent that well ownership transferred with the sale. No transfer–No Sale. There was a token of 1,000$ for the well included in the Land Price. The five adjoining landowners (all No Mineral Rights and 2 with located wells) all looked at purchase and walked away–partly because of the Lay(2 of 7 acres high ground) but all because you had to take the “dead well” with the land.
      Locals thought that was just plain “fishy” about something.
      Ohio EPA isn’t very effective–note the Mud Spill at the Tuscarawas R–and as more and more well plays are petering out and Service Co.’s going out of business concern IS rising among landowners.

      I won’t say my Homesteads neighbors are environmentalists as much as PO’d that the access roads have not been graded and graveled and that inconsistent gas flows are causing them to go Propane

      Reply
    2. Oregoncharles

      It might come under Real Estate full disclosure laws, which require a seller to notify buyers of any liabilities – like the cost of closing and cleanup of a well. Might not apply to a “gift.”

      If course, if the owner keeps it operating for their own use, they don’t have to cap and restore it – but it will run out some day.

      Reply
    1. Rodger Malcolm Mitchell

      Not well understood is the fact that:
      State taxpayers fund state spending, and
      County taxpayers fund county spending, and
      City taxpayers fund city spending, but
      Federal taxpayers do not fund federal spending.

      The federal government neither needs nor uses tax income for anything. In fact, federal taxes are destroyed upon receipt.

      The federal government, being Monetarily Sovereign, creates brand new dollars, ad hoc, by spending.

      Thus, all the federal spending to remediate any polluted sites in America add dollars to the economy, and thereby benefit taxpayers.

      Reply
      1. JTMcPhee

        Benefits natural-person taxpayers just how? By underwriting the looting behaviors of corporations and their executives, sparing them from having to internalize the “costs” that leavings from industry impose on “neighbors” and all the natural persons, and nature, downwind and downstream and living next to those industrial and extractive spots? Not much healthy incentive or public benefit in that formulation.

        The federal “Superfund” was funded by a tax on feedstock chemicals, and “responsible parties” that caused or contributed to the release of hazardous substances, anyone related by contract to them, and site owners, were to pay all removal and remedial response costs. Why not that model, which sought to force the costs back into the calculus? And yes, the Superfund program had its share of problems, still does — contractor gold-plating, goldbricking, and fraud, corruption of the processes, and others, and of course the exemption of “petroleum products” from the definition of hazardous substances. But it did effect some significant changes, along with the federal Resource Conservation and Recovery Act, in generation and disposal of hazardous substances.

        It’s a model to maybe work from, at least.

        Reply
    2. rd

      Its pretty simple. Most governments have been collecting royalties on the extracted oil and gas. They can just repurpose that past and future money to cleanup. The politicians said it would pay for schools and firemen but future politicians will likely need to repurpose money. At least Superfund exists, so there is a mechanism to do it.

      Reply
  5. Annieb

    In Colorado there are 60,000 active oil and gas wells and 20,000 that are abandoned. That count is from 2017. Several thousand more wells have been permitted and drilled since then.
    https://corising.org/colorado-map-oil-gas-wells/

    Not only will governments have to pay for remediation of some abandoned wells, the residents may pay with their health, even their lives. Methane leaks from abandoned gas wells are discovered now and then, as in Broomfield, CO in May, 2019.
    https://kdvr.com/2019/10/14/abandoned-oil-and-gas-well-in-broomfield-leaking-methane/

    In 2017, one such abandoned well in Firestone, CO caused an explosion killing two people.

    Colorado has an “Orphaned Well Program” that spent over 1.3 million in FY19.
    http://cogcc.state.co.us/documents/library/Technical/Orphan/Orphaned_Well_Program_FY2019_Annual_Report_20190830.pdf

    Reply
  6. Tomonthebeach

    A more-to-the-point question in response to this title is; When has Big Oil, Big Mineral, Big any natural resource exploiter ever paid to clean up their mess? The answer is only when there is a gun at its head and all the owners have not yet run off with their booty.

    Reply
    1. Janie

      Beulah, North Dakota, has a coal gasification plant, open for free public tours. It’s a closed loop – shallow strip mining on their property, has sold to a single nearby customer. The size of the equipment is mind-boggling. They are required to recontour the land to exact pre-mining measurements and to replace every shrub and tree. The reclaimed land looked lovely.

      As a passing tourist, I know nothing in depth, but I was impressed and see no reason why the same is not required of any resource extraction.

      Reply
  7. Leroy

    I think it’s time we take a long hard look at this country’s bankruptcy laws. For as long as I can remember, bankruptcy has been a “tool” of business to escape what is most often the responsibility of the business and/or business owner. See DJT et.al. The idea that a business like the ones in this article can declare bankruptcy , dump the debt owed to creditors, and continue to give huge bonuses to management members is foolish. When a business like the fracking industry operators can’t pay it’s debts, the doors should close, the assets sold and the creditors (in this case, the state involved) receive everything necessary to “clean up” the mess. Most cases involving fracking wells would need more in funds than the company has in assets. Bottom line, that’s it folks. The state gets it all (which will almost never be enough) and the folks go home, no bonus, no car, end of story. Many things would change in a system that does not allow the dumping of debt onto society so people who were very bad at running a business can continue to be rewarded. Just sayin………………..

