Vol. 25, No.43 Week of October 25, 2020
Providing coverage of Alaska and northern Canada's oil and gas industry

Some bonding reductions

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AOGCC to amend regulations, reducing some bond amounts, include some exemptions

Kristen Nelson

Petroleum News

The Alaska Oil and Gas Conservation Commission is proposing changes to its bonding regulations which would amend the permitted wellheads bond amount table and allow a reduction in the requisite bond amount if an operator has a bond in place with the landowner dedicated exclusively to plugging and abandonment.

The commission adopted new bonding requirements in May 2019 after a lengthy series of hearings, reflecting its concern that companies could abandon wells, leaving the landowner, typically the State of Alaska, to pick up the cost for plugging and abandonment.

Prior to May 2019, the commission’s bonding requirement to secure plugging and abandonment had been $100,000 for a single well and $200,000 for multiple wells. The May 2019 changes raised that to $400,000 for one to 10 permitted wellheads; $6 million for 11-40 wells; $10 million for 41-100 wells; $20 million for 101-1,000 wells; and $30 million for more than 1,000 wells.

The changes the commission is proposing are for 40 or fewer permitted wellheads.

For one to five wells, the new bonding requirement is $400,000 per well; for six to 20 wells, $2 million plus an additional $250,000 for each well above five; for 21 to 40 wells, $6 million.

Bonding amounts for more than 40 wells remain unchanged.

Increases adopted in 2019

The per-well impact of the increase in bonding which the commission adopted in May 2019 is greatest for operators with the fewest number of wells, and that continues to be true under the proposed changes.

With the proposed changes, the required bonding for an operator with one to five permitted wellheads continues to be $400,000 per well.

With six wells, at the $2 million plus $250,000 per well requirement, the average drops to $325,000 per well, and the average bonding for 20 permitted wells drops to $287,500 per well.

The original bonding requirement of $6 million for 11 to 40 wells averaged $545,455 for 11 wells, dropping to an average of $500,000 each for 12 wells and an average of $150,000 each for 40 wells.

Under the proposed change, which for 21-40 wells is $6 million, the required bonding averages $285,714 for 21 wells, dropping to $150,000 for 40 wells - the same average as the bonding amount for 40 wells as the 2019 regulations.

The bonding for more than 40 wells is unchanged: at $10 million for 41-100 wells, the bonding cost is an average of $243,902 each for 41 wells, dropping to an average of $100,000 per well for 100 wells.

The required $20 million in bonding for 101 to 1,000 wells averages $198,000 per well at 101 wells, dropping to $20,000 per well at 1,000 wells.

The $30 million in bonding required for more than 1,000 wells averages $29,970 per well for well number 1,001 and drops from there $15,000 per well at 2,000 wells.

Existing bonds

The commission’s bonding regulations say it may increase or decrease bonding based on engineering, geotechnical, environmental or location conditions which warrant adjustment.

It proposes to add two other conditions: “a bond and, if required, security that is exclusively dedicated to the plugging and abandonment of a well or wells” in place with the landowner or a bond or security in place with the U.S. Environmental Protection Agency which is dedicated to P&A of disposal wells.

These changes reflect decisions the commission made earlier in the year.

In responding to an appeal from AIX Energy for a reduction in bonding, the commission reduced required bonding based on a $950,000 certificate of deposit in place with the Mental Health Trust Land Office which is dedicated to P&A of AIX’s four wells.

The Trust Land Office is the landowner at the Kenai Loop field where AIX’s wells are located. In its AIX decision the commission denied the company’s request for a reduction in bonding based on a bond with the Alaska Department of Natural Resources for dismantlement, removal and restoration, saying the $500,000 DNR bond “is for the DR&R of the surface of DNR’s leases to a condition acceptable to DNR. No evidence was offered that any of that bond is irrevocably restricted to the costs to properly P&A AIX’s wells.”

In a decision reducing bonding required from Cook Inlet Energy the commission said that reduction was based on a $324,000 bond in place with the U.S. Environmental Protection Agency dedicated to P&A of two disposal wells.

Hearing scheduled

The commission is also extending the time for installment payments on increased bonding amounts from 4 years to 7 years.

A hearing is scheduled on the proposed changes for Nov. 4 at the commission’s Anchorage offices. The hearing is scheduled from 10 a.m. to 2 p.m. and may be extended to accommodate those present before 10:30 a.m. who did not have an opportunity to comment.

If COVID-19 necessitates that the hearing be held telephonically, phone lines will be available at 9:45 a.m., at 1-800-315-6338, code 14331.

Written comments may be submitted at the hearing; the commission will also accept written comments through Nov. 20 at 4:30 p.m., by mail, fax or electronic mail at [email protected]

The notice and proposed regulation changes are available at:

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