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Vol. 15, No. 32 Week of August 08, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

Alaska’s beef with BLM

State accuses feds of drilling violations, mismanagement of legacy wells

Wesley Loy

For Petroleum News

Alaska regulators have accused the U.S. Bureau of Land Management of violating state well safety regulations on an exploratory drilling project near the remote North Slope village of Wainwright.

The case brings to a head months of simmering tensions between state and federal officials not only with respect to the Wainwright project, but also the BLM’s handling of dozens of old “legacy wells” on the North Slope.

The Alaska Oil and Gas Conservation Commission on June 22 hit the BLM with a “notice of violation,” saying the federal agency appeared to be in violation of state regulations in drilling wells without required safety equipment, and improperly securing suspended wells.

“BLM’s cavalier approach to well safety and regulatory compliance is unacceptable,” said the notice signed by Dan Seamount, a geologist and chairman of the three-member commission.

The Wainwright project is a joint effort involving the BLM, the U.S. Geological Survey, the North Slope Borough and Arctic Slope Regional Corp. The goal is to test a local coalbed as a potential source of natural gas to meet energy needs in the remote village of about 550 people on the Chukchi Sea coast. Nine wells have been drilled on the project since 2007.

The AOGCC has authority to regulate drilling statewide, whether on federal, state or private land.

‘Bad worms’

Petroleum News obtained letters, e-mails and other documents about the Wainwright conflict after filing a public records request with the AOGCC. The documents show the buildup toward the notice of violation, and include the BLM’s response.

On June 10, AOGCC senior petroleum engineer Guy Schwartz sent an e-mail to Cathy Foerster, an engineer and one of the three commissioners, and Jim Regg, a petroleum engineer and commission investigator.

Schwartz wrote that “according to” Art Clark, a USGS project leader on the Wainwright drilling, a rig safety device called a diverter wasn’t run on most of the wells, as the AOGCC had required.

A diverter, which sits atop the well, is designed to direct any unexpected release of dangerous hydrocarbons safely away from the rig work area. Diverters, like blowout preventers, are a last line of defense for drillers to control an unruly well.

Schwartz also wrote that “wells have been left open ended to the world over the winter … the PVC pipe is basically sticking out of the ground with no covering at all.”

He concluded his e-mail: “A can of very bad worms for sure.”

In the June 22 notice of violation, Seamount said it appeared seven wells were drilled without the required diverter, that is, “without any secondary well control equipment.”

The notice further said an AOGCC inspector, on June 10, saw two Wainwright wellbores that were “open to the atmosphere with no mechanical or cement plugs within the wells” to secure them pending abandonment. A project representative, however, said the wells had ice plugs in them about 600 feet down.

The inspector also noted a lack of markers to identify specific wells, and copies of certain permits weren’t on-site in violation of state regulations.

The notice gave BLM two weeks to provide the commission with “an explanation of the violations.” It didn’t specify any potential fine or other penalty.

‘Egregious mischaracterization’

On June 25, Greg Noble, energy section chief in the BLM Alaska office, sent an e-mail to Seamount and Foerster about the notice of violation.

“It is apparent from the letter that the Commission is not in possession of all the facts regarding the operation at Wainwright,” Noble wrote. He noted the USGS, not the BLM, was the well operator, adding “your accusation that BLM has a cavalier approach to well safety and regulatory compliance is an egregious mischaracterization of both the BLM’s and USGS’s conduct of operations and comes as yet another surprising blindside.”

Noble proposed a meeting including himself, Clark of the USGS, and the two commissioners.

Foerster replied in an e-mail: “Greg, Since we have issued a notice of violation and are considering enforcement action, the only way that any of the commissioners can meet with you is if we first publicly notice the meeting. If that’s agreeable, let me know and I’ll ask … to docket something. Please note that we must give at least 30 days notice of any public meeting. Cathy.”

On July 1, Clark e-mailed Schwartz, the AOGCC petroleum engineer: “For your information: I mispoke when I told you we didn’t drill the various Wainwright wells with the diverter head installed — we did. I forgot that we routinely used it as the mud diverter on the wells, therefore it was always installed. My mistake.”

Schwartz replied: “Art, Interesting … I was looking in the well records to try and track down the specs on the Diverter you guys used. Was it rented or does USGS own the diverter?? If you rented it could you forward me the rental company where you got it. I can get the info from them hopefully. Thanks.”

‘A misunderstanding’

On July 7, Julia Dougan, the BLM’s acting state director for Alaska, sent a two-page reply letter to Seamount answering the notice of violation.

The well operator, she said, stated the wells were drilled in compliance with the AOGCC’s June 6, 2008, conservation order No. 604, which said in the findings section: “USGS plans to use a rotating drill head, which seals around the drill stem and directs the annular mudflow to the pits. If gas is encountered, the rotating drill head functions as a diverter.”

Dougan wrote that “the diverter head was used for each well in question,” and added: “The operator’s discussions with AOGCC inspectors concerning the necessity of a diverter for plugging and abandonment operations at these wells may have created a misunderstanding.”

As for the allegation that two wellbores were open to the atmosphere without a downhole plug, Dougan wrote: “This is correct as these wells were being used as monitoring wells.” She said four other wells also were left open.

“The BLM plans to plug these wells this August and will fully comply” with AOGCC requirements, Dougan said.

