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AOGCC well bonding amounts go up significantly effective May 18
Alan Bailey Petroleum News
Following a lengthy hearing into proposals for changing the surety bonding of oil and gas wells in Alaska, the Alaska Oil and Gas Conservation Commission has issued new bonding regulations, requiring major increases to the bonding levels. The new regulations go into effect on May 18, having been signed by the lieutenant governor on April 18.
State statutes require bonding of not less than $100,000 for a single well and not less than $200,000 for blanket coverage of all an operator’s wells in the state. Traditionally the commission has only required bonding at these minimum levels, other than in situations where there have been regulatory violations.
Substantial increase But the AOGCC bonding requirements are now increasing significantly. The new regulations set a minimum bond level of $400,000 per well for one to 10 wells; a $6 million bond for 11 to 40 wells; a $10 million bond for 41 to 100 wells; a $20 million bond for 101 to 1,000 wells; and a $30 million bond for more than 1,000 wells. The well counts apply to well heads, with any subsurface laterals drilled from an existing bonded well covered by the bonding for that well.
The new bonding levels represent the default, expected level of bonding. An operator can request a variance from the specified bonding level, or the commission may increase or decrease the required bonding, based on engineering, geotechnical, environmental or locational evidence.
An operator with an existing well surety bond that falls short of the amount required under the revised regulations can increase the bond amount to the new level in four annual installments.
Well plugging and abandonment The purpose of the bonding, which has to be obtained by a well operator, is to ensure the availability of adequate funding for the plugging and abandonment of obsolete wells - a well that has not been appropriately plugged can become an environmental and safety hazard. For some time the commission has been concerned that current bonding levels in Alaska are inadequate and fall far short of the realistic cost of plugging and abandonment operations. Should a well operator fail to have the financial wherewithal to seal off its wells, the plugging and abandonment costs would revert to the landowner, in many cases the state of Alaska.
Impact on small producers Small oil and gas producers in the state are particularly worried about the bonding increases: Obtaining a large bond may prove difficult or impossible for a company with relatively small financial resources. The Alaska Oil and Gas Association has expressed concern about the potential for the higher bonding levels discouraging investment in the Alaska oil and gas industry.
Supporters of AOGCC’s bond increases, on the other hand, argue for the importance of ensuring that a company drilling a well has the financial wherewithal to eventually close the well down in an adequate manner.
The AOGCC bonding applies specifically to the subsurface aspects of a well, when a well is abandoned. The Alaska Department of Natural Resources has separate bonding regulations for the remediation of the surface land at and around an abandoned well head.
- ALAN BAILEY
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