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AOGCC hears BlueCrest bonding request
Company has $5 million in escrow account with Pioneer, previous Cosmopolitan owner, with $3 million dedicated to P&A of all wells Kristen Nelson Petroleum News
The Alaska Oil and Gas Conservation Commission has just heard another appeal of the amounts required in its new bonding regulations.
At a Dec. 8 hearing, BlueCrest requested a reduction of plugging and abandonment bonding at Cosmopolitan to reflect $3 million in escrow dedicated to P&A of wells at the field.
John Martineck, BlueCrest’s chief operating officer, told the commission that BlueCrest had $700,000 on deposit with one or more agencies before AOGCC’s bonding increase: $500,000 with the Alaska Department of Natural Resources and $200,000 with AOGCC.
BlueCrest has added $550,000 to its original AOGCC bonding, which now stands at $750,000, he said, with a total AOGCC requirement of $2,250,000 for the six wells at the field.
But, he said, the company actually has a total of $6,250,000 set aside as bonds or in escrow accounts for P&A and land reclamation, because when BlueCrest purchased Cosmopolitan from Pioneer Natural Resources Co. in 2012, BlueCrest set aside $5 million in an escrow account, controlled by Pioneer, with $3 million for P&A of wells and $2 million for surface reclamation.
Martineck asked that the $550,000 in additional bonding with AOGCC be returned.
In an August letter to the commission, Martineck said the company’s estimate to P&A the wells is $400,000-$500,000 per well.
“Thus,” he said in August, “the bonding and other financial assurance BlueCrest has in place is well in excess of the current estimated costs of abandonment and reclamation at Cosmopolitan.”
Commission questions But the $5 million is not in a form accessible to the commission, which had asked for validation of the $5 million held by Pioneer for reclamation of the Hansen production facility site, $2 million, and $3 million for plugging, re-plugging and abandonment of wells. Pioneer confirmed the escrowed $5 million, and its purposes, to the commission in September.
At the Dec. 8 hearing, AOGCC Chair Jeremy Price said the commission did not have access to the agreement spelling out purposes of the $5 million escrow account.
Martineck said the agreement is confidential under an agreement BlueCrest has with Pioneer but said he would request that the portion of the contract related to the escrow agreement be made available to the commission.
Price asked what triggers release of the escrow funds and Martineck said that was not spelled out in the agreement which just describes the purpose of the funds.
Asked what would happen if BlueCrest declared bankruptcy, Martineck said the money would be available for P&A and reclamation.
AOGCC’s regulations require that it have exclusive access to P&A funds, Price said. Martineck said he didn’t know that there was a mechanism for exclusive access for AOGCC to the escrowed funds.
Commissioner Dan Seamount asked if the funds could be moved into a bond dedicated to AOGCC.
Martineck said he would ask Pioneer.
Commissioner Jessie Chmielowski said the commission needed more information and detail on the purpose of the money - when it would be released and who would have control. She also asked about the $400,000-$500,000 estimate for P&A of each well. Martineck said that was an internal estimate. Chmielowski said she was interested in how BlueCrest came up with the numbers.
She also asked about the confidentiality of the P&A agreement and Martineck said it was part of the purchase and acquisition agreement.
At the close of the hearing Price said while AOGCC’s regulations have some exceptions to the requirement that P&A funds be exclusively available to AOGCC, this situation doesn’t fall within those exceptions.
The commission needs a bond to AOGCC, he said.
The commission left the record open to close of business Jan. 4 for response to questions.
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