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Duplicate bonding solved?
AOGCC appears to be working with landowners that do initial surety bonding
Kay Cashman Petroleum News
As several oil companies prepare for bonding level reconsideration hearings with the Alaska Oil and Gas Conservation Commission, the landowner that has been most critical of AOGCC’s new higher bonding requirements, the Alaska Department of Natural Resources, has backed off, its confidence in the commission having increased in recent months.
“Since AOGCC implemented its new oil and gas surety bonding standards, DNR and AOGCC have successfully been working to increase our coordination, with a goal of ensuring all parties fully understand existing statewide bond coverage for the costs of Dismantlement, Removal, and Restoration (DR&R),” DNR Deputy Commissioner Sara Longan told Petroleum News in a June 1 email.
DNR is aware that some operators have “availed themselves of the flexibility available under 20AAC 25.025 (3) to request changes in AOGCC’s bond requirements,” she said, noting the regulation says: “upon request of an operator, or on its own motion, the commission may increase or decrease the amounts set out in (1) of this subsection based on evidence that engineering, geotechnical, environmental, or location conditions warrant an adjustment of those amounts.”
Longan, who had led the department’s battle with AOGCC’s new bond requirements that several smaller and mid-sized oil companies said threatened their financial viability, told PN: “We at DNR recognize AOGCC’s authority to follow this new regulatory process for adjusting its bonding levels, when requested or where appropriate. At the same time, we also appreciate that the enhanced coordination with AOGCC holds the promise of broader and more thorough understanding of the state’s full range of DR&R bonding requirements.
“As AOGCC considers bonding levels for plugging and abandonment (P&A) costs, it is important that it continues to coordinate with other state agencies that also have bonding authorities. In the absence of effective state agency coordination, the state runs the risk of unnecessarily burdening operators with duplicative, or unnecessarily high costs. With such coordination, however, we can work together to achieve the state’s important common goal of ensuring that those developing state hydrocarbon resources have surety bonds sufficient to properly cover DR&R costs, and ensure the resources can be produced safely and responsibly.”
Constitutional mandate While Alaska’s Constitution mandates the development of the state’s natural resources, including oil and gas, AOGCC appears to be the only state agency that does not consider the economic impact of its decisions on the ability of mineral rights lessees to explore for, develop and produce those deposits.
When asked for a comment on the new bonding levels, Commission Chair Jeremy Price refused: “At this time it would be premature to publicly discuss issues associated with the bonding regulation that went into effect last year. The AOGCC is still working through a number of reconsideration requests from operators.”
Two of the three commissioners, Price and Jessie Chmielowski, did not serve on the commission when the new bonding regulations were being considered and public and agency comments were being gathered in 2018 and the first part of 2019.
Changes in bonding requirements The AOGCC bonding requirements, formerly $100,000 for a single well and $200,000 for multiple wells, was raised last spring after a lengthy series of hearings, with the new amounts reflecting the commission’s concern that companies would abandon wells, leaving the landowner, typically the state of Alaska, to pick up the cost for plugging and abandonment - a cost that would ultimately fall back on landowner DNR.
The commission notified companies with permitted wellheads last July, laying out the additional amounts required to bring bonding up to the new levels, which are based on the number of permitted wellheads: $400,000 per well for one to 10 wells; $6 million for 11-40 wells; $10 million for 41-100 wells; $20 million for 101-1,000 wells; and $30 million for more than 1,000 wells.
AOGCC received requests for reconsideration from several companies: AIX Energy, Alaskan Crude, Amaroq Resources, Cook Inlet Energy, Malamute Energy and Savant Alaska.
The commission issued its first ruling on a bonding reconsideration request in late March, reducing the bond required for four AIX Energy wells at the Kenai Loop field from $1.6 million to $200,000 based on the company having a $950,000 certificate of deposit in place for P&A with the landowner, Mental Health Trust Land Office.
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