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Aurora Gas gets new bonding Company in bankruptcy; Wells Fargo wouldn’t renew existing bonding, but didn’t notify Aurora, which scrambled to find new bond KRISTEN NELSON Petroleum News
The Alaska Oil and Gas Conservation Commission and Aurora Gas have been working to resolve an issue with the company’s bond which arose as Aurora goes through bankruptcy proceedings.
After a scramble, the company has secured new bonding, required for the company to operate wells in the state. The issue was the subject of a Jan. 19 hearing which the commission said it scheduled after it received notice from Wells Fargo Bank that after Jan. 31 Aurora would no longer be bonded.
George Pollock, manager production operations and engineering for Aurora Gas, told the commission at the hearing that Aurora learned that Wells Fargo wouldn’t be extending its bond when it received an email from the commission about the hearing. He said the company was not notified by Wells Fargo that the letter of credit would not be extended nor was it informed when Wells Fargo first informed AOGCC, on Aug. 5, that the letter of credit would not be extended.
The letter of credit, established in 2002, is for $200,000, and according to its terms that amount would be paid to the commission if it notifies the bank that Aurora Gas had not complied with all the provisions of the laws of the state and rules and regulations of the commission. While the letter of credit expired in a year, by its terms it was automatically extended unless the bank has sent written notice to the commission that it elects not to renew.
Aurora notified On Dec. 15 AOGCC Chair Cathy Foerster notified Aurora by mail that Wells Fargo had notified the commission that the existing letter of credit would not be renewed or extended. The commission is listed as the beneficiary of the letter of credit.
“AOGCC regulations prohibit well operations without a bond,” Foerster said. She said the commission required proof within seven days “of the filing of a new bond to ensure that each well is drilled, operated, maintained, repaired, and abandoned and each location is cleared in accordance” with commission regulations.
In a Dec. 23 letter to the commission Pollock said the commission formally notified it that the Wells Fargo Letter of Credit, in place since 2002, would not be extended beyond Jan. 31, 2017.
“Unfortunately, Aurora was not informed by Wells Fargo of their decision to not renew or extend the letter of credit beyond January 31, 2017. Nor was Aurora informed when the first notice of non-extension was sent to AOGCC on August 5, 2016 by RCO Legal-Alaska on behalf of Wells Fargo.”
Pollock said Aurora initiated a process to ensure a new letter of credit was in place by Jan. 31, working with Northrim Bank. But Northrim decided around the first of the year not to proceed. He said Aurora was working with First National Bank of Alaska and would have the bond in place by Jan. 31.
Three things are required, he said: Closing out the existing letter of credit; providing motions for funds to set up the new bond; and a court hearing Jan. 24 for approval of the new account.
Since Aurora is operating under Chapter 11 bankruptcy protection, all non-routine operating expenditures must be approved by the bankruptcy trustee in advance, Pollock told the commission in his Dec. 23 letter.
The bankruptcy court granted a motion allowing Aurora to establish a new bond on Jan. 24 and the new bond, through First National Bank of Alaska, was in place to meet the commission’s requirements.
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