GAO report criticizes state’s standards for dismantling oilfield facilities

Feds plan to develop specific DR&R standards before development begins in the National Petroleum Reserve-Alaska; cost to dismantle and remove facilities and restore acreage estimated between $2.7-$6 billion

Kristen Nelson

PNA Editor-in-Chief

The U.S. General Accounting Office examined dismantlement, removal and restoration costs and DR&R responsibility for existing North Slope oil production facilities on state lands and future facilities on federal lands in a report made public July 5. That report recommends specific DR&R standards for oil and gas development on federal lands on the North Slope — and says the state of Alaska does not have specific DR&R standards.

In response to the report, the Department of Interior said it would develop specific DR&R standards before development begins in the National Petroleum Reserve-Alaska.

Alaska’s DR&R requirements

Commissioner Pat Pourchot of the Department of Natural Resources provided extensive comments to a draft of the report and Bob King, the governor’s press secretary, told PNA July 11 that the state’s comments are the same on the final report as they were on the draft.

Pourchot said that state lands where oil and gas have been developed were “expressly set aside” for that purpose.

“Whether the state will require all traces of oil and gas activity to be erased from its lands at some indefinite point in the future is, quite frankly, not a federal concern.”

Pourchot told the GAO that its “‘analysis’ assumes that its conclusion is correct — being specific today is better than giving the state absolute discretion to address the specifics when DR&R becomes due — without an explanation that justifies that preconception.”

The GAO reported that both industry and environmental groups would like the state to provide more specific standards.

“Though the GAO believes these groups’ views are comparable — and thus ostensibly justify its conclusion — the underlying intent of each is actually diametrically opposed,” Pourchot said, with industry preferring specifics that minimize future liability while environmentalists “want standards that reflect their policy views, regardless of cost. Each perceives a risk that their view of the appropriate level of DR&R may not be adopted in the future, so they would like to see it adopted now.”

“This is a perfectly natural position for both groups to take, but it doesn’t follow that adopting specific DR&R standards today is the best policy choice for government,” he said.

Pourchot said Alaska “is not saying that it is too early to think about appropriate DR&R requirements on federal lands.”

But, he said, “the state does not believe it is self-evident that it is better to adopt specific standards today for DR&R activities that may not take place for half a century.

“On the contrary, Alaska views the discretion it has — to deal with particular DR&R issues as those issues arise — to be a significant benefit. Among other things, it allows the government to make decisions based upon all the facts, rather than upon assumptions about the future.”

BP says it is fully committed

“Our response to the GAO report is that BP has the resources and is fully committed to meeting its dismantlement, restoration and removal responsibilities in Alaska and everywhere else in the world we operate.”

BP has agreed “to complete the DR&R to the state’s satisfaction,” Chappell said. “We think that is a high standard,” he said.

“And I think it’s important to note that the process of DR&R on the North Slope has already started: We are recovering and removing gravel and restoring areas that are no longer in use.”

Chappell said closing old reserve pits from the early years of drilling through grinding and injecting is the biggest current example of DR&R. Hundreds of thousands of cubic yards of spent drilling muds and drill cuttings have been recovered, he said.

“We’re grinding them up and we’re safely disposing of them by injecting them into porous formations … so DR&R is under way…

“So the idea that we’d suddenly get to the end of field life and have all of the work left to do is just wrong,” Chappell said.

He also noted that the range of “GAO estimates of DR&R costs are really little more than extrapolations based on the capital investment that’s been made on the North Slope and really aren’t related to any real world knowledge of what the cost of DR&R really is.”

The GAO said that while the actual cost of DR&R is unknown, abandonment costs are a function of construction costs, and at a total or $53.6 billion invested, and estimating DR&R at 5-11 percent of total investment, “a DR&R cost percentage ranging from 5 to 11 percent of the total investment yields a DR&R estimate of $2.7 billion to $6 billion for existing North Slope infrastructure (2004 dollars).”

Phillips Petroleum Co., the other operator on the North Slope, said it was still reviewing the report.