    Reply
    1. rd

      In many cases, the state could impose a unit royalty dedicate to future clean-up. The royalties could go into a dedicated trust fund. The cash flow of producing wells would set aside the means to cleanup many wells.

      Reply
  8. Rodger Malcolm Mitchell

    If by “the public,” the author is referring to federal taxpayers, the answer is, “NO.” Not well understood is the fact that:
    State taxpayers fund state spending, and
    County taxpayers fund county spending, and
    City taxpayers fund city spending, but
    Federal taxpayers do not fund federal spending.

    The federal government neither needs nor uses tax income for anything. In fact, federal taxes are destroyed upon receipt.

    The federal government, being Monetarily Sovereign, creates brand new dollars, ad hoc, by spending.

    Thus, all the federal spending to remediate any polluted sites in America add dollars to the economy, and thereby benefit taxpayers.

    Reply
  9. barrisj

    But, but, but…we are “energy-independent!”. Surely a small price to pay for massive environmental despoliation in the era of late-capitalism, where “externalities” are booked on the public ledger.

    Reply
    1. Tony Wright

      Yes, so Dubya invades Iraq to make sure the supply of black gold to the US is not interrupted (and hey Dad – look, we got Saddam….), then the pendulum swings and Obama mostly pulls out of the ME and ” encourages” fracking to get domestic oil security. In the meantime the political vacuum caused allows the rise of ISIS, so Syria is destroyed and millions of refugees overwhelm Jordan, Turkey and Europe. Then along comes Trump and doubles down, allowing the Saudis to commit unfettered genocide in Yemen (with a nice little side in US arms sales), and now the Turks to indulge in a bit of “ethnic cleansing” of their Kurds – you know that mob who have fighting for a bit of their own country for a hundred years since they were unfortunately overlooked when the British and French divided up the Middle East.
      We all really need to get off this addiction to fossil fuels ASAP and convert to electric cars and road transport and household and industry power derived from solar, wind and hydro electricity.
      It is not just climate change which is the ” collateral damage” of fossil fuel use.
      And in my country we have to do the same, and STOP MINING F…….. COAL and allowing new coal mines to be run by environmental vandals like Adani. AAAAAAAGH!

      Reply
      1. Skip Intro

        Obama pulled out of the ME? I must missed that during the US invasion/occupation of parts of Syria as part of its illegal regime change war, that provided safe haven for jihadists and ISIS in Syria…

        Reply
        1. Tony Wright

          Skip-As I read it Obama pulled many, but not all obviously ,of the troops from Afghanistan and Iraq, – and was widely criticised for doing so “prematurely” by the media and commentariat.
          Mind you, that could have been just ” fake news”…….

          Reply
      2. xkeyscored

        along comes Trump and doubles down, allowing the Saudis to commit unfettered genocide in Yemen
        Trump inherited that from Obama.

        Reply
  10. stan6565

    Of course that the Public will pay for the environmental cleanup of the pollution of dead fracking wells. Just as they will pay for dead oil platforms in high seas, or “decommissioning“ of spent nuclear fuel (when someone figures out how that’s done), or underfunded pension plans or any other such scam that was advertised as doing something for greater good but which always was, and always will be, extraction of something out of presumed public ownership (earth) for benefit of those who figured out what to extract. Bottled water comes to mind too.

    How will public pay? Entropy, of course. No need to involve printed papers masquerading as “money”. Public will simply work harder and harder, but will have less and less of everything, firstly less hospitals and schools, then less police and firefighters, then less judiciary and then less water, less food and less air suitable for breathing.

    The sad part is, we taxpayers, continue to live in an imaginary world where we expect that “government” will do “something for us, the people”. Governments do not look at it that way. “Governments” are just an extraction apparatus, by which those that can extract, extract, and those that cannot, provide the extracted material.

    I looked at governments and economical systems all over the world and there is no exceptions to this. The conundrum is, what to do about it and how?

    Reply
    1. stan6565

      I apologise to the commentariat but I simply must enclose two links to my favourite brain washing outlet, BBC, here in UK. While our parliament continues to work for everyone else but the British People, the Big Brother outfit goes on to disseminate dross like this:

      https://www.bbc.co.uk/news/business-50116368

      And then, they provide a link explaining to the gullible why they should be eating this sh1t, hook, line and sinker.

      This type of mind control exists everywhere, I have checked. USA, Norway, Philippines, whatever, you name it, it’s there.

      https://www.bbc.co.uk/news/help-41670342

      Reply

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