BLM oil and gas program : bonding/unfunded liability review

178 Pages·1995·39.6 MB·English

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BUREAU OF LAND MANAGEMENT
California State Office
IN REPLY REFER TO:
2800 Cottage Way, Room F-2845 3100
Sacramento, California 95825-1889 CA-920/MT-920
MAR 27 1995
Memorandum
To: Director, WO-100, MIB, Rm. 5660
Through: Oil and Gas Bureau Performance Review Coordinator (Del Fortner)
Through: Assistant Director - Resource Use and Protection, WO-300, MIB, Rm. 5627
From: Co-Leaders, Bonding/Unfunded Liability Team
Subject: Final Report - Bonding/Unfunded Liability Review - Oil and Gas Program
This is the final report of the Bonding/Unfunded Liability Team. With the submittal of this report, the objectives of the
charter authorizing this review have been met. The Decision Document associated with this report will be submitted to
you in a separate package, but, it is also included in Attachment L for your information only.
|4 i TrsFohielnecau oltmrliyome,nec sno odmuaamrn tedinr odecnachstoa imnomganeses ns da araptesap icroakendasmsgei ennt,ia sttatsr ieamnmtocpidetv eeerdtlah yte teroe,s ibimebspu tlva ee rwcyeoa rsrt kmapiaionbns dlsfeiau bmlloa eup.opn frt o Wtaheocefh pfdrtueeorpc taethrnheired oeuibnssecs leuine esav.tf eur roetm Wh aettoh anteia t t ttirhseee m cipfmotepmedomderr etantaldo n atgk toeitveooep n rc ntohmnteeos insdttuhe egr g heantesshx tetes.td eo
ensure reasonable protective measures without unduly burdening industry or affecting the ultimate recovery of oil and gas
reserves.
We made an attempt to involv> the publics that are affected by these issues, including the general public, industry,
| reengvairrdo,n maesn twaelll garso uap sn,u msbuerert ieosf, oaust rweealclh asm eesttaitneg sa,n d (aontdh ero fffeerdse raolf oatgheenrcsi)e.s . ByO vaenrd 6l0a0r gem atihlei nrgess pwoenrsee dfornoem tthweiscee piunb ltihciss
was somewhat minimal, and not entirely uniform as to their suggested solutions.
| We urge the highest priority be given to the implementation of these recommendations. We are available to provide
interpretive and technical assistance to those assigned implementation responsibilities.
CZu)t At Audurdou AreedL OCs honme
Howard Lemm
Robert M. Anderson
Deputy State Director, Energy and Minerals Fluids Branch Chief
Montana
California
BLM Library
Denver Feder ai Center
Bldg. 50, OC
PO. Box 250o rSi d 4
Denver, CO 80225

9077004
68077004
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TABLE OF CONTENTS
TWO PAGES «60s wicca es e's e082 8 5818 EXECUTIVE SUMMARY
PAGES 16 6 eve % slate leite ola isle) cence chee BONDING/ UNFUNDED LIABILITY
COMMITTEE REPORT...
ATTACHMENT A, 1 PAGE......---- DEFINITIONS
ATTACHMENT B, 10 PAGES......- DEEPPOCKETS REPORT
ATTACHMENT C, 1 PAGE.....---- STEERING COMMITTEE MEMBERS
ATTACHMENT D, 3 PAGES.....-.-- PRELIMINARY OBJECTIVES SENT TO
CUSTOMERS
ATTACHMENT E, 32 PAGES......-- FINAL OBJECTIVES, ACTION PLAN AND
ALTERNATIVES SENT TO CUSTOMERS
ATTACHMENT F, 55 PAGES....:.- COMMENTS FROM CUSTOMERS AND BLM
OFFICES
ATTACHMENT G, 26 PAGES......- SOLICITORS GUIDANCE ON JOINT AND
SEVERAL
ATTACHMENT H, 4 PAGES.....-- . SOLICITORS GUIDANCE ON BONDING
AUTHORITY
ATTACHMENT I, 1 PAGE.....---- PPI INFLATION FACTOR OF 1960 BOND
AMOUNTS
ATTACHMENT J, 1 PAGE.....--- . SAMPLE LETTER TO MINIMIZE DUPLICATE
BONDS
ATTACHMENT K, 2 PAGES......-.-- SEGMENT OF NATIONAL PETROLEUM
COUNCIL REPORT ON ABANDONED AND IDLE WELLS
ATTACHMENT L, 6 PAGES......-- . DECISION DOCUMENT
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BUREAU PERFORMANCE REVIEW--OIL AND GAS PROGRAM
BONDING AND UNFUNDED LIABILITY REPORT
EXECUTIVE SUMMARY
MARCH 1995
Empirical data indicates a need for significant improvement in
BLM's bonding policy and the way Orphan wells are managed.
There are over 300 wells on BLM and FS lands to be abandoned
‘with no accountable operator or sufficient bonds. There are
about 6500 temporary abandoned wells and about 11,000 shut-in
wells, both categories of which could lead to more orphan
wells. In the last 4 years, taxpayers have paid $1.6 million
to abandon 131 wells.
Minimum bonds should be raised from $10,000 to $20,000 for
individual bonds, and from $25,000 to $75,000 for Statewide
bonds. The Nationwide bond of $150,000 would not change.
To complement the increase in individual and statewide bonds,
operators with temp. abandoned wells would be required to
supplement their current bonding obligations, as follows:
After 2 years in approved temporary abandoned status,
operators would agree to plug wells on aé_e schedule
acceptable to the field office-- and either increase the
bond in place by $2.00 per foot of depth per well, or
agree to pay a yearly fee into a BLM managed account that
would be established to help offset the cost of
abandoning orphan wells. This fee would be $100 per well
per year, and would not be refundable.
Personal bonds, such as Cash, CD'S, Letters of Credit, etc.,
woulda continue. BLM will retain collateral for 3 years.
Accountability for failure to comply with oil and gas lease
terms would be "joint and several". That is, multiple "record
title owners", “operating rights owners", or "operators", are
liable for 100% of the costs associated with non royalty lease
obligations.
An assignor continues to be responsible for obligations that
accrued while it held the lease (including G@rainage and re-
plugging of defective abandonments). BIM will hold
responsible the party who failed to comply with the lease
terms. An assignee assumes responsibility for mitigating
existing environmental problems including the plugging of any
unplugged wells, regardless of whether it uses those wells or
contributes to the problem. This is consistent with MMS'
offshore practice. MMS proposes to treat royalty liability
onshore as proportional, however.
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Seek a one time funding source to address orphan well
abandonment.
Ask the IRS to allow deductions for payment into well
abandonment escrow accounts, provided that such accounts would
follow the lease upon assignments.
In-house directiont o review assignments, raise bonds beyond
the minimum, when warranted, review shut-in status and develop
data base for such, are also recommended. There are also
recommendations that would reduce federal and state bonding
duplication and to work more closely with the Forest Service.
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