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Amaroq wins reduced Nicolai Creek bonding on nearby P&A costs
Kristen Nelson Petroleum News
The Alaska Oil and Gas Conservation Commission has reduced bonding requirements for Amaroq Resources based on costs to plug and abandon wells in the vicinity of Amaroq’s wells at Nicolai Creek which, the commission said, are comparable to Amaroq’s wells.
Amaroq has been making an argument for reduced bonding based on P&A costs in the area of its natural gas field on the west side of Cook Inlet since the commission issued its new bonding requirements in 2019. The company has also argued, as have others, that its $500,000 bond with the Alaska Department of Natural Resources to dismantle, remove and restore should be considered.
While the commission has proposed regulatory changes under consideration, its Nov. 9 Amaroq ruling is based on existing provisions allowing changes to bonding amounts based on “engineering, geotechnical, environmental, or location conditions” which warrant changing the bonding amount, and not on proposed changes the commission is considering.
Amaroq was originally assessed $2.4 million based on six wells ($400,000 each). It has an existing $200,000 statewide bond with the commission based on previous regulations, so its additional bonding requirement would have been $2.2 million.
Under the commission’s Nov. 9 ruling, Amaroq’s total bonding requirement is $900,000. Less the existing $200,000 bond, an additional $700,000 is required.
P&A costs The commission said Amaroq had filed a September 2017 affidavit of Edward Jones which estimated the cost to properly P&A the Amaroq wells at between $100,000 and $200,000 per well.
In 2019 Jones, operating as Plugging Inlet LLC, successfully plugged and abandoned 10 wells on Cook Inlet Region Inc. land near the Nicolai Creek field. The estimate Jones made in 2017 was based on the plan AOGCC approved for P&A of the CIRI wells, the commission said.
At a 2020 hearing on bonding reconsideration requests (see story in Feb. 23, 2020, issue of Petroleum News), Amaroq said it had hired Solsten XP to determine total P&A costs for Nicolai Creek, which Solsten estimated at $819,00 for all the wells.
The commission said Amaroq provided a second third-party P&A cost estimate totaling $470,000 or $78,333 per well for the six wells. AOGCC requested estimates for each well, and in March, Amaroq provided a revised third-party cost estimate of $491,675 to P&A the six wells.
The commission said Jones, operating as Plugging Inlet LLC, successfully completed the P&A of the CIRI wells in 2019.
“Because of the similarity of the CIRI wells to the Amaroq wells, on May 1, 2020, the AOGCC requested documentation of the actual costs incurred to P&A those 10 wells. On May 13, 2020, Jones provided the information which showed an average cost to P&A the CIRI wells of $151,000 per well,” the commission said.
$150,000 per well In its Nov. 9 decision, the commission said that based on actual costs incurred in 2018 and 2019 to P&A the CIRI wells, as well as evidence provided by Jones, it found an average cost of $150,000 per well, $900,000 for the six wells, to be a reasonable estimate for the Amaroq’s wells.
On the issue of the DNR bond and trust account, the commission said that as of the date of its order “no evidence has been offered as to the amount of the DR&R funding that is dedicated to the costs to properly P&A Amaroq’s wells,” so Amaroq’s bonding amounts will not be reduced to reflect the DNR bond.
The commission reduced Amaroq’s bonding requirement to $900,000, less its existing $200,000 AOGCC bond, for a revised bond requirement of an additional $700,000.
- KRISTEN NELSON
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