Regarding well markers, she wrote: “As verified by the operator each protective well enclosure has the USGS designation number clearly welded to its lid.” But the information on the existing markers doesn’t conform to AOGCC regulations, Dougan said.

The BLM “will insure that their operator conforms to the requirements … and correct markers will be put in place during plugging operations,” she wrote.

Dougan also conceded that copies of permits were not on-site. “All copies are now on location,” she said.

Dougan’s response was less than satisfying to the AOGCC, which stayed on the offensive with new demands and deadlines.

“BLM now states a diverter was used on all the wells and that the earlier statements were the result of a ‘misunderstanding,’” wrote chairman Seamount in a July 28 letter back to Dougan. “BLM is requested to provide the Commission the current location of the diverter … and all documentation concerning or referencing transportation of the diverter since its use in the drilling operations.”

Seamount continued: “As to wellbores open to the atmosphere and the absence of proper well markers, BLM concedes these violations but advises that it will properly mark, plug and abandon all such wells in August. Based upon BLM’s representations, the Commission will defer further action on these violations. BLM must complete the proper plug and abandonment — consistent with Commission requirements — no later than August 31, 2010. BLM should contact the Commission to arrange a time that Commission staff can inspect all such wells.”

Seamount also directed the BLM to submit well completion reports on each abandoned well, concluding: “Failure to provide all of the information requested herein by September 30, 2010 constitutes an additional violation of the Commission’s regulations.”

Conflict over legacy wells

Apart from the Wainwright flare-up, the AOGCC also has been out of sorts over BLM’s management of dozens of old wells primarily in the National Petroleum Reserve-Alaska. The Navy, the USGS and their contractor, Husky Oil, drilled numerous holes between 1944 and 1982.

Petroleum News requested and received correspondence between the AOGCC and the BLM on the legacy well issue.

In January 2009, Foerster and the AOGCC began pressing for a status report on the old wells — where they suspended, shut-in or what?

In a Dec. 15, 2009, letter to the BLM’s Noble, Foerster said AOGCC records showed “many BLM-managed wells” had never been plugged and abandoned in conformance with AOGCC regulations. She asked the BLM to submit its plans for 45 wells, including a timetable.

“The BLM has, at enormous expense, plugged thirteen legacy wells over the last seven winter seasons, including the Drew Point No. 1 well that we are currently plugging,” Noble wrote back to Foerster on March 3.

Noble went on to say that the wells Foerster had inquired about “have all been determined to pose no risk or cannot be located.” The plan, he said, was to keep the wells under observation, making sure they posed no risk with changing conditions. Plugging the wells could wait until the oil industry expands closer to them, greatly reducing the cost of accessing the very remote sites.

On March 17, Foerster replied to Noble that his contention the wells posed no risk was “problematic.”

“By definition any well not in compliance with AOGCC regulations poses a risk” to human health and the environment, she wrote.

“The fact that BLM ‘lost’ several wells under its authority calls into question the veracity of, and basis for, BLM’s assertion that the other wells have been ‘determined to pose no risk,’” Foerster said.

A 2004 BLM report featuring pictures of legacy well sites “littered with rotting lumber, rusting metal drums and pooling liquid waste” underscores the “dubious validity” of the federal agency’s position, she said.

If the BLM failed to comply with state regulations, the AOGCC would pursue other avenues such as bringing the Environmental Protection Agency into the matter or taking legal action, Foerster wrote.

BLM’s olive branch

Noble, in a March 22 e-mail to the AOGCC’s Regg, wrote he was “a little taken aback by the tone” of Foerster’s March 17 letter. He noted the BLM had spent $54 million plugging the 13 legacy wells, and asked Regg for help finding pertinent state regulations.

On April 7, Regg e-mailed Noble back, saying: “BLM’s non-compliance with AOGCC regulations has been a problem for years.” He added: “BLM has suggested the AOGCC should hold it to a different standard than other operators. …” Regg copied an EPA official and Pat Pourchot, the Interior secretary’s special assistant for Alaska affairs, on the e-mail.

On May 14, the BLM’s Dougan wrote Foerster saying the “lost” wells were shallow, uncased well borings the Navy conducted 60 years ago, and with freezing and thawing the borings “have decayed and blended in with the surrounding environment.”

BLM monitoring led the agency to seek emergency funding about five years ago to plug and abandon the J.W. Dalton well, which was under threat from Beaufort Sea coastal erosion, Dougan said.

She extended an olive branch, inviting an AOGCC inspector to accompany BLM staff on a planned visit to all the legacy well sites.

“What we want to do, and continue to do, is work with the AOGCC to resolve some of these issues,” Wayne Svejnoha, BLM Alaska’s branch chief of energy and minerals, told Petroleum News in an Aug. 4 interview.

But the conflict over the legacy wells appears far from resolved.

On July 27, all three AOGCC commissioners including Seamount, Foerster and John Norman signed a letter to the Alaska congressional delegation urging them to oppose a piece of pending legislation, H.R. 5626, the Blowout Prevention Act of 2010. The bill, offered in the wake of the catastrophic BP oil spill, contains controversial language that could make state regulation of drilling subject to federal oversight.

The letter said it’s “simply ludicrous” to suggest the federal government can do a better job of regulating oil and gas drilling than the states, noting that “the only entity which has had difficulty complying with Alaska’s regulations” is a federal agency, the BLM.

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