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Bond regs public comment period ends
AOGCC has finished accepting testimony on its proposed increase in surety bonding levels for oil and gas wells drilled in Alaska Alan Bailey Petroleum News
The public comment period came to an end on Nov. 27 for proposed changes to Alaska Oil and Gas Conservation Commission regulations for the surety bonding of oil and gas wells in Alaska. The purpose of the bonding, which has to be obtained by a well operator, is to ensure the availability of adequate funding for the plugging and abandonment of obsolete wells - a well that has not been appropriately plugged can become an environmental and safety hazard.
AOGCC concerns For some time the commission has been concerned that current bonding levels in Alaska are inadequate and fall far short of the realistic cost of plugging and abandonment operations. Should a well operator fail to have the financial wherewithal to seal off its wells, the plugging and abandonment costs would revert to the landowner, in many cases the state of Alaska.
State statutes require bonding of not less than $100,000 for a single well and not less than $200,000 for blanket coverage of all of an operator’s wells in the state. And traditionally the commission has only required bonding at these minimum levels, other than in situations where there have been regulatory violations. The commission now wants to set higher target bonding levels by regulation, presumably to provide some clarity over bonding expectations.
The commission has gone through three versions of potential new regulations. The latest proposal sets a minimum bond level of $400,000 per well for one to 10 wells; a $6 million bond for 11 to 40 wells; a $10 million bond for 41 to 100 wells; a $20 million bond for 100 to 1,000 wells; and a $30 million bond for more than 1,000 wells. However, the regulations would give the commission flexibility to set different bonding levels in specific situations, if the circumstances surrounding a well warrant some bonding variance.
Impact on small operators Small oil and gas producers in the state are particularly concerned about the AOGCC proposals: Obtaining a large bond may prove difficult or impossible for a company with relatively small financial resources. Thus, setting high bond rates may, in effect, preclude some small companies from developing Alaska oil and gas resources. Some commenters have also said that there is overlap between AOGCC bonding requirements and landowner requirements for bonding and financial assurance.
Supporters of AOGCC’s proposals argue for the importance of ensuring that a company drilling a well has the financial wherewithal to eventually close the well down in an adequate manner.
During a public hearing on Nov. 27, shortly before the close of public comments, Peter Caltagirone, regulatory and legal affairs manager for the Alaska Oil and Gas Association, re-iterated AOGA’s concerns about potential impacts on small producers.
“The second set of revisions (to regulations) proposed by AOGCC further discourages new investment in our state and disproportionately affects small producers,” Caltagirone said. “The cost of bonding per well has increased significantly from the first set of proposed revisions to the second set.”
AOGA is also arguing for a more integrated approach to well bonding, taking into consideration, for example, financial assurance agreements between well operators and the Alaska Department of Natural Resources for the dismantlement of surface facilities and the restoration of land impacted by defunct oil and gas operations.
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