AOGCC adopts changes to its bonding regulations as proposed

Kristen Nelson

Petroleum News

At a Dec. 2 public meeting the Alaska Oil and Gas Conservation Commission unanimously adopted changes to its bonding regulations proposed in an Oct. 15 public notice.

The changes are to regulations the commission adopted in 2019; it held a public hearing on the proposed changes Nov. 4 (see story in Nov. 8 issue of PN).

Changes include amounts of required bonding for fewer wells: $400,000 each for one to five wells; $2 million for six to 20 wells plus $250,000 per well for each well above five; and $6 million for 21 to 40 wells (see story in Oct. 25 issue of PN).

The changes allow a decrease if an operator has other bonds in place dedicated to plugging and abandonment and for bonds in place with the U.S. Environmental Protection Agency for P&A of disposal wells.

Terms for installment payments are also extended.

“Amaroq continues to be supportive of AOGCC’s efforts to adopt regulations on bonding that give consideration to unique circumstances facing each operator,” G. Scott Pfoff, president of Amaroq Resources, told the commission in Nov. 19 written comments.

Pfoff said the proposed changes fail to recognize the Alaska Department of Natural Resources dismantlement, removal and restoration agreement that requires an operator to fund the estimated cost of both surface reclamation and plugging and abandonment of wells, and asked the commission “to find a way to coordinate its bonding requirements with the DNR in such a way as to avoid duplicative financial coverage for plugging and abandonment.”

Pfoff said spreading out annual payments on the increased bonding costs from 4 to 7 years has only marginal benefits for Amaroq as the minimum first installment is $500,000. “Amaroq’s ability to make the first installment would be questionable,” he said.

In Nov. 20 comments, Patrick N. Bergt, regulatory and legal affairs manager for the Alaska Oil and Gas Association, said “AOGA commends AOGCC for its efforts to update and modernize the bonding requirements” and supports proposed changes.

“Adding a category for 6-20 wells in the permitted wellheads bond amount table will work to increase opportunity in Alaska and, together with the proposed changes to the payment schedule, helps smaller operators shoulder financial burdens resulting from recent developments in the global oil and gas markets.”

Bergt said AOGA supports reductions when the operator has a bond in place with the landowner dedicated exclusively to plugging and abandonment, but said AOGA suggests a further modification so that the requirement is that the operator have a “bond, cash deposit, or other acceptable form of security in place with the landowner, or other affected party” dedicated to P&A.

The commission also received comments Nov. 20 from Tim Jones, land manager for Oil Search (Alaska).

“As a lease holder and operator on the North Slope, OSA supports clear and reasonable bonding requirements,” Jones said.

In October 2018, OSA provided comments to the previously proposed changes, and Jones said the company is encouraged “that AOGCC is proposing revisions that are consistent with changes suggested in OSA’s October 2018 comments,” namely increasing or decreasing a bonding obligation based on “engineering, geotechnical, environmental, or location conditions,” on a “bond or other security required by a landowner” and on “bonding or other security required by the U.S. Environmental Protection Agency to address disposal wells.”

The commission received comments from Furie Operating Alaska/HEX at its Nov. 4 hearing and in a Nov. 2 letter.

Rick Dusenbery, the company’s chief operating officer, said in the letter that while the company supports the additions to the section on reasons it may increase or decrease bonding amounts, and the extension of the payment period for additional bonding, “we still feel that this level of bonding is counterproductive to exploration and development in the Cook Inlet during these economically distressed times.”

The letter also requested bonding reduction based on other bonds or securities in place, including DNR’s DR&R bonding.

- KRISTEN NELSON