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AOGCC denies reconsideration; ACC challenging constitutionality
Kristen Nelson Petroleum News
The Alaska Oil and Gas Conservation has denied a request for reconsideration of its new bonding requirements by Alaskan Crude Corp.
ACC is challenging the constitutionality of the increase in bonding amounts as well as what it argues are regulations exceeding AOGCC’s statutory authority.
In an Oct. 15 decision the commission upheld a $1.2 million bonding requirement for the company.
ACC is operator of record for three wells; it has a $200,000 AOGCC bond in place, and the remaining $1 million is due in two annual $500,000 payments.
This is the final AOGCC order on the matter. ACC has 30 days to appeal the commission’s order to Alaska Superior Court.
Revised bonding The commission revised its bonding requirements for plugging and abandoning wells in May 2019 and advised existing operators of record of additional bonding amounts required under the new regulations.
Alaskan Crude Corp., the operator of record for the Burglin 33-1, Katalla KS-01 and Mike Pelch 1 wells, was advised by the commission that its existing $200,000 statewide P&A bond was being increased to $1.2 million ($400,000 per well), with the additional $1 million due in two annual $500,000 installments.
Alaskan Crude’s attorney James B. Gottstein requested reconsideration in a July 25, 2019, letter, objecting to the increase.
He told the commission it was not legal under the Alaska Constitution “to increase the bonding/security requirements for existing permit holders,” calling the increased bonding an illegal ex post facto law as applied to the three existing wells.
“Second,” Gottstein said, “the new regulations go beyond the scope of the authorizing statute.”
The commission’s statutory authority, he said, quoting statute, allows it to require “the furnishing of a reasonable bond with sufficient surety conditions for the performance of the duty to plug each dry or abandoned well or the repair of wells causing waste.”
The new regulation, he said, quoting the commission’s regulations, requires “security to ensure that each well is drilled, operated, maintained, repaired, and abandoned and each location is cleared in accordance with this chapter.”
“It is apparent the new regulations go far beyond the statutory authority of allowing bonds to be required to ‘plug each dry or abandoned well or the repair of wells causing waste,’” Gottstein said.
January hearing In a Jan. 22, 2020, letter to the commission - the day prior to a Jan. 23 reconsideration hearing - Gottstein reiterated the ex post facto argument from his July 23, 2019, letter, as well as the assertion that the new regulations exceed the agency’s statutory authority.
At the Jan. 23 hearing, Gottstein told the commissioners there is another problem: you can’t, he said, really tell what the new regulation means.
Referring to the language of the new regulations, he asked if the bond providing security to ensure that wells are drilled, operated, maintained in accordance with the regulations means that any deviation would result in the bond being seized? He noted that the commission’s regulations require that every well must have a sign identifying it in a conspicuous place - if that is violated, would be bond be seized, he asked?
What does it mean that the well must be operated in accordance with the commission’s regulations - does any deviation trigger a seizure of the bond, he asked.
Future plans for wells At the Jan. 23 hearing the commission asked the company to provide future plans for the three wells.
Gottstein said in a Feb. 19 letter that the Burglin well is on a Department of Natural Resources lease, ADL 318613, which was terminated in 1990. He said the Burglin well then became property of DNR and Alaskan Crude had no more responsibility.
He said that while the commission’s regulations provide that someone having the right to drill and produce oil and gas must P&A wells before expiration of rights in the property, “it does not appear the Commission had the authority to promulgate such a regulation.”
He said the Burglin “well is a valuable DNR asset and it is believed was a significant factor in DNR’s ability to lease the property at least twice since ADL 318613 expired. Alaskan Crude does not believe it has authority to enter on the property to plug the well, in any event,” he said. “To my knowledge, DNR has not requested that their suspended well be plugged and abandoned, or specified how DNR plans to pay for the plugging and abandonment of their well that is in suspended status.”
Gottstein said the Katalla well was not drilled on a DNR lease. It is the property of the landowner and Alaskan Crude does not have authority to enter the property or plug the well, he said.
The Pelch well is also on private property, Gottstein said. “It has a permit and permission to be re-entered and re-worked so plugging and abandoning that well is premature.”
Gottstein also noted that Alaskan Crude filed for bankruptcy in 1990. “It is my understand that all three wells were drilled prior to this,” he said. Alaskan Crude Corp. “as currently constituted is a completely different entity than the Alaskan Crude Corporation that drilled the wells and had the plugging and abandoning requirement,” Gottstein said.
He requested that the record be kept open until he returned to the state and could examine the bankruptcy file. He subsequently asked the commission to make bankruptcy paperwork available; the commission said in its Oct. 15 decision that any bankruptcy paperwork in its files would be available online.
Commission decision In its Oct. 15 decision, the commission reviewed evidence presented by ACC and stated the following conclusions in denying the request for reconsideration:
The commission said it “is authorized to require a bond for the performance of the duty to plug wells and the duty to repair wells causing waste. Every operator is required to have a bond in place to ensure compliance with those duties. Any bankruptcy that occurred in 1990 cannot remove subsequent bonding obligations.”
Since ACC is the operator of record for the Burglin 33-1, Katalla KS-01 and Mike Pelch 1 wells, it “is required to have a bond in place for all three wells,” the commission said.
It said ACC has not provided written documentation of any change of operator for any of the wells, so remains the operator of record “and is responsible for the plugging and abandonment of the wells.”
The commission said ACC has not provided any evidence “to support is assertion that it is prohibited from plugging and abandoning any of the wells,” and without written proof that landowners have prohibited it from entering the properties to P&A the wells “or that the landowners have agreed to assume responsibility to plug and abandon the wells, ACC remains responsible to do so.”
ACC submitted an application to abandon Burglin 33-1 in Jul 2018, the commission said, which was approved in August 2018. “As of the date of this order, Burglin 33-1 has not been plugged and abandoned. In addition to the bond required, the AOGCC reserves the right to pursue enforcement action in connection with the failure to properly plug and abandon Burglin 33-1.”
- KRISTEN NELSON